Jindal Power Limited

June 22, 2018

Summary of rated instruments

Previous Rated Current Rated
Instrument* Rating Action
Amount (Rs. crore) Amount (Rs. crore)
[ICRA]A- reaffirmed; outlook
Long-term fund-based term loans 7,590.28 7,116.15
revised from ‘Negative’ to ‘Stable’
[ICRA]A- reaffirmed; outlook
Long-term fund-based cash credit 441.00 650.00
revised from ‘Negative’ to ‘Stable’
[ICRA]A- reaffirmed; outlook
Long-term non-fund-based 1,100.00 710.00
revised from ‘Negative’ to ‘Stable’
Short-term fund-based - 25.00 [ICRA]A2+; reaffirmed
[ICRA]A- reaffirmed; outlook
Unallocated 256.72 886.85
revised from ‘Negative’ to ‘Stable’
Total - Bank facilities 9,388.00 9,388.00

[ICRA]A- reaffirmed; outlook

Non-convertible debentures 500.00 500.00
revised from ‘Negative’ to ‘Stable’
Non-convertible debenture 50.00 - [ICRA]A2+; withdrawn
Total - Non-convertible debentures 550.00 500.00
* Instrument details are provided in Annexure-1

Rating action
ICRA has reaffirmed the long-term and short-term ratings of [ICRA]A- (pronounced ICRA A minus)1 and [ICRA]A2+
(pronounced ICRA A two plus) for the Rs. 9,388.00-crore2 bank facilities of Jindal Power Limited (JPL). ICRA has also
reaffirmed the long-term rating for JPL’s Rs. 500.00-crore non-convertible debenture (NCD) programmes at [ICRA]A-. The
outlook on the long-term rating has been revised to ‘Stable’ from ‘Negative’.

Rating of [ICRA]A2+ assigned earlier to the Rs. 50.00-crore NCD programme of JPL stands withdrawn, as there is no amount
outstanding against the rated instruments. The withdrawal is at the request of the company.

Rationale
The ratings continue to factor in JPL’s competitive capital cost as well as cost-efficient operations supported by the location
of its plant in proximity to various coal blocks and linkage for part capacity, which enables it to compete effectively on
tariffs. The ratings also continue to take into consideration revenue visibility emanating from long/medium-term power
purchase agreements (PPAs) in place for part of JPL’s capacity. While there has been limited activity on tenders floated for
the long-term power tie-ups in the country in the recent years, JPL has been able to intermittently enter into short-term
PPAs and undertake merchant sales at remunerative tariffs. Further, extension of a medium-term PPA together with
commissioning of incremental power supply under a scheduled long-term PPA during FY2018 contributed towards a
healthy growth of ~31% and ~37% respectively in revenues and operating profits of the company. With reasonable visibility
on revenues and limited debt-repayment obligations in the next two years, ICRA expects the debt-service coverage ratio

1 For complete rating scale and definitions, please refer to ICRA’s website www.icra.in or other ICRA Rating Publications.
2 100 lakh = 1 crore = 10 million

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to remain adequate in FY2019 and FY2020. Nevertheless, the company’s ability to improve the plant load factor (PLF) while
managing receivables will remain crucial thereafter in the back drop of ballooning repayments.

JPL’s ratings, however, remain constrained by elevated debt level resulting from debt-funded capacity addition, elongated
receivables cycle, advances to group companies, and payment of additional levy to the government, which together with
sub-optimal utilisation of installed capacities constrains debt protection metrics.

In ICRA’s view, JPL’s operating performance in terms of capacity utilisation, tariffs, coal cost, and working-capital cycle will
remain the key rating sensitivities. In this context, a sustained delay in correcting the receivable position and inability to
tie up incremental capacity under medium/ long-term PPAs and to secure long-term arrangement for coal sourcing could
impact the credit profile of the company, and hence will remain a monitorable.

Outlook: Stable
The revision in outlook to stable factors in the significant turnaround in credit profile of JPL’s parent, Jindal Steel and Power
Limited3 (JSPL) during the past few quarters, which besides providing increased comfort on gradual recovery of advances
extended by JPL, mitigates the risk emanating from likelihood of incremental support. Further, the stable outlook reflects
ICRA’s expectation of comfortable credit metrics in the near term supported by PPAs in place, favourable trajectory likely
in merchant power rates, and the company’s demonstrated ability to intermittently enter into short-term PPAs. The
outlook may be revised to Positive if the company is able to enter into substantial long/ medium-term PPAs at
remunerative tariffs providing improved revenue visibility, while securing long-term arrangement for coal sourcing at
competitive rates and streamlining its working capital cycle. Conversely, company’s sustained inability to achieve any of
the above parameters may result in a revision in outlook to negative.

Key rating drivers

Credit strengths
Competitive capital cost: Supported by efficient project management, lower interest during construction (facilitated by
upfront equity-funding) and large capacity set-up providing benefits of allied infrastructure, JPL has established a large-
scale, 3,400 mega-watt (MW) thermal power capacity at a very competitive capital cost of ~Rs. 4.4 crore/MW. Although
the relatively lower capital cost compared to peers provides a competitive edge to JPL while bidding for PPAs, ICRA notes
that the same has been partially diluted by loading of sizeable debt-funded investments and loans & advances to group
companies on JPL’s balance sheet.
Established track record of cost-efficient operations: ICRA draws comfort from JPL’s experience and a satisfactory
demonstrated track record of efficient operations in thermal power generation. Even though the plant is operating at sub-
optimal capacity utilization, company’s continued focus on cost optimization has facilitated reduction in cost of power
generation during the past two years. The low cost of power generation favourably impacts its merit-order position while
supplying to state utilities under PPAs as well as enables it to explore other avenues for sale of power, such as sales to bulk
customers and merchant sales.
Vantage location of plant in terms of proximity to various coal blocks: Location of JPL’s power plants in proximity to
multiple coalfields results in lower logistics cost (which can be 15-25% of the coal cost), thereby providing it with access to
coal at competitive cost, despite coal linkages for only 1,200 MW capacity.

3ICRA has [ICRA]BBB-(Stable)/[ICRA]A3 ratings outstanding for JSPL’s bank facilities and [ICRA]BBB-(Stable) rating outstanding for the
company’s NCD programme. Please refer to ICRA’s website – www.icra.in for details.

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Credit challenges
Elevated debt level following capacity addition, advances to group companies, and payment of additional levy to
government: JPL’s dependence upon debt increased considerably during the four-year period ending FY2017 due to
sizeable capacity addition, higher working capital requirements, about Rs. 4,845 crore4 advances to JSPL (partly towards
purchase of Captive Power Plant from JSPL) and payment of additional levy to government post cancellation of captive
coal blocks. As the operating profits and cash accruals didn’t witness the same trend, the debt metrics weakened, as
reflected by Total Debt (TD)/Operating Profit Before Depreciation Interest and Taxes (OPBDITA) of 8.0 times in FY2017
compared to 2.5 times in FY2014. Nevertheless, higher supply under PPAs and remunerative merchant power rates
supported 37% OPBDITA growth in FY2018 and hence TD/OPBDITA moderated to 5.7 times with expectation of further
moderation to 5.0 times in FY2019 aided by steady decline in debt due to scheduled repayments. Further, ICRA notes that
JPL’s debt per MW of capacity remains comfortable at ~Rs. 2.5 crore. Furthermore, the cash flow profile is supported by
long tenure (up to 17.5 years) of project loans, which account for ~40% of its term debt. JPL’s project loans were refinanced
in December 2015, following which, repayment tenure for project loans increased from about 8 years to more than 17
years.

Exposure to power off-take and raw material availability/cost risks: Of the total of 3,400 MW of thermal power capacity,
JPL has so far entered into long-term PPAs for only 810 MW (approx 25%). Thus, the balance 75% of its total capacity
(comprising 200 MW under a medium-term PPA upto August 2019) remains exposed to off-take and price risks. Since the
all-India thermal PLFs have been under pressure over the past seven years, lack of adequate capacity tie-up under long-
term PPAs is posing challenges for JPL in achieving optimal capacity utilisation at remunerative rates. Further, JPL has coal
linkage for only ~35% of its capacity (1,200 MW), with the coal supply limited to the extent of PPAs. For the remaining
2,200 MW, it remains dependent upon market purchase and e-auctions. While JPL had emerged as a preferred bidder for
two coal blocks (Gare Palma IV/2&3 and Tara Coal Block) in the Schedule II and III Coal Mines auction, the Government has
not accepted its bids, which was upheld by the High Court. Nevertheless, the matter remains sub-judice in the Hon’ble
Supreme Court.

Elongated receivables cycle: Around three-fourths of JPL’s revenue generating capacity (~1,300-1,600 MW) is being run
on long-term as well as short-term PPAs with state distribution utilities, with Tamil Nadu Generation and Distribution
Corporation (TANGEDCO) alone accounting for ~two-thirds of the operational PPAs and ~45% of revenues. Given the high
dependence of revenues and receivables from the state distribution utilities, JPL faces the risk of an elongated receivable
cycle, an industry-wide characteristic. More specifically, delay in payments by TANGEDCO has resulted in increased
receivables for the company. Although situation had improved marginally after TANGEDCO signed for UDAY scheme in
January 2017, JPL’s receivables from TANGEDCO 5 continue to be sizeable. The overdue6 receivable turnover period for
TANGEDCO has remained at 2-3 months, with overall receivables being equivalent to five months of sales as on March 31,
2018.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below
Links to applicable criteria:

Corporate Credit Rating Methodology

4 Excludes investments/loans & advances to subsidiaries and other group companies

5 TANGEDCO accounts for ~45% of JPL’s revenues and >80% of its receivables
6 Refers to receivables that are due beyond one month of invoice

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Rating Methodology for Thermal Power Producers

About the company:

Incorporated in 1995, JPL is involved in power-generation business with 3,400 Mega-watt (MW) of thermal power-generation
capacity at Tamnar in Raigarh district of Chhattisgarh. JPL is promoted and 96.43% owned by Jindal Steel & Power Limited
(JSPL).

JPL’s first power plant (EUP -1), having capacity of 1,000 MW (250 MW X 4), commenced operations in September 2008.
Thereafter, the company established an incremental 2,400-MW capacity adjacent to the EUP-1. The 2,400-MW plant is
divided into two phases with each phase having two units of 600 MW each. The first phase of 1,200 MW (EUP-2) has coal-
supply linkage from Coal India Limited (CIL) while the coal for the second phase of 1,200 MW (EUP-3) as well as that for
EUP-1 is not tied at present.

Key Financial Indicators (Standalone)

FY2016 FY2017 FY2018
(Audited) (Audited) (Audited)
Operating Income (Rs. crore) 2,997 3,119 4,081
PAT (Rs. crore) -777 -668 -674
OPBDIT/ OI (%) 21.2% 33.6% 35.1%
RoCE (%) -2.0% 0.0% 1.0%

Total Debt/ TNW (times) 0.7 0.7 0.7

Total Debt/ OPBDIT (times) 13.0 8.0 5.7
Interest coverage (times) 1.4 1.3 1.5
Note: OPBDIT: Operating Profit before Depreciation, Interest and Taxes; ROCE (Return on Capital Employed): Profit before Interest and
Tax (PBIT)/Avg (Total Debt + Tangible Net Worth + Deferred Tax Liability - Capital Work-in-Progress); NWC: Net Working Capital
Source: JPL’s annual reports, ICRA research

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for last three years:
Current Rating (FY2019) Chronology of Rating History for the past 3 years
Date
Amo Date &
Amoun &
unt Rating
Instru t Date & Rating Rating Date & Rating
Rate in
ment Ty Outstan in FY2018 in in FY2016
d FY201
pe ding FY201
(Rs. 9
(Rs 7
crore
Crore) Jun Aug Jul June Mar Jan Dec Sep May
)
2018 2017 2017 2016 2016 2016 2015 2015 2015
[ICRA] [ICRA] [ICRA] [ICRA] [ICRA]
[ICR [ICRA [ICRA [ICRA]
Term 7,116 7,116.1 A- A- A- A- A-
1 LT A]A ]A ]A AA-
Loans .15 5* (Stable (Negat (Negat (Negat (Negat
& & & &
) ive) ive) ive) ive)
[ICRA] [ICRA] [ICRA] [ICRA] [ICRA]
[ICR [ICRA [ICRA [ICRA]
Cash 650.0 A- A- A- A- A-
2 LT 561.92* A]A ]A ]A AA-
Credit 0 (Stable (Negat (Negat (Negat (Negat
& & & &
) ive) ive) ive) ive)
[ICRA] [ICRA] [ICRA] [ICRA] [ICRA]
Non- [ICR [ICRA [ICRA [ICRA]
710.0 A- A- A- A- A-
3 fund- LT - A]A ]A ]A AA-
0 (Stable (Negat (Negat (Negat (Negat
based & & & &
) ive) ive) ive) ive)
Fund- [ICRA]
4 ST 25.00 - - - - - - - - -
based A2+
[ICRA] [ICRA] [ICRA] [ICRA] [ICRA]
[ICR [ICRA [ICRA [ICRA]
Unalloc 886.8 A- A- A- A- A-
5 LT - A]A ]A ]A AA-
ated 5 (Stable (Negat (Negat (Negat (Negat
& & & &
) ive) ive) ive) ive)
[ICRA] [ICRA] [ICRA] [ICRA] [ICRA]
[ICR [ICRA [ICRA [ICRA]
500.0 A- A- A- A- A-
6 NCDs LT 500.00* A]A ]A ]A AA-
0 (Stable (Negat (Negat (Negat (Negat
& & & &
) ive) ive) ive) ive)
[ICRA]
A2+ [ICRA]
7 NCD ST - - - - - - - - -
Withdr A2+
awn
Note: LT: Long-term, ST: Short-term, & symbol stands for ‘Under rating watch with developing implications’
*as on March 31, 2018

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details
Amount
Instrument Date of Issuance Coupon Maturity Current Rating
ISIN No Rated
Name /Sanction Rate Date and Outlook
(Rs. crore)
SBI Base
INE720G08066 NCD 1 22 Dec 2014 21 Dec 2018 165.00 [ICRA]A- (Stable)
Rate + 1%
SBI Base
INE720G08074 NCD 2 22 Dec 2014 20 Dec 2019 165.00 [ICRA]A- (Stable)
Rate + 1%
SBI Base
INE720G08082 NCD 3 22 Dec 2014 22 Dec 2020 170.00 [ICRA]A- (Stable)
Rate + 1%
SBI Base [ICRA]A2+
INE720G08108 NCD 4 24 Aug 2017 16 Apr 2018 50.0
Rate + 2% Withdrawn
NA Term Loans FY2014 - FY2033 7,116.15 [ICRA]A- (Stable)

NA Cash Credit - - - 650.00 [ICRA]A- (Stable)

Non-fund-
NA - - - 710.00 [ICRA]A- (Stable)
based
NA Fund-Based - - - 25.00 [ICRA]A2+

NA Unallocated - - - 886.85 [ICRA]A- (Stable)

Source: JPL

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ANALYST CONTACTS
Jayanta Roy Nidhi Marwaha
+91 33 7150 1100 +91 124 4545 337
[email protected] [email protected]

Deep Inder Singh

+91 124 4545 830
[email protected]

RELATIONSHIP CONTACT
L Shivakumar
+91 22 6114 3406
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

7
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