(The following statement was released by the rating agency)
March 01 - Fitch Ratings has affirmed India-based Noida Power Company Limited's (NPCL) National Long-Term rating at 'Fitch A-(ind)' with Stable Outlook. A list of additional rating actions is provided at the end of the commentary.
NPCL's ratings continue to reflect the cost-plus nature of the electricity distribution business, which assures a 16% post-tax return on equity. The ratings also derive strength from NPCL's low level of distribution loss at 8%, and positive gross cash margins in FY11 (year end March) and 9MFY12 at INR0.12 and INR0.75 per unit respectively (FY10: negative 0.68 per unit) due to continuous reduction in power purchase cost. The ratings further factor in a favourable directive by Apellate Tribunal of Electricity (APTEL) in FY12 allowing the company the carrying cost and amortization of its regulatory assets.The ratings are also supported by demand growth in the licensed area of Greater Noida at a CAGR of 21% over FY7-FY11.
The ratings are, however, constrained by the continued build-up of regulatory assets (aggregating INR3.2bn as at end-December 2011) since FY09 due to insufficient tariff revisions. This has led the company to increase borrowings to fund its regulatory assets.
The company showed negative cash flow from operations (CFO) of INR609m in FY11 despite reporting book profits of INR208m.
To meet increasing demand, NPCL plans to incur substantial capex in the near- to medium-term for network strengthening and upgrades, further straining leverage. Tariffs were last increased in FY11 and the company expects another hike in FY13 to reflect the cost of power purchase and recovery of regulatory assets. The Uttar Pradesh Electricity Regulatory Commission has started discussion for allowing an automatic fuel and power cost adjustment mechanism which, if implemented, will help the company to reduce the build-up of regulatory assets.
The ratings are also constrained by NPCL's growing reliance on short-term power. This is likely to be reversed once it begins to receive long-term power supply from Essar Power Limited (EPL) at a levelised tariff of INR4.15 per unit from FY15 onwards following APTEL's validation of EPL's bid.
Negative rating guidelines include lack of retail tariff revision and/or increase in open access power purchase costs leading to substantial build-up of regulatory assets, thereby increasing net leverage beyond 5.5x and worsening negative CFO.
Positive rating guidelines include sufficient retail tariff revision and/or lowering of power purchase cost leading to positive CFO and thus recovery of regulatory assets.
Incorporated in 1992, NPCL distributes electricity in the Greater Noida area in the state of Uttar Pradesh. The company is sponsored by the RP-Sanjeev Goenka Group which collectively holds 73% of the total equity, with the balance held by the Greater Noida Industrial Development Authority. For FY11 the company reported revenues of INR4.8bn (INR3.9bn), EBITDA of INR796m (INR486m) and net profit of INR208m (INR122m). For the nine months ended December 2011, the company had sales of 723 million units, revenues of INR3.7bn, and net profit of INR169m.
NPCL's facilities have been affirmed as follows:
- INR3,116.9m long-term loan (increased from INR2,799.7m): 'Fitch A-(ind)'
- INR1,650m fund-based working capital limits (increased from INR1,200m): 'Fitch A-(ind)'/'Fitch A2+(ind)'
- INR115m nonfund-based working capital limits: 'Fitch A-(ind)'/'Fitch A2+(ind)'