The agency has reaffirmed its 'CRISIL A1+’ rating on the company’s commercial paper programme and short-term bank loans.
CRISIL stated that the rating upgrade reflects the improving business risk profile of the company with sustained improvement in operating profitability across the power generation and distribution business during fiscal 2024.
The company has sustained its healthy financial risk profile, with consolidated net leverage (ratio of net debt to adjusted earnings before interest, tax, depreciation and amortisation [EBITDA]) estimated below 4 times as on 31 March 2024, and expected to remain so over the medium term.
The increase in operating profitability of Tata Power since fiscal 2023 is mainly on account of better profitability of its Mundra Ultra Mega Power Project (Mundra plant), improved efficiency of the Odisha distribution companies (discoms) and continued growth in the renewable energy (RE) business with steady capacity addition.
The company continues to benefit from its integrated operations, robust power demand in the country supporting higher plant load factor (PLF) of its power plants, healthy execution in the RE segment, which has also been supported by moderating module prices.
The improving operating profitability in distribution business, with reducing aggregate technical and commercial (AT&C) losses in Odisha and ongoing recovery of regulated assets in other discoms, have also helped.
As the company scales up operations, improving operating efficiency and steady cash creation in thermal generation and regulated business will support strong operating cash accrual, despite the reduction in earnings from coal mining business amid lower coal prices since last fiscal.
Furthermore, increasing integration in the RE business through in-house module manufacturing and engineering, procurement, and construction (EPC) business will lend support going forward.
The ratings also factor in the strong financial flexibility of Tata Power aided by being a part of the Tata group. The financial flexibility is also supported by the demonstrated ability of Tata Power to raise strategic growth funds (nearly Rs 4,000 crore raised during fiscal 2023 by selling approximately 10% stake in the RE business). This will help achieve the capex target while keeping leverage within the rating threshold.
Tata Power is India's largest integrated private power utility, with installed generation capacity of 12.4 GW as on 10 November 2023 (excluding 1.98 GW through a platform structure). The company is present across the power business spectrum, from generation (thermal, hydro, solar and wind) to transmission and distribution.
The scrip had declined 0.44% to end at Rs 428 on the BSE on Friday.