GSPC Pipavav Power Company Ltd

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 716.60 Crs. of GSPC Pipavav Power Company Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (28 Jul 2022)	Present
Fund Based	1050.00	716.60	Long Term	BWR A-/Stable Reaffirmation	BWR A - /Stable Reaffirmation
Grand Total	1050.00	716.60	(Rupees Seven Hundred Sixteen Crores and Sixty lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

The rating reaffirmation of the bank loan facilities of GSPC Pipavav Power Company Ltd (GPPC or the company) continues to factor strong parentage support, with the Government of Gujarat (GoG) and Gujarat State Financial Services Limited (GSFS) owned Gujarat State Petroleum Corporation Limited (GSPC) owing 97.47% of the equity stake. The rating also continues to derive strength from the existence of a long-term Power Purchase Agreement (PPA) with Gujarat Urja Vikas Nigam Ltd (GUVNL), wherein GUVNL has undertaken to service the debt obligations through fixed cost reimbursements irrespective of the level of generation. The rating also continues to factor the strong financial risk profile of GUVNL (BWR AA+/Stable/A1+) with a comfortable capital structure and debt coverage metrics.

The rating is, however, constrained on account of the lower plant load factor (PLF) from its gas based 702 MW Combined Cycle Power Plants (CCPP). The PLF for FY22 was 2.28% compared to 44.27% in FY21 due to the non-availability of commercially viable gas prices to GUVNL. The power production from gas-based plants has been negligible in 9MFY23 (unaudited) due to high prevailing cost of natural gas in domestic and overseas market. The power plants of GPPC have historically remained idle during most of the years since commercialization due to the non-availability of affordable domestic gas. They have been kept in a ready to operate mode in the absence of scheduling from the State Load Dispatch Centre (SLDC) due to high variable costs; running the plant on costly imported Re-gasified Liquefied Natural Gas (RLNG) has not been commercially viable for GUVNL. The rating is also constrained on account of volatility in its revenues as GUVNL is the sole procurer of power from its 702 MW power plant, and the decision to keep the plant running depends on demand for gas-based power from GUNVL and the price of natural gas in relation to coal prices. The rating continues to consider the fact that debt servicing is not expected to be impacted on account of the binding terms of the PPA wherein GUVNL will service the debt obligations through its fixed cost reimbursement irrespective of its level of generation. BWR notes that GPPC has changed its lender for working capital facilities from Bank of Baroda to Punjab National Bank at a reduced rate of interest which would further curtail its costs.

BWR believes GPPC’s business risk profile will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of a rating change over the medium term. The rating outlook may be revised to ‘Positive’ in the case of improvement in PLF and generation of adequate operating profit from the power generation and sale of electricity to GUVNL based on SDLC requirements. The rating outlook may be revised to 'Negative' in case of any decline in operational readiness of the plants due to technical factors and decline in credit risk profile of GUVNL.

KEY RATING DRIVERS

Credit Strengths:

Strong parentage support with strong interlinkages :
GPPC is owned and jointly promoted by GSPC (97.47%) and Gujarat Power Corporation Ltd. (GPCL: 2.53%). The GoG owns a 90.68% equity stake in GSPC directly and indirectly through state government entities such as GSFS. GPPC has a long-term PPA with GUVNL, which is also owned by the GoG. GPPC has term loans from GSFS, which is again a GoG undertaking. The rating continues to draw strength from the existence of strong inter-linkages with the GoG and GoG entities.
Long-term PPA with GUVNL :
GPPC operates 702 MW (2 x 351 MW) gas-based CCPP at Pipavav (Kovaya, Amreli) in Gujarat. Unit-I achieved the COD on 12 April 2013, and Unit-II achieved the COD on 04 February 2014. GPPC also commissioned a 5 MW solar power plant in 2012. Both the units are available for the generation of power as per the requirement of State Load Dispatch Centre (SLDC). The company entered a Power Purchase Agreement (PPA) with GUVNL for the purchase of power in February 2008 for a period of 20 years from the COD, wherein GPPC is required to sell the entire power generation to GUVNL. As per the terms of the PPA, GUVNL is obligated to pay the fixed charges, including interest and principal obligations on debt and variable cost as per power generation. The entire debt of GPPC is being serviced by GUVNL on a reimbursement basis irrespective of its level of generation.
Strong financial risk profile of GUVNL (Offtaker) :
GUVNL’s operating and financial performance on a consolidated basis marginally declined in FY21 as compared to FY20. However, operating margins on a consolidated level improved to 15.51% in FY21 due to a reduction in the cost of fuel consumed, especially the cost of coal. The debt level was reduced to Rs. 5734.11 Crs. as on 31Mar2021 from Rs. 9189.95 Crs. as on 31Mar2020 due to significant debt prepayment. As a result, the ISCR and DSCR improved to 7.66 times and 2.48 times, respectively, on 31Mar2021. Overall, the company’s financial profile is strong with healthy debt coverage ratios, and adequate liquidity support is available in the form of grants and subsidies from the GoG.

Credit Risks:

Low PLF and volatility in revenues of GPPC :
The PLF has historically remained low as the plant has been kept idle due to a lack of demand for power generation from GUVNL, its sole procurer, on account of high gas prices. The PLF was 44.27% in FY21. It declined to 2.28% in FY22 and further to 0.03% in 9MFY23 (provisional) due to the non-availability of affordable gas. The prices of natural gas relative to the prices of coal will play a key role for determining demand for gas-based power generation. Revenues entirely depend on the GUVNL's requirement for power generation from GPPC; hence, revenues are expected to remain volatile.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale). BWR has considered the standalone financial performance of GSPC Pipavav Power Company Ltd for the bank loan rating. The rating also factors the fact that GUVNL (offtaker in the PPA) has been honouring the terms of the PPA since 2014 and the company has been able to meet its debt obligations and other commitments in spite of the plant operating at low PLF levels.

RATING SENSITIVITIES

Timely receipt of support from GUVNL, plant availability and generation of adequate operating profit from the power generation and sale of electricity to GUVNL based on SDLC requirements and contribution of gas trading in the future revenue mix will be key monitorable and sensitivities for the company.

Upward:

Substantial improvement in the PLF level with consequential increase in revenue on a sustained basis leading to substantial and sustained improvement in the overall financial risk profile.

Downward:

Weakening in the credit profile of GUVNL leading to delays in reimbursements, thereby leading to deterioration in the financial risk profile of GPPC.

LIQUIDITY INDICATORS - Adequate

The company’s liquidity remains adequate, with net cash accruals in the range of Rs. 190.00 Crs for FY22 against the debt service obligation of ~Rs.170.00 Crs. Net cash accrual for 6MFY23 (unaudited) was ~Rs. 68 Crs. against debt repayment obligations of Rs. 166.01 Crs. for next 12 months, and profit before depreciation in 9MFY23 (unaudited) was ~Rs. 115 Crs. The binding terms of the PPA, wherein GUVNL (BWR AA+/Stable/A1+) is servicing the debt obligations through fixed cost reimbursement provides comfort.

ABOUT THE ENTITY

Incorporated in 2006, GSPC Pipavav Power Company Ltd. (GPPC) is a Gandhinagar, Gujarat based public limited company and jointly promoted by Gujarat State Petroleum Corporation Ltd. (GSPC; 97.47%) and Gujarat Power Corporation Limited (GPCL; 2.53%). GPPC has implemented a green-field 702 MW (2x351 MW) gas-based combined cycle power plant (CCPP) at Pipavav (Kovaya, Amreli) in Gujarat. Unit-I of 351 MW achieved the COD in April 2013 and Unit II in February 2014. GPPC has also commissioned a 5 MW solar power plant in FY12 at Gujarat Solar Park. GPPC has entered a power purchase agreement (PPA) with Gujarat Urja Vikas Nigam Ltd (GUVNL) for supply of its entire power generated from its plant. GPPC is bound to supply the entire power manufactured by it to GUVNL. As such, power plants of GPPC are run based on the demand from GUVNL. GUVNL is paying the minimum fixed charges to service debt obligation, interest and minimum O&M expenses since July 2014.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)	FY 22-23 (Unaudited - Others(9MFY23))
Operating Revenue	Rs.Crs.	468.30	1076.53	266.68
EBITDA	Rs.Crs.	216.59	269.11	139.23
PAT	Rs.Crs.	33.81	162.86	Not Available
Tangible Net Worth	Rs.Crs.	818.69	784.86	Not Available
Total Debt/TNW	Times	0.70	0.94	Not Available
Current Ratio	Times	0.32	0.32	Not Available

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction normally includes standard covenants stipulated for bank loan facilities.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

Nil

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2023)			2022		2021		2020
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	716.60	BWR A-/Stable (Reaffirmation)	28Jul2022	BWR A-Stable (Reaffirmation)	26Mar2021	BWR A- (CE)Stable (Reaffirmation)	26Feb2020	BWR A- (SO)Stable (Reaffirmation)
Non Fund Based	LT	0.00	NA	NA	NA	NA	NA	26Feb2020	BWR A- (SO)Stable (Reaffirmation)
Grand Total		716.60	(Rupees Seven Hundred Sixteen Crores and Sixty lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Swarn Saurabh Assistant Manager - Ratings swarn.s@brickworkratings.com	Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

GSPC Pipavav Power Company Ltd

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Bank of Baroda	Line of Credit - Sanctioned	_	_	0.00
2	Gujarat State Financial Services Limited	Term Loan	416.60	_	416.60
3	Punjab National Bank	Line of Credit - Sanctioned	280.00	_	280.00
4	Un tied portion	Line of Credit - Proposed	20.00	_	20.00
Total			716.60	0.00	716.60
TOTAL (Rupees Seven Hundred Sixteen Crores and Sixty lakhs Only)

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