DB Power Ltd

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 7691.90 Crs. of DB Power Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (12 May 2020)	Present
Fund Based	7181.69	7091.90	Long Term	BWR A- /Stable Reaffirmation	BWR A - /Stable Reaffirmation
Non Fund Based	600.00	600.00	Long Term	BWR A- /Stable Reaffirmation	BWR A - /Stable Reaffirmation
Grand Total	7781.69	7691.90	(Rupees Seven Thousand Six Hundred Ninety One Crores and Ninety 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, inter alia, factors in the experienced promoters; the completed status of the project; the long-term FSA with South Eastern Coal Ltd. for 2.77 MMTPA; long-term PPA for 51% of the generation capacity with Rajasthan, Tamil Nadu, and Chhattisgarh Discoms connected via dedicated 400-kV transmission lines, improvement in the Plant Load Factor (PLF) during FY21 at 77% against 61% during FY20 and an improvement in revenues and profitability in FY20 and FY21. 

However, the rating is constrained by exposure to counterparty credit risk as Discoms currently have weak finances and high receivables position.

The outlook for the company remains Stable, considering the completed status of the project, long-term PPAs with state Discoms, and the realization of claims against the Discoms due to change in the law. The ability of the company to further improve revenues and profitability and improve capital structure given the current scenario for the power sector remains key rating sensitivities.

KEY RATING DRIVERS

Credit Strengths:

• Experienced and Established Promoters :

  DBPL is a Special Purpose Vehicle (SPV) promoted by Dainik Bhaskar (DB) Group. DBPL is a subsidiary of Diligent Power Pvt. Ltd., which is controlled by the promoters of DB Group and PE investors, Warbug Pincus, TRG and IDFC. DB Group, which was initially engaged in newspaper publication, has diversified into various other businesses, such as textiles, TV media, FM radio, power generation and real estate development.

• Long-Term PPAs with Discoms :

  The company has entered long-term power purchase agreements (PPAs) with Chhattisgarh (420 MW, offtake from Chhattisgarh discoms is restricted to 60 MW gross), Tamil Nadu (221 MW) and Rajasthan (330 MW) discoms, covering ~81% (effective ~51%) of the total generation capacity. For the long-term PPA of 360 MW with Chhattisgarh, supplies under which are yet to commence, the company has filed a petition with the state regulatory commission in September 2019 for required approvals. For FY21 the company has recorded an improved sales margin on open capacity against the earlier years (Rs. 0.96 per unit in FY 2021 vis a vis Rs. 0.76 per unit in the previous year). Overall, DBPL’s ability to obtain PPAs for balance capacity would remain a key monitorable.

• Completed status of the project :

  DBPL operates a 1200 MW (600x2) coal-based thermal plant at Baradarha (Champa) in Chhattisgarh. Unit-I achieved the COD in August 2015, and Unit-II achieved the COD in March 2016. The appraised project cost of the projects was Rs. 4600 crore and Rs. 4242 crore for Unit 1 and Unit 2 respectively aggregating Rs. 8842 crore. As per the environment guidelines, the company has to set –up Flue Gas Desulphurisation (FGD) at its plant by December 2024 as per MoEF with the additional CAPEX (towards FGD installation) of around Rs.540 Crs. Though there is no uncertainty on the financial tie-up of FGD. CERC has approved FGD installation as a Change in Law event. The company already awarded the contract for the FGD. The company has a sanctioned loan of Rs.167 crs which has been not utilised due to saving in the final project cost as vis-a-vis estimated cost. This unutilised loan amount would also be available for the FGD project.

• Healthy Profit Margins :

  The Co"s operating income is consistent over the last 3 years in the range of Rs. 2800 - 2900 Crs. The Co has recorded a total operating income of Rs.2813.04 Crs in FY21 and Rs. 2930.82 Crs in FY20. The Company achieved a PLF of 77% during FY21, compared with 61% in FY20. The adequate coal supply at lower rates (auction coal variable cost at Rs. 1.77 /kwh for FY21 vis-a-vis Rs. 2.79/kwh in the previous year) and lower coal handling & transportation costs, and transit losses have resulted in the lower costs of generation. Due to these factors, the profitability has improved in the last 2 years as marked by the improvement in PAT from losses of RS. 45 Crs in FY19 to PAT of Rs. 360 Crs in FY20 and Rs. 311.82 Crs in FY21.

• Receipt of receivables during FY21 :

  In FY21, the company has received a substantial amount from Rajasthan Discoms and TANGEDCO. It has received Rs. 1212 Crs from Rajasthan and Rs. 902 Crs from Tamil Nadu in FY21. Also, the transmission charges are now payable by Discom directly thereby eliminating the aspect of Point of Connection receivable for Generator effective from Dec 2020. This is expected to improve the receivables position.

Credit Risks:

• Counterparty risk :

  DBPL"s counterparties have weak credit risk profiles. The company is dealing with State Discoms such as Tamil Nadu, Rajasthan and Chhattisgarh, which exposes it to high counterparty risk. Overall receivables are high at Rs. 1329 Crs for FY21. However the receivables position of Rajasthan Discoms have considerably improved as the company is receiving payments from Rajasthan Discoms on a timely basis. The company continues to receive late payment surcharges on the delayed payments from Discoms. However, any substantial build-up of receivables or reduction in available liquidity may weaken the credit risk profile.

• Moderate financial profile :

  The company’s financial profile continues to be moderate (even though it has marginally improved) with a debt-equity of 2.23x as of FY21 (2.63x as of FY19). The debt profile is expected to remain the same as Rs.167 crs unutilized loan of the project would be utilized for the FGD

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria. BWR has taken a view on the company’s operational and financial performance, promoter’s contribution, and current power generation and condition stipulated as per the PPA with various state Discoms and merchant power sale while arriving at the rating.

RATING SENSITIVITIES

Going forward, the timely receipt of the receivable from State Discoms, ensuring adequate PLF over the next two to three years, and the generation of adequate operating and net profit from the power generation and sale of electricity to Rajasthan, TN, and Chhattisgarh will be key monitorable and sensitivities for the company.

Positive: The outlook may be revised to “Positive” if the PLF level improves substantially, there is a substantial improvement in the company’s financial profile and debt servicing metrics, receivables position improves and the Co is able to obtain new offtake arrangements.

Negative: The outlook may be revised to “Negative” if the company fails to achieve optimum PLF levels due to adverse changes in the offtake levels, low merchant sale revenues, there is a delay in recovery from Discoms, and there is no improvement in debt coverage metrics

LIQUIDITY INDICATORS - Strong

Expected annual cash accrual of Rs 650- 700 crore per annum over the next two fiscals will adequately cover yearly debt obligation of Rs 300-400 crore. Furthermore, DBPL has created a debt service reserve account equivalent to 2 quarters of debt servicing (Rs 408 crore). The company’s fund-based working capital limit utilization was around 70% during the 12 months.  Also, the company maintains cash and equivalents of Rs 271 Crs as of 31st March 2021. The company expects further realizations from the second tranche of funds being provided to Discoms as a part of the Atma Nirbhar package. 

ABOUT THE ENTITY

DB Power Ltd. (DBPL), an SPV promoted by DB Group, has set-up a coal-based thermal power generation plant with a capacity of 1200 MW (2*600 MW) in Baradarha, Janjgir Champa, Chhattisgarh. The company has successfully implemented the power project in two phases. The plant achieved the COD in Aug’15 (Unit – 1, 600 MW) and Mar’16 (Unit – 2, 600 MW). DBPL is an SPV of Diligent Power Pvt. Ltd. as the associate company of Dainik Bhaskar Group, which in turn is promoted by DB Group (54.46%), Warburg (19.22%) and TRG (26.32%). Diligent Power holds 83.87% in DB Power, and the remaining 16.13% is with IDFC/GIP.

DBPL has long-term PPA of up to 81% (effective PPA 51%) of its total capacity, with Chhattisgarh (420 MW, 35%; however, the offtake from the Chhattisgarh discoms is restricted to 60 MW, effective PPA (5%)), Rajasthan Discoms (330 MW, 27.50%, 25 yrs) and TN Discoms (221 MW, 18.42%, 15 yrs), with the remaining sold by way of merchant/bilateral short-term/medium-term contracts.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	2930.82	2825.99
EBITDA	Rs.Crs.	1191.27	919.12
PAT	Rs.Crs.	360.07	-45.53
Tangible Net Worth	Rs.Crs.	2450.40	2090.69
Total Debt/Tangible Net Worth	Times	2.63	3.09
Current Ratio	Times	1.87	1.13

KEY COVENANTS OF THE FACILITY RATED

The terms of the sanction of loans from all banks and financial institutions include standard covenants normally stipulated for such facilities by Banks/FIs. The term loan and WC facilities from banks have the first pari-passu charge on fixed assets. 

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

None

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

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	7091.90	BWR A-/Stable (Reaffirmation)	12May2020	BWR A-/Stable (Reaffirmation)	03Apr2019	BWR A/Positive (Reaffirmation with improvement in outlook from Stable to Psotive )	23Jan2018	BWR A/Stable (Reaffirmation)
		NA	NA	14Apr2020	BWR A-/Stable (Downgrade and revision in outlook from Positive to Stable)	NA	NA	NA	NA
Non Fund Based	LT	600.00	BWR A-/Stable (Reaffirmation)	12May2020	BWR A-/Stable (Reaffirmation)	03Apr2019	BWR A/Positive (Reaffirmation with improvement in outlook from Stable to Psotive )	23Jan2018	BWR A-/Stable (Reaffirmation)
		NA	NA	14Apr2020	BWR A-/Stable (Downgrade and revision in outlook from Positive to Stable)	NA	NA	NA	NA
Grand Total		7691.90	(Rupees Seven Thousand Six Hundred Ninety One Crores and Ninety lakhs Only)

Rating Advisory, as on 13May2021
Press Release, as on 13May2021
Advisory for delay in rating review issued

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

• General Criteria
• Approach to Financial Ratios
• Infrastructure Sector

Analytical Contacts
Anshul Nagar Senior Rating Analyst Board : +91 11 2341 2232 anshul.n@brickworkratings.com	Vipula Sharma Director - Ratings Board : +91 80 4040 9940 vipula.s@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

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	Term Loan - Out-standing	300.11	_	300.11
2	Bank of Baroda	Cash Credit - Sanctioned	45.00	_	45.00
3	Bank of India	Term Loan - Out-standing	379.00	_	379.00
4	Bank of India	Cash Credit - Sanctioned	146.00	_	146.00
5	Bank of India	Bank Guarantee - Sanctioned	83.00	_	83.00
6	Central Bank of India	Term Loan - Out-standing	118.21	_	118.21
7	Central Bank of India	Cash Credit - Sanctioned	86.00	_	86.00
8	Central Bank of India	Bank Guarantee - Sanctioned	54.00	_	54.00
9	IDBI Bank	Term Loan - Out-standing	1957.07	_	1957.07
10	IDBI Bank	Cash Credit - Sanctioned	150.00	_	150.00
11	IDBI Bank	Bank Guarantee - Sanctioned	75.00	_	75.00
12	Life Insurance Corporation of India	Term Loan - Out-standing	299.58	_	299.58
13	L and T Infrastructure Finance Co Ltd	Term Loan - Out-standing	419.51	_	419.51
14	PTC India Financial Services Ltd	Term Loan - Out-standing	268.69	_	268.69
15	Punjab National Bank	Term Loan - Out-standing	638.61	_	638.61
16	State Bank Of India (SBI)	Term Loan - Out-standing	1326.12	_	1326.12
17	State Bank Of India (SBI)	Cash Credit - Sanctioned	395.00	_	395.00
18	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	356.00	_	356.00
19	Union Bank of India	Cash Credit - Sanctioned	78.00	_	78.00
20	Union Bank of India	Bank Guarantee - Sanctioned	32.00	_	32.00
21	Union Bank of India	Term Loan - Out-standing	485.00	_	485.00
Total			7691.90	0.00	7691.90
TOTAL (Rupees Seven Thousand Six Hundred Ninety One Crores and Ninety lakhs Only)