Andhra Pradesh Power Generation Corporation Ltd.

Brickwork Ratings reaffirms the ratings for Bank Loan Facilities of Rs.4204.22 Crs. of Andhra Pradesh Power Generation Corporation Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (21 Jan 2020)	Present
Fund Based	4120.05	3904.22	Long Term	BWR BBB + /Stable Downgrade	BWR BBB + /Stable Reaffirmation
Non Fund Based	300.00	300.00	Short Term	BWR A2 Downgrade	BWR A2 Reaffirmation
Grand Total	4420.05	4204.22	(Rupees Four Thousand Two Hundred Four Crores and Twenty Two 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 ratings of Andhra Pradesh Power Generation Corporation (APGENCO or the company) have been reaffirmed, taking into account strong parentage considering the company is wholly owned by the Government of Andhra Pradesh (GoAP), support from the state government, experienced management and favourable operating profit margins. However, the ratings are constrained by deteriorating debt equity levels, the company availing short- to medium-term loans to meet mismatch in cash flows and the delay in the realisation of the outstanding receivable position. The ratings are also constrained on account of the company’s exposure to regulatory risks as tariffs are being decided by Andhra Pradesh State Electricity Regulatory Commission (APERC).

The rating outlook has been maintained at Stable. BWR expects that the company will witness a further reduction in revenues during FY21 on account of the impact of the covid-19-induced lockdown on overall power demand.

KEY RATING DRIVERS

Credit Strengths:

Wholly owned by GoAP :
APGENCO is being wholly owned by GoAP with adequate State Government support due to the strategic importance of the power sector and implicit support from the GoAP.
Experienced management :
Sri G Sai Prasad,IAS is the Chairman and Mr. B Sreedhar, IAS is the Managing Director of the APGENCO. There are 5 (Five) other directors in the Company. All the Board members are qualified and have vast experience in the industry.
Favorable operating margins :
Company is continuously reporting favorable operating profit margins in the last three years. Company has reported improvement in the operating profit margin from 24.99% in FY19 to 31.32% in FY20. The improvement in margins was on account of reduction in the administrative expenditures.

Credit Risks:

Increasing debt equity levels :
During the last three years, APGENCO has reported an increase in the debt equity levels. The debt equity level has deteriorated from 3.81X as of 31 March 2018 to 5.53X as of 31 March 2020. The increase in debt equity levels was mainly on account of availment of debt for the ongoing capex and delay in the equity contribution for the ongoing capex. However, the state government has agreed to support APGENCO by providing Guarantee for the fresh borrowings availed by them.
High receivable levels: :
APGENCO continued to report high outstanding receivables levels in the last three years. The outstanding receivables reported at Rs. 9951.59 Crs and Rs. 10147.84 Crs as on FY19 and FY20 respectively. Out of the said receivables, Rs. 3441.78 Crs were receivables outstanding for more than six months from TSDISCOMs and Rs. 6706.06 Crs were receivables outstanding less than six months from APDISCOMs respectively.
Weak debt service coverage indicator :
Company is continuously reporting weak debt service coverage indicators in the last three years. However, the Company has informed that for meeting the shortfall in the debt obligations, APGENCO is availing the short term loans either from banks and financial institutions. The State Government has also provided Guarantee for part of the fresh loans availed by the company Major lenders of the company have also confirmed that the conduct of the account is satisfactory.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has considered the company’s standalone financials with support from the state government. BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Going forward, APGENCO’s ability to generate adequate cash flows for the timely repayment of its debt obligations and realisation of receivables from APDISCOMs and TSDISCOMs, along with the capital infusion of equity/grants by the state government for the ongoing projects will remain key rating sensitivities.

Upward: The ratings can move upward if there is an improvement in thermal PLF levels (i.e. above 70%) that leads to improved revenues and profit, adequate cash flows generated from operations for meeting debt obligations, a reduction in the debt equity level (i.e. <2.5X), the timely realisation of outstanding dues from Andhra Pradesh and Telangana DISCOMs and support from the GoAP in the form of grants/capital infusion.

Downward: The ratings can move downward if the PLF levels decline thereby resulting in a substantial reduction in net revenues and profits, there is an increase in the term debt of the company leading to further deterioration of the debt equity levels and there is a delay in the outstanding receivables position from Andhra Pradesh and Telangana DISCOMs.

LIQUIDITY INDICATORS - Poor

APGENCO has not generated adequate cash flows from operations for repaying its debt obligations. During FY20, the company generated only Rs. 708.65 Crs, against the repayment obligations of Rs. 2467.49 Crs. However, the company has been increasing borrowings for meeting these shortfalls. The company has reported a cash balance of Rs. 8.32 Crs as of 31 March 2020. Although the liquidity indicators were reported at poor levels, the company has implicit support from the state government of Andhra Pradesh as the company is owned by the state government, and there is also financial support by way of a guarantee from the state government if additional loans are availed with respect to equity contribution.

ABOUT THE ENTITY

Andhra Pradesh Power Generation Corporation Limited (APGENCO ) was formed after unbundling erstwhile AP State Electricity Board (APSEB) into APTRANSCO and APGENCO under the AP Electricity Reforms Act, 1998, on 01.02.1999. As per AP Re-organisation Act, 2014, a separate state generating corporation was created with effect from 2 June 2014 for the state of Telangana. APGENCO was bifurcated into APGENCO (Residuary) and Telangana Generation Corporation Limited (TSGENCO). The power projects located in Telangana have been transferred to TSGENCO with effect from 2 June 2014. The projects located in the residual AP remained with APGENCO. APGENCO has an installed capacity of 5613.026MW, consisting of thermal-3410MW, hydel-1797.60MW and solar-405.426 MW.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	10053.35	9735.39
EBITDA	Rs.Crs.	3148.25	2432.98
PAT	Rs.Crs.	10.05	24.89
Tangible Net Worth	Rs.Crs.	4026.14	4016.25
Total Debt/Tangible Net Worth	Times	5.53	5.13
Current Ratio	Times	1.75	1.62

KEY COVENANTS OF THE FACILITY RATED

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

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Nil

ANY OTHER INFORMATION

Nil

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	3904.22	BWR BBB+/Stable	21Jan2020	BWR BBB +/Stable	29Mar2019	BWR A/Stable	23Jan2018	BWR A/Stable
Non Fund Based	ST	300.00	BWR A2	21Jan2020	BWR A2	29Mar2019	BWR A2 +	23Jan2018	BWR A2 +
Grand Total		4204.22	(Rupees Four Thousand Two Hundred Four Crores and Twenty Two lakhs Only)

Rating Advisory, as on 22Jan2021
Press Release, as on 22Jan2021
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
Sowmya Yatham Manager - Ratings Board : +91 80 4040 9940 sowmya.y@brickworkratings.com	Vipula Sharma Director - Ratings Board : +91 80 4040 9940 vipula.s@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Andhra Pradesh Power Generation Corporation Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Cash Credit - Sanctioned	2650.00	_	2650.00
2	Working Capital Demand Loan - Sanctioned	137.64	_	137.64
3	Funded Interest Term Loan - Sanctioned	32.57	_	32.57
4	Cash Credit - Proposed	_	_	0.00
5	Term Loan - Sanctioned	984.01	_	984.01
6	Bank Guarantee - Sanctioned	_	225.00	225.00
7	Letter of Credit - Sanctioned	_	75.00	75.00
8	Working Capital Demand Loan - Proposed	100.00	_	100.00
Total		3904.22	300.00	4204.22
TOTAL (Rupees Four Thousand Two Hundred Four Crores and Twenty Two lakhs Only)

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