CESC LIMITED. Ratings

Transcription

1 Ratings CESC LIMITED Facilities/Instruments Amount Ratings 1 Remarks Long-term Bank Facilities (reduced from 1,015.0) CARE AA (Double A) Reaffirmed Short-term Bank Facilities CARE A1+ (A One Plus) Reaffirmed Total bank facilities 1,155.4 Short-term Debt (including Commercial Paper)* CARE A1+ (A One Plus) Reaffirmed *CESC maintains that the aggregate outstanding under STD/CP and cash credit shall be within the fund based limit. Rating Rationale The ratings continue to derive strength from the established track record of CESC Ltd (CESC), long experience of the promoters, professional and highly qualified management team, high operational efficiency reflected by better-than-normative Plant Load Factor (PLF) & T&D loss, full metered supply with almost 100% collection efficiency, improving financial performance with high level of cash accruals, low gearing and high level of cash surplus (parked in fixed deposits and mutual funds). The ratings are constrained by CESC s substantial exposure in subsidiaries for implementation of power projects & funding losses and regulatory risks. The ability of the company to maintain profitability amid increasing competition and successful completion of the ongoing projects under subsidiary companies remain the key rating sensitivities. Company Background CESC Ltd (CESC), incorporated in 1978 and belonging to the RP-Sanjiv Goenka group, is a vertically-integrated power utility engaged in generation, transmission and distribution of electricity to the consumers in its licensed area, covering Kolkata, Howrah and adjoining areas. As on September 30, 2013, the company had four thermal (coal-based) power stations with total generating capacity of 1,225 MW serving 2.7 mn consumers in its 567 sq km licensed area. The peak load met during FY13 (refers to the period from April 01 to March 31) is 1,865 MW. Credit Risk Assessment Long track record of the company CESC is a vertically integrated power utility engaged in the business of generation, transmission and distribution of electricity to the consumers in its licensed area. Besides providing un-interrupted power supply, CESC is providing various web-based services (e-bills, sms alerts on planned & unplanned outages and resumption, etc) to customers, further enhancing its customer service. Established group with presence across diverse business verticals CESC is a part of RP-Sanjiv Goenka Group. The other major companies of the group are Phillips Carbon Black (rated CARE A+/A1+), Noida Power, Saregama India (rated CARE BBB/A3+), Firstsource Solutions Ltd. (CARE BBB+/A3+), Haldia Energy Ltd (CARE BBB+), Dhariwal Infrastructures Ltd. (CARE BBB), Spencer s Retail Ltd etc. The group has interests across diverse business segments such as power, infrastructure, carbon black, retail, education, BPO, and media & entertainment. With over Rs.14,000 crore worth of assets, the group has ambitious growth plans. Professional and highly qualified management team CESC has a highly qualified and experienced employee pool having large experience in their related field. CESC s improvement in operational efficiency over the years can be attributed to its sound management team. Strong Transmission & Distribution (T&D) network with T&D loss below admissible limits, fetching higher returns CESC has a strong T&D network. Currently, it has around 19,500 ckt km of distribution network, of which 850 ckt km has been set up in FY13. The distribution network operates based on 6 KV, 11 KV, 20 KV and 33 KV lines, supplemented by 132 and Complete definition of the ratings assigned are available at and in other CARE publications 1

2 KV lines. CESC has been making substantial investment for network maintenance and upgradation. This has resulted in consistent decline in T&D loss over the last few years. T & D loss has reached a comfortable level of 11.9% in FY13 vis-à-vis normative level of 14.4% as per WBERC regulations. Highly satisfactory PLF CESC s combined PLF (excluding New Cossipore) was 86% in FY13 (higher than normative levels as per WBERC Regulations). Station-wise PLF of CESC for the last three years, vis-à-vis normative PLF is as follows: Station-wise PLF Normative PLF FY11 FY12 FY13 Budge Budge Southern Titagarh Combined PLF (excluding New Cossipore) New Cossipore # # New Cossipore is over six decade old plant which operates only to support peak demand Full metered supply with high collection efficiency The company has almost 100% metered supply in its command area and customers are billed based on meter readings. The company s billing procedure is fully computerised and its collection efficiency was over 99.6% in FY13. Low business risk due to regulated operations with cost-plus based tariff fixation Power is a highly regulated sector. CESC s tariff is determined by WBERC on cost-plus basis. Accordingly, CESC s average tariff was increased from Rs.5.45/unit in FY12 to Rs.6.09/unit in FY13, to pass on increase in cost. Such pass through by the regulatory authority enables the company to maintain the profitability. However there may a time lag in passing of the orders and hence in the interim, CESC is allowed to pass on the hike in fuel cost through Monthly Variable Cost Adjustment (MVCA) mechanism, by which CESC s tariff is adjusted on monthly basis. This ensures steady profitability as well as cash flows for CESC, thus resulting into low business risk. Fuel sourcing arrangements Coal is the major input for the company, which has witnessed significant price volatility, coupled with supply shortage over the past few years. However, the company is insulated from the same in view of assured coal supply & pass on mechanism embedded in the tariff fixation formula. Coal is procured from an associate company ICML (50-55%), various subsidiaries of Coal India Ltd. (35-40%) under FSA and through import from Indonesia (around 5-10%). Strong cash accruals with highly comfortable liquidity position The current tariff fixation formula ensures complete recovery of costs when operating targets are met and additional incentives for surpassing such targets. CESC has been consistently surpassing its targets in terms of PLF, T&D loss, usage of coal and oil, Station Heat Rate, etc., which has resulted in steady improvement in sales and cash accruals over the years. Revenue from sale of power grew by 13.8% in FY13 over FY12 due to increase in average tariff to Rs.6.09/unit in FY13 vis-à-vis Rs.5.45/unit in FY12, as per the order of WBERC. GCA improved from Rs.845 crore in FY12 to Rs.925 crore in FY13. Interest coverage also remained satisfactory. In Q1FY14, CESC reported a PAT of Rs.131 crore on operating income of Rs.1,404 crore. Currently, CESC is charging an average tariff of Rs.6.19/unit. CESC has ample liquidity, with significant investment aggregating to Rs.775 crore (Rs.620 crore in fixed deposits and Rs.155 crore in liquid mutual funds), as on June 30, 2013, and unutilized bank limits. Average utilisation of bank limits during the last 12 months (August July 2013) was low at 40%. Substantial exposure in group companies CESC s exposure to the subsidiary/associate companies as on March 31, 2013 was Rs.3,269 crore vis-à-vis Rs.2,113 crore, as on March 31, Exposure to group companies increased due to pre-planned equity investment in CESC Infrastructure Ltd for 2

3 ongoing projects at Haldia & Chandrapura, investment in Spencer s Retail Ltd to fund the losses and acquisition of Firstsource Solutions Ltd, a leading BPO company. Out of the total exposure in group companies, SRL accounted for majority (40%) of it. SRL has been involved in retail activities and operates 132 retail stores including 26 hypermarkets (under Spencer s brand) across India. SRL has been incurring losses over the last five years. During the last four years, SRL has taken various initiatives to contain losses, like cutting high overhead costs and closing down unprofitable stores and rolling out large format stores, which enabled them to reduce operating losses in FY13. Further, SRL has also exited its music retailing business under Music World brand, on account of falling demand for its products (as consumers can easily download music and videos from internet rather than buying CDs and DVDs). The management expects to breakeven on overall basis in the next couple of years. Project risk CESC is currently setting up thermal power generation capacity at Chandrapur & Haldia under different subsidiaries, which are enumerated as under: Particulars Capacity (MW) Cost Equity Debt Chandrapur, Maharashtra 600 3, ,609.0 Haldia, WB 600 3, ,555.0 Total 1,200 6, , ,164.0 Both the projects are in the books of subsidiaries, and accordingly, CESC will only provide the required contribution (equity) in the form of investment in subsidiaries. As on August 31, 2013, an aggregate amount of approximately Rs.5,500 crore have already been spent on the above projects. Prospects The domestic demand outlook for power remains strong. CESC, with experience & capabilities in the sector, is well positioned to benefit from the opportunity. CESC s credit profile will continue to benefit from its strong operating efficiency along with regulated tariff regime. Financial Results Year ended /As on March 31, Particulars (12 m, A) (12 m, A) (12 m, A) Working results Income from operations 4,217 4,733 5,368 PBILDT 1,188 1,274 1,446 Interest Depreciation PBT PAT Gross Cash Accruals Financial Position Equity share capital Tangible networth 4,237 4,869 5,598 Total Debt 3,952 4,128 4,762 Ratios Growth (%) Growth in total operating income Growth in PBILDT

4 Year ended /As on March 31, Particulars (12 m, A) (12 m, A) (12 m, A) Profitability (%) PBILDT margin PAT margin ROCE RONW Leverage ratios Debt Equity ratio Overall Gearing ratio Interest Coverage Total debt/ GCA Liquidity Current Ratio Quick Ratio Turnover Average collection period (Days) Average creditors period (days) Average inventory days Operating cycle (days) Note Liabilities on capital account paid by customers on account of new meters and advances received for laying new cable lines convertible to capital contribution on completion of installation has been included in networth. Advance received from consumers for capital jobs has been included in networth. Mr. Y. H. Malegam, who is an independent director on the board of Firstsource Solutions Ltd, is one of CARE s Rating Committee Members. To comply with the regulations, the member has not participated in the rating process and in the rating committee meeting. (This follows our brief rational for entity published on 10 th October 2013) DISCLAIMER CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. 4

5 CARE is headquartered in Mumbai, with Offices all over India. The office addresses and contact numbers are given below: HEAD OFFICE: MUMBAI Mr. D.R. Dogra Managing Director Mobile : dr.dogra@careratings.com Ms. Meenal Sikchi Vice President Bank Loan & Instrument Rating Mobile: mail: meenal.sikchi@careratings.com Mr. Rajesh Mokashi Dy. Managing Director Mobile rajesh.mokashi@careratings.com Mr.Ankur Sachdeva Vice President Banking & Financial Services Mobile: ankur.sachdeva@careratings.com CREDIT ANALYSIS & RESEARCH LTD. HEAD OFFICE 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: care@careratings.com Fax: KOLKATA Ms. Priti Agarwal Cell: Tel: / 1602 E- mail: priti.agarwal@careratings.com 3rd Flr., Prasad Chambers (Shagun Mall Bldg), 10A, Shakespeare Sarani, Kolkata CHENNAI Mr. V Pradeep Kumar Cell: Tel: / Fax: pradeep.kumar@careratings.com Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai AHMEDABAD Mr. Mehul Pandya Cell: Tel: Fax: mehul.pandya@careratings.com 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad NEW DELHI Ms. Swati Agrawal Cell: Tel: / swati.agrawal@careratings.com 3 rd Floor, B -47, Inner Circle, Near Plaza Cinema, Connaught Place, New Delhi BENGALURU Mr. Dinesh Sharma Cell: Tel: / Tele fax: dinesh.sharma@careratings.com Unit No , 11 th Floor, Prestige Meridian II No-30, M.G. Road, Bengaluru HYDERABAD Mr. Saikat Roy Tel: saikat. roy@careratings.com 401, Ashoka Scintilla , Himayat Nagar Hyderabad PUNE Mr. Rahul Patni Cell: Tel: rahul.patni@careratings.com 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune JAIPUR Mr. Rahul Jain Cell: Tel: /14 rahul.jain@careratings.com 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur