­Support from the government of West Bengal
WBSETCL is a wholly owned undertaking of the GoWB and a strategically important entity for the power sector infrastructure in the state of West Bengal. The ownership structure provides adequate financial flexibility. It is also the nodal agency of the government for undertaking power transmission activity in the state. Being the transmission licensee, WBSETCL is mandated to ensure the development of an efficient, coordinated, and economical transmission network for smooth flow of power to the load centres. WBSETCL's credit quality is also supported by its access to funds at low cost and its ability to mobilise financial resources from several financial institutions and multilateral development institutions due to its status as a state-owned entity. Acuité believes that WBSETCL, being a 100 per cent undertaking of GoWB, shall continue to benefit from the financial, operational and management support from time to time. Any changes in the ownership pattern of WBSETCL or any event that impinges GoWB's overall credit profile shall remain a key rating sensitivity.

Inbuilt ‘cost plus tariff’ structure
The billing of transmission charges by WBSETCL is regulated and fall under the gamut of the Annual Revenue Requirement (ARR) of a ‘cost-plus’ based tariff mechanism. The regulator allows a post-tax return on equity of 15.5 per cent and other uncontrollable expenses are allowed to be passed through in tariff through the Annual Performance Review (APR) process. Acuité believes the ‘cost-plus’ based tariff mechanism will continue to sustain the stable business outlook for the company.

Steady business risk profile
WBSETCL achieved revenue of Rs.2110.55 Cr. in FY2024 as compared to revenue of Rs.2242.63 Cr. in FY2023 and Rs.1713.11 Cr. in FY2022. The profitability margins of the company are healthy with an operating margin of 74.52 per cent in FY2024 as compared to 76.69 per cent in FY2023. The PAT margins declined to 26.58 per cent in FY2024 as against 43.26 per cent as on FY2023. The moderate profitability margins have translated into low ROCE levels for the company of about 9.18 per cent in FY2024 as against 14.01 per cent in FY2023.

Healthy financial risk profile
The company’s healthy financial risk profile is marked by healthy networth, comfortable gearing and healthy debt protection metrics. The tangible net worth of the company improved to Rs. 7533.96 Cr. as on March 31, 2024 from Rs. 7019.13 Cr. as on March 31, 2024 due to accretion of reserves. Gearing of the company stood comfortable at 0.48 times as on March 31, 2023 as against 0.49 times as on March 31, 2023. The Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 0.72 times as on March 31, 2024 as against 0.73 times as on March 31, 2023. The moderate debt protection metrics of the company is marked by Interest Coverage Ratio at 5.89 times as on March 31, 2024 and Debt Service Coverage Ratio at 2.38 times as on March 31, 2024. Net Cash Accruals/Total Debt (NCA/TD) stood at 0.33 times as on March 31, 2024. Acuité believes that going forward the financial risk profile of the company will remain comfortable backed by steady accruals.

­Regulated nature of operations
WBSETCL continues to be exposed to regulatory uncertainty, given that revenues or transmission charges are influenced by the regulatory framework governing the power sector. The company operates through a cost-plus return on equity model laid down by West Bengal Electricity Regulatory Commission (WBERC). Any change or reduction in return on equity or a tightening of the WBERC norms could result in lower operating cash flows. Further, a lack of timely tariff revisions could result in cash flow mismatch in the medium term. The entity is also subject to counterparty or delayed payment risk from WBSEDCL which has a relatively weaker credit profile as compared to WBSETCL.