Continuous support from the Government of West Bengal
WBSEDCL is a wholly-owned undertaking of the West Bengal government and is a strategically important entity which forms the backbone of the power sector infrastructure for West Bengal. It is the government's focal point for implementing the state's Rural Electrification (RE) task, which aims to give all rural families access to electricity in accordance with the National Rural Electrification Policy. The status of the company as a 100 per cent Government of West Bengal (GoWB) owned entity provides financial flexibility. The ability of WBSEDCL to acquire funding at affordable costs and to deploy financial resources from various financial institutions and multilateral development organisations would further support the credit profile of the company. The rating factors in the ongoing support extended by GoWB to WBSEDCL. West Bengal, India’s sixth largest state in terms of economic size, has a projected Gross State Domestic Product (GSDP) of Rs. 17.13 trillion (US$ 221.37 billion) in 2022-23. The state’s GSDP grew at a CAGR of 11.54% from 2015-16 to 2022-23BE. Acuité believes that WBSEDCL, being a 100 per cent undertaking of GoWB, shall continue to benefit from the financial, operational and management support from time to time. The GoWB has consistently shown its financial support by lending money to WBSEDCL. Any changes in the ownership pattern of WBSEDCL or any circumstance that has an impact on GoWB's overall credit profile will continue to be a primary rating sensitivity.
Growth in the scale of operations supported by favourable consumption mix
The company has registered around 8.13 per cent y-o-y growth in the operating income and has achieved revenues of Rs.29795.10 Cr in FY2023 as compared to Rs.27555.13 Cr in FY2022. The increase in the revenue levels are supported by increase in the number of units sold along with the company’s favourable consumption mix. The company’s three major revenue generating segments are domestic, commercial and industrial followed by irrigation and others contributing to less than 3 per cent of the total sales. In FY2023, around 46 per cent of the mix constitutes the commercial and industrial consumers and that of domestic consumers stood at 34 per cent. The PAT margins stood improved at 0.07% in FY2023 as against -0.75% in FY2022. The operating margin stood at 4.59% in FY2023 as against 14.27% per cent in FY2022. The deterioration in the operating margin is primarily due to increase in the Aggregate Technical & Commercial (AT&C) losses along with increase in the depreciation and interest costs. The AT&C losses increased to 17.27% in FY2023 as against 16.65% in FY2022 due to further stretch in the gap between the average cost of supply and the average sale per unit. The ROCE level for the company is about 4.65% in FY2023 as against 4.14% in FY2022. Acuité believes that, going forward, increase in the scale of operations along with improvement in the profitability margins will be a key rating sensitivity.
Healthy financial risk profile
The company’s healthy financial risk profile is marked by healthy net-worth, comfortable gearing and moderate debt protection metrics. The tangible net worth of the company improved to Rs. 24773.91 Cr as on March 31, 2023 from Rs.22766.68 Cr as on March 31, 2022 due to accretion of reserves and increase in consumers contributions. Gearing of the company stood comfortable at 0.67 times as on March 31, 2023 as against 0.72 times as on March 31, 2022. The Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 1.51 times as on March 31, 2023 as against 1.61 times as on March 31, 2022. The moderate debt protection metrics of the company is marked by Interest Coverage Ratio at 1.71 times as on March 31, 2023 and low Debt Service Coverage Ratio at 0.78 times as on March 31, 2023. Net Cash Accruals/Total Debt (NCA/TD) stood low at 0.08 times as on March 31, 2023. Acuité believes that going forward the financial risk profile of the company will remain healthy backed by the gradually improving accruals.

High level of Distribution and Aggregate Technical & Commercial (AT&C) losses with increasing regulatory assets
WBSEDCL’s distribution losses increased to 17.14% in FY2023 as against 15.11% in FY2022. However, the increase in distribution losses remained within the normative levels of 17.50% as allowed by West Bengal Electricity Regulatory Commission (WBERC). The Aggregate Technical & Commercial (AT&C) losses rose to 17.27% in FY2023 as against 16.65% in FY2022. The AT&C losses went up due to increase in the gap between the average cost of supply and average realised revenue along with moderation in the billing efficiency in FY2023 which stood at 83.28% as against 84.83% over the previous year. Going forward, with the aim to reduce these losses, the company has undertaken the Results Linked Distribution Sector Scheme (RDSS). The RDSS project involves financial support for prepaid smart metering and loss reduction works. The project cost is around Rs.19893.03 Cr which is expected to be completed by 31 March, 2026. The project will be funded by the Government of India and Asian Development Bank. Furthermore, WBSEDCL was impacted by the rise in the regulatory assets of the company on account of further increase in the gap between the average cost of supply and average tariff resulting in build- up of regulatory asset to the extent of Rs.20014.06 Cr as on FY2023 from Rs.18330.17 Cr as on FY2022. WBSEDCL submitted the application for Multi Year Tariff (MYT) determination for the eighth control period comprising of the years 2023-24, 2024-25, 2025-26 before the commission on 30 November, 2022. However, WBERC approved the same tariff of Rs.7.12 per kWh which was the existing rate of tariff of 2022-2023.
Regulated nature of operations
The revenues are influenced by the regulatory framework governing the power sector. Revenues of players such as WBSEDCL are determined by state electricity regulatory commissions. The West Bengal Electricity Regulatory Commission (WBERC) takes into account key parameters such as the cost structure and expected return on capital employed to arrive at distribution tariffs. Acuité believes that significant changes in the regulatory environment will impinge on the credit profile of the company.