­Significant and consistent support from Adani Group
APMuL was incorporated in 2015 and is a 100 per cent subsidiary of Adani Power Limited (APL). Adani Power Limited is a flagship company Adani Group promoted by Mr. Gautam Adani and Mr. Rajesh Adani. APMuL has a total of 9 thermal power plants with gross total capacity of 4620 MW and long term PPAs signed for gross capacity of 4293 MW. APMuL has a total long term debt outstanding of Rs. 7624 Cr as on 31 March, 2022 with annual repayments ranging between Rs. 1500 to Rs.1700 Cr. in next three years. APMuL has been incurring losses on account of under recovery of variable cost vide the terms of original PPA, high interest cost and one-time write off of compensatory tariff in 2017. However, Adani Group has consistently supported the loan repayments and the working capital management (procurement of coal) by offering preferential credit terms. The group has demonstrated support to APMuL in the form of fund infusion both in form of equity and unsecured loans whenever required. The promoter group has infused Unsecured Perpetual Securities (with no maturity or redeemable and callable at company’s option) to the tune of Rs.8650 Cr (considered as quasi equity), with Rs.3600 Cr converted to Unsecured Perpetual Securities in FY2021 from Unsecured Loans. The Unsecured Loans stood at Rs. 93800 Cr. as on March 31, 2022 as against Rs. 8281 Cr as on March 31, 2021. Acuité believes that APMuL is a strategically important entity in the Group and will continue to receive financial support from Adani Group as and when required.  

Expected improvement in cash flows albeit decline in operating performance in FY2022
APMuL's operating performance has shown a significant decline in FY2022. The average PLF level for FY2022 stood 30 percent against 63 percent in FY2021. This primarily on account of significant increase in the coal price index and APMuL's inability to recover higher fuel costs under the existing PPAs. The generation stood at 11962 MUs in FY2022 against 25665 MUs in FY2021. This has led to decline in revenue from power sale to Rs. 5570 Cr. in FY2022 against Rs. 8348 Cr. in FY2021. Acuité notes that the company has realized Rs.5.02/unit as against fuel cost of Rs.5.06/unit for FY2022 as against Rs.3.54/unit as against the fuel cost of Rs.3.04/unit for FY2021. Despite the decline in FY2022, Acuite expects APMuL's operating performance to improve going forward on account of resolution of dispute with the GUVNL and increasing the capacity tie up to 2434 MW in March 2022 from 1320 MW previously and inclusion of complete pass through of fuel costs as per the revised PPAs. Also, the APMuL had signed a long term PPA with GUVNL (Bid-2) in 2010 with a condition that Gujarat Mines Development Corporation (GMDC) will allocate mines with a capacity of 4 MTPA for captive consumption. Since the coal mines were not allocated to APMuL, the company had filed a suit in Appellate Tribunal for Electricity for termination of PPA in 2010. However, APMuL continued supplying power to GUVNL until the final hearing of the cancellation of PPA. However, as per the Supreme Court. verdict in July 2019, the PPA was cancelled effective from January 04, 2010. APMuL had filed its petition for one time compensation with CERC which now it has waived off and APMuL and GUVNL have settled the dispute and signed on a revised PPA. This has led to improvement in APMuL's PPA tied up capacity of APMuL as Phase 1, 2 & 3 are fully tied up with GUVNL. Acuité believes the settlement of the dispute with GUVNL and inclusion of fuel cost pass through terms will improve the company's liqudity profile over the medium term. Further, the company had also stopped supplying power the HPPC since August 2021 on account of non payment of past dues. The resolution of this dispute with HPPC will remain a key rating sensitivity. Acuité believes that settlement of issues with GUVNL will lead to improvement in PLF levels and better recovery of fuel costs. This is expected to improve APMuL's liqudity profile over the medium term.

­Weak Capital Structure albeit infusion of Unsecured Perpetual Securities
The company has been incurring losses on account of under recovery of variable cost vide the terms of original PPA, high interest cost and write off of compensatory tariff. The accumulated losses stood at Rs. 14690 Cr as on 31 March 2022 against Rs. 14354 Cr. as on March 31, 2021. However, Adani Power Limited has infused Unsecured Perpetual Securities (which has been considered as quasi equity) of Rs.5050 Cr in FY2019. Further, Adani Group converted its Rs.3600 Cr. unsecured loans to Unsecured Perpetual Securities (treated as quasi equity) in FY2021, summing to ~Rs.8650 Cr. On account of further decline in operating performance and low PLF levels in FY2022 on account of significant increase in the coal cost, the overall networth declined to negative Rs. 2524 Cr. as on March 31, 2022 against Rs. 2436 Cr. in the previous year.  

Significant untied capacity
The company has existing long term PPAs only for ~92 per cent of gross total capacity as on March 31, 2022. The company has a gross total capacity of 4620 MW of which the long term PPAs has been signed for 3898 MW (Gross 4270 MW) with GUVNL (2434 MW), HPPC (1424 MW) and MUPL (40 MW). This improved significantly from previous year due to signing of revised PPA with GUVNL (Bid-2) in March 2022. APMuL supplies power for the untied capacity on short term to medium term capacity and to private players at price range of ~Rs.5.00/unit to Rs.5.50/unit through FY2022. The company’s offtake on merchant sales is dependent growth in power demand along with APMuL’s ability to generate lower cost power. The company’s profitability for merchant sales is highly dependent on coal prices. Since the company imports coal from Indonesia, the company’s cost of generation is highly dependent on the international coal prices and dollar rate which has gone up by almost 40 percent in FY2022 against FY2021. Further, the company’s ability to enter into a long term PPA for the untied capacity will remain a key monitorable.