­Strategically important role of AVVNL for the state of Rajasthan & support extended by the GoR
AVVNL came into existence in 2000 and caters the power requirements of around 11 districts of the state including Ajmer, Bhilwara, Udaipur, Chittorgarh etc to name a few. It is a strategically important entity and forms the backbone of the power sector infrastructure for Rajasthan with area of operation of around 88000 sq. km. The status of the company as a 100 per cent government of Rajasthan (GoR) owned entity provides it adequate financial flexibility. AVVNL's credit profile 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. The rating also factors in the ongoing support extended by GoR to AVVNL in the form of regular infusion of funds in the form of equity and unsecured loans and guarantees extended by the state government. During FY2025, there was an equity infusion of Rs. 118.19 Cr.  Further, well established regulatory processes in Rajasthan such as presence of multi-year tariff regulations and grants sanctioned by the GoR has strengthened the operations of AVVNL. Acuité believes that AVVNL, being a fully owned undertaking of GoR, shall continue to benefit from the financial, operational and management support of GoR from time to time. Any event that impinges GoR's overall credit profile shall remain a key rating sensitivity.

Sustainable improvement in the AT&C losses and T&D losses over the last 10 years
AVVNL has experienced sustained improvement in the Transmission and Distribution Losses [T&D] and Aggregate Technical and Commercial Losses [AT&C] over a period of last 10 years accrued to the implementation of multiple initiatives, capex to improve transmission lines, installing substations, among others. The collection efficiency of the discom has stood in range of 93% to 100% in last 10 quarters ending Q2FY2026. However, on a YOY basis the collection efficiency has improved to 100% in H1FY2026 from 98.32% in FY2025 and 94.77% in FY2024. The AT&C losses which over a decade have recorded an improvement, registered a decline to 9.19% in FY2025 as against 15.49% in FY2024.

Below average financial risk profile
The financial risk profile remains below average marked by negative net worth and deterioration in the coverage indicators. However, the discom has reported profits in FY25 that resulted in improvement in the net worth. The debt levels stood at Rs.26,084.41 crore as on March 31, 2025 against Rs.24,624.92 crore as on March 31, 2024 due to the highly capital-intensive nature of business wherein to maintain the operational efficiencies, the company has to regularly incur capital expenditures. This higher debt has resulted in the deterioration of the debt protection metrics, reflected by moderate interest coverage ratio (ICR) of 2.03 times in FY25 against 1.71 times in FY24 and low debt service coverage ratio (DSCR) of 0.84 times in FY25 against 0.78 times in FY24. Though the company’s DSCR has been weak in the past three years ended FY25. Acuité notes that AVVNL has received regular support from GoR in the form of grants and equity infusion to support their operations which is expected to continue going forward.

Moderation in profitability; though losses recovered by State Government in a phased manner
AVVNL reported revenues of Rs.21,522.73 crore in FY2025, down from Rs.21,882.35 crore in FY2024, primarily due to reduced consumption in the agricultural and industrial segments. Additionally, the absence of inflationary adjustments in tariffs led to a decline in the EBITDA margin to 15.67% in FY2025 from 17.68% in FY2024. The company posted profits in FY2025 owing to exceptional items, including the reclassification of UDAY grants—previously treated as capital in nature—now recognized as revenue subsidy. At the PBT level, however, AVVNL incurred a loss of Rs.288.96 crore in FY2025 compared to a profit of Rs.575.23 crore in FY2024.

Based on the 15th Finance Commission’s recommendation, the Ministry of Finance approved an additional borrowing space of 0.50% of GSDP for states in the power sector, contingent on meeting specific conditions. This measure aims to enhance operational and economic efficiency and promote sustained growth in paid electricity consumption. The special dispensation applies annually for four years, from FY2021-22 to FY2024-25. Under this scheme, the Government of Rajasthan has committed to absorbing future losses of the discoms in a phased manner, starting with 100% of losses from FY2024-25 onward.

­­Regulated nature of operations
The revenues are influenced by the regulatory framework governing the power sector. Revenues of players such as AVVNL are determined by Rajasthan Electricity Regulatory Commission (RERC) through revision in tariff. Any significant delays in tariff approvals or a reduction in return on equity or a tightening of the RERC norms could result in lower operating cash flows. Acuité believes that any significant change in the regulatory environment will impinge on the credit profile of the company.