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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 290.00 | ACUITE AA- | Stable | Reaffirmed | - |
| Bank Loan Ratings | 110.00 | - | ACUITE A1+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 400.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long term rating of ‘ACUITE AA-’ (read as ACUITE double A minus) and short term rating of ‘ACUITE A1+’ (read as ACUITE A one plus) to Rs. 400.00 Cr bank facilities of Bokaro Power Supply Company Private Limited (BPSCL). The outlook remains ‘Stable’.
Rationale for the rating The rating on BPSCL takes into account the sound business risk profile of the company as reflected from its strong operating performance coupled with healthy profitability. Further, it is also supported by the strong parentage and the strategic importance to the parent i.e. SAIL and its, healthy financial position characterised by negligible debt and robust debt coverage indicators. BPSCL’s long term ‘cost plus’ PPA with SAIL and the secured raw material linkages underpin its steady operating performance. These strengths are however, partly offset by working capital intensive nature of the business and counterparty risk accruing from dependence on a single buyer. |
| About the Company |
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Incorporated in 2001, Bokaro Power Supply Company Private Limited (BPSCL) is owned jointly and equally by Steel Authority of India Limited (SAIL) and Damodar Valley Corporation (DVC). The company is engaged in thermal power generation for Bokaro Steel Plant (BSL), which pertains to SAIL. SAIL and DVC both have equal representation in the board of directors and the chairman is nominated by DVC. The plant has an aggregate generation capacity of 338 MW of power and 2180 Tonne per Hour (TPH) of steam, exclusively for use by BSL. Further, the plant has 9 boilers (5 boilers each of 220 TPH, 3 boilers each of 260 TPH capacity and 1 boiler of 300 TPH) and 7 turbine generators (one 12 MW back Pressure Turbine Generator (TG), 2 TGs each of 55MW capacity, 3 TGs each of 60 MW capacity and one 36 MW back Pressure Turbine Generator).
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| Analytical Approach |
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Acuité has taken a standalone rating approach while arriving at the ratings of Bokaro Power Supply Company Private Limited (BPSCL). However, Acuité has also notched up the rating due to the strategic importance of the entity and its strong business linkages with the Bokaro Steel Plant of SAIL.
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Key Rating Drivers
| Strengths |
| • Strategic importance and strong business linkages with SAIL
The ownership structure of BPSCL provides adequate financial flexibility, as the company is a joint venture of SAIL and DVC with 50 per cent shareholding of each. BPSCL also derives significant benefits from its strong operational linkages with SAIL, as reflected from its operational performance and timely settlement of receivables from SAIL. BPSCL has a strategic importance to SAIL as it caters to around 55 per cent of the total power requirement of its Bokaro Steel Plant (BSL). Acuité notes that Bokaro Steel Plant (BSL) is one of the key steel producing units of SAIL with the largest installed capacity Acuité believes that BPSCL, from its status as a captive power unit for BSL and its critical role in ensuring uninterrupted power supply to Bokaro Steel Plant, shall continue to benefit from the financial, operational and management support from SAIL as and when required. Any changes in the ownership pattern of BPSCL or any event that impinges SAIL’s overall credit profile shall remain a key rating sensitivity. • Long term ‘cost plus’ Power Purchase Agreement with SAIL BPSCL has a long term Power Purchase Agreement (PPA) of 14 years with SAIL from March 2017 with a renewal clause. As per the PPA, the tariff is based on the ‘cost plus’ structure with a fixed return on equity (RoE), which includes recovery of fixed and variable costs, that is, full pass through of any raw material cost escalations and interest on working capital along with specified return on equity. BPSCL sells its entire power and steam output to Bokaro Steel Plant. Acuité derives strength from the Power Purchase Agreement (PPA) and further believes that the long term PPA and the very high likelihood of its renewal mitigates any offtake and profitability risks. • Steady operating performance with assured raw material linkages The comfortable business risk profile of the company is marked by the strong operating performance of the company. The company has achieved revenue of Rs.767.49 Cr in FY2022 as compared to Rs.744.60 Cr in FY2021. Further, the operating margin rose to 11.59 per cent in FY2022 from 12.51 per cent in FY2021. The PAT margin of the company increased to 9.53 per cent in FY2022 from 10.80 per cent in FY2021. The increase in profitability margins translated into healthy Return on Capital Employed (ROCE) of the company, which stood at 10.57 per cent as on FY2022 as compared to 10.64 per cent as on FY2021. Moreover, BPSCL has existing fuel supply agreements with government owned companies like Bharat Coking Coal Limited and Central Coalfields Limited. The company also purchases coal from SAIL. Hence, the risks related to steady fuel supply are largely mitigated for BPSCL. Acuité believes the raw material linkages provide further support to the business risk profile of the company and ensure uninterrupted generation. •Robust financial risk profile The robust financial risk profile of the company is marked by strong net worth, low gearing and healthy debt protection metrics. The tangible net worth of the company improved to Rs. 908.37 Cr as on March 31, 2022 as compared to Rs. 860.23 Cr as on March 31, 2021 due to accretion of profits. Gearing stood very low at 0.02 times as on March 31, 2022 as compared to 0.07 times as on March 31, 2021. The healthy debt protection is marked by interest coverage ratio of 37.30 times and DSCR stood of 29.22 times as on March 31, 2022. The net cash accruals to total debt (NCA/TD) stood at 4.34 times as on March 31, 2022. Acuité believes that BPSCL’s financial risk profile will continue to remain robust on the back of healthy cash accruals from operations and conservatively geared capital structure with minimal dependence on external borrowings. |
| Weaknesses |
| • Working capital intensive nature of operations
The working capital intensive nature of operations of the company is marked by the high Gross Current Asset (GCA) days of 218 days as on March 31, 2022 as against 226 days as on March 31, 2021. The high GCA days, however is on account of a high proportion of Other Current Assets consisting of mainly advance tax. However, the debtor days stood low at 57 days as on March 31, 2022 as compared to 65 days in as on March 31, 2021. Further, the inventory days stood comfortable at 45 days as on March 31, 2022 as compared to 55 days as on March 31, 2021. Going forward, Acuité believes that the working capital operations of the company will remain at same level as evident from comfortable collection mechanism and inventory levels over the medium term. |
| ESG Factors Relevant for Rating |
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Not Applicable
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| Rating Sensitivities |
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| Material covenants |
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None
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| Liquidity Position: Strong |
| Strong |
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The company’s liquidity profile is strong marked by healthy net cash accruals of Rs. 73.45 Cr as on March 31, 2022 as against no debt obligations. The current ratio stood comfortable at 3.66 times as on March 31, 2022. Further, the fund based limit remains utilised at 17 per cent over the four months ended October, 2022. The cash and bank balances of the company stood at Rs.193.62 Cr as on March 31, 2022 as compared to Rs.199.14 Cr as on March 31, 2021. However, the working capital intensive nature of operations of the company is marked by the high Gross Current Asset (GCA) days of 218 days as on March 31, 2022 as against 226 days as on March 31, 2021. Acuité believes that going forward the company will maintain strong liquidity position due to steady accruals.
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| Outlook: Stable |
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Acuité believes that the company’s outlook will remain 'stable' over the medium term driven by its comfortable business risk profile and strong financial risk profile, supported by the high level of business linkages with SAIL. The outlook may be revised to 'Positive' in case the company registers a sustained growth in revenues and profitability while maintaining its financial risk profile. The outlook may be revised to 'Negative' if there is any significant deterioration in its business and financial performance derived from a decline in the credit quality of SAIL or any unexpected increase in borrowings due to debt funded expansion plans.
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| Other Factors affecting Rating |
| NA |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 767.49 | 744.60 |
| PAT | Rs. Cr. | 73.12 | 80.41 |
| PAT Margin | (%) | 9.53 | 10.80 |
| Total Debt/Tangible Net Worth | Times | 0.02 | 0.07 |
| PBDIT/Interest | Times | 37.30 | 32.53 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
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None
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| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Service Sector: https://www.acuite.in/view-rating-criteria-50.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
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