| • Strategically important entity to Government of Karnataka
KPTCL was unbundled in 1999 with 100% ownership of Government of Karnataka (GoK). KPTCL is the sole transmission entity in the State of Karnataka, thus making it a critical and strategically important company for GoK. Being the transmission licensee, KPTCL is mandated to ensure the development of an efficient, coordinated and economical transmission network for smooth flow of power to the load centres. The company operates through 1,230 sub stations with different voltage grades from 400KV to 66KV. The company transmits power to 5 State Power Distribution companies which, includes Bangalore Electricity Supply Company (BESCOM), Mangalore Electricity Supply Company (MESCOM), Hubli Electricity Supply Company (HESCOM), Gulbarga Electricity Supply Company (GESCOM) and Chamundeswari Electricity Supply Corporation Ltd (CESCOM). As per the Karnataka Electricity Regulatory Commission (KERC), the company has been able to lower the transmission losses year on year to ~3.04% in FY2021 from 3.13% in FY2020 and ~3.169% in FY2019.
Further, well-established regulatory processes in Karnataka such as presence of multiyear tariff regulations, etc. is benefitting the KPTCL’s operations. Under MYT regulations, KPTCL files to KERC an application indicating the Annual Revenue Required (ARR) depending on the expected cost of transmission and 15.5% rate of return on equity (RoE). Irrespective of the electricity drawn by a beneficiary in a particular month, the ESCOMs would be required to pay the fixed tariff to the KPTCL.
Acuité believes that KPTCL, being a 100 per cent undertaking of GoK, shall continue to benefit from the financial, operational and management support as and when required. The GoK has demonstrated financial support by way of equity to KPTCL on a regular basis. Any changes in the ownership pattern of KPTCL or any event that impinges GoK's overall credit profile shall remain a key rating sensitivity.
• Moderate Collection Efficiency
The collection efficiency of KPTCL has remained moderate, as its average collection efficiency stood at 80.93% in FY2022 as against 106.32% in FY2021. The decline in collection is mainly due to decline in collections from BESCOM owing to high receivables due to delay in receipt of subsidy dues from GoK and electricity dues from government bodies. BESCOM consists of ~51% of total revenue of KPTCL and collection from BESCOM was around ~58% during 9MFY22. KPTCL’s collection improved to 95.61% in H1FY2023.
• Healthy Coverage Indicators
The company has a healthy tangible net worth base of Rs.6623.57 Cr. as on 31 March 2022 as against Rs.5758.37 Cr. as on 31 March 2021. The company continues to achieve healthy profitability marked by operating profit margin of more than 57.31 per cent in FY2022 as against 57.70 per cent in the previous year. The company has achieved operating profit of Rs.2353.83 Cr. for FY2022 as against Rs.2250.50 Cr. in the previous year. This has led to healthy coverage indicators marked by interest coverage of 5.40 times for FY2022 as against 5.90 times in FY2021. Net Cash Accruals to Total Debt (NCA/TD) stood at 0.21 times for FY2022. Further, the DSCR stood moderate at 2.02 times for FY2022 as against 2.14 times for FY2021. The company has achieved net cash accruals of Rs.1995.93 Cr. as against the debt repayment of Rs.730 Cr. in FY2022. Acuité believes that going ahead, the company will continue to achieve healthy profitability margins with modest reliance on external debt, thus resulting in continued healthy coverage indicator.
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| • Moderate Gearing and TOL/TNW
The company has been upgrading its transmission lines and undergoing other capex for upgradation purpose for which the company’s reliance over external debt has remained slightly on an elevated side. The company has made net additions of ~ Rs.3082.71 Cr. in FY2022 and has plans to undergo capex of ~Rs.2,500 Cr. in FY2023. The same is expected to be funded in a ratio of 70:30 (debt : equity). The total outstanding debt stood at Rs.9582.46 Cr as on March 31, 2022 generating a gearing of 1.45 times as on March 31, 2022 as against 1.44 times on March 31, 2021. Further, the Total outside liabilities to tangible net worth (TOL/TNW) stood in the range of 2.5-3 for last 2 years ending FY2022. Despite planned debt funded capex, the gearing is expected to remain below 1.5 times and TOL/TNW below 3 times. This is on account of healthy acceleration of profits and expected infusion of capital by GoK in FY2021. Any major deviation from these will impinge a negative bias towards the rating.
• Moderate Gross Current Asset Days
The Gross Current Asset (GCA) Days for KPTCL are moderate at 176 days for FY2022 as compared to 109 days in the previous year. This is on account of significant increase in trade receivables. The trade receivables days stood at 133 days for FY2022 as against 65 days for FY2021. The increase in trade receivables was on account decline in collections from ESCOMs. However, recovery is expected in FY2023, as the collection efficiency improved to 95.61 percent in H1FY23 as against 80.93 percent in FY2022. Any further increase in debtor days, thus leading to liquidity pressures will impinge a negative bias towards the rating.
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