Press Release May 21, 2025 MANGALORE ELECTRICITY SUPPLY COMPANY LIMITED Rating Assigned and Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	260.00	ACUITE A | Stable | Assigned	-
Bank Loan Ratings	2025.00	ACUITE A | Stable | Reaffirmed	-
Bank Loan Ratings	40.00	-	ACUITE A1 | Assigned
Bank Loan Ratings	475.00	-	ACUITE A1 | Reaffirmed
Total Outstanding	2800.00	-	-
Total Withdrawn	0.00	-	-

Rating Rationale

­Acuite has as reaffirmed the long term rating of 'ACUITE A' (read as ACUITE A) and the short term rating of 'ACUITE A1' (read as ACUITE A one) on the Rs.2500.00 Crore bank facilities of Mangalore Electricity Supply Company Limited (MESCOM). The outlook is 'Stable'. Further, Acuite has assigned the long term rating of 'ACUITE A' (read as ACUITE A) and the short term rating of 'ACUITE A1' (read as ACUITE A one) on the Rs.300.00 Crore bank facilities of Mangalore Electricity Supply Company Limited (MESCOM). The outlook is 'Stable'. Rationale for Rating The rating draws comfort from the Government of Karnataka's (GOK's) complete ownership of MESCOM and its strategic importance to GOK to cater to electricity distribution in four districts of Karnataka State.The rating also factors in the favourable consumer mix, yearly revision of tariffs by Karnataka State Electricity Regulatory Commission (KERC), and regular support from GOK for the capex requirements. Further, it has healthy billing and collection efficiency at 91.37% and 100.54% respectively in FY2024. Additionally, AT&C losses stood low at 8.14% in FY2024 against 9.14% in FY2023. Moreover, the financial risk profile is moderate, marked by gearing level at 1.77 times in FY2024. The rating also takes into account the net loss reported by the company in FY2024 which stood at Rs.(-203.78 Cr.), decline in operating and profitability margins and stretched liquidity position reflected by insufficient net cash accruals against debt obligation wherein the shortfall is met by working capital management. Further, the rating remains constrained by intensive working capital operations of the company. Acuite notes the regulated nature of the operations and any significant changes in the regulatory environment will impinge on the credit profile of the company.

About the Company

­Mangalore Electricity Supply Company Limited was incorporated in 2002. The company engaged in the distribution of power in four revenue districts of Karnataka, viz. Dakshina Kannada, Udupi, Shivamogga and Chikmagaluru. The present directors are Mr. Shivanna, Mr. Rajee Jayakumar, Ms. Snehal Sudhakar Lokhande, Mr. Balaram Krishanappa, Mr. Mahadevaswamy Prasanna Koluthur Mahadevayya, Mr. Sagadageri Beeranna Prashantkumar, Mr. Shimoga Achyuthamurthy Pushpa, Mr. Reju Murickummoodu Thankachan, Mr. Dalavayee Kodandapani and Mr. Pankaj Kumar Pandey. The registered office is in Mangalore, Karnataka.

Unsupported Rating

­ACUITE BB+/Stable

Analytical Approach

­Acuité has taken the standalone view on the business and financial risk profile of Mangalore Electricity Supply Company Limited (MESCOM). Acuité has also factored in benefits emanating from the 100% ownership of Government of Karnataka along with GoK’s financial support in form of annual equity infusion and subsidies to MESCOM.

Key Rating Drivers

Strengths

­Strategic importance to Government of Karnataka (GOK) MESCOM is a wholly owned entity of GOK and holds strategic importance to GOK. MESCOM is one of the five distribution companies in Karnataka and caters to electricity distribution for four districts in Karnataka, namely Dakshin Karnataka, Udupi, Chickmangaluru, Shimoga and has long-term and short-term power purchase agreements (PPAs) with various hydel, thermal, atomic, and renewable power generators and supplies power as per tariffs regulated by the Karnataka State Electricity Regulatory Commission (KERC). By virtue of its strategic importance, the GOK has been providing funding support to the entity in the form of an annual equity infusion and subsidies. Acuite believes that MESCOM, being a 100 percent undertaking of GOK, shall continue to benefit from the financial, operational, and management support from GOK. However, any change in ownership pattern or any event that impinges on GOK's overall credit profile shall remain a key rating sensitivity. Favourable Consumer Mix and Healthy Collection & Billing Efficiency MESCOM has a favorable consumption mix, with domestic, commercial, and industrial industries accounting for almost 54 percent of total revenue in FY2024. Since commercial and industrial consumption commands a higher tariff, this correlates well with the company's revenue. The revenue of the company is backed by increase in number of connections as reflected by 27,04,301 consumers in FY2024 as against 26,35,088 in FY2023. Likewise in FY2025, the number of consumers increased and stood at 27,34,519 as on October, 2024. Further, the company has healthy collection efficiency, which is evident by 100 percent bill collections from commercial, industrial, and institutional customers in FY2024. In addition, the billing efficiency is healthy at 91.37 percent in FY2024. Moreover, the Distribution and Aggregate Technical and Commercial (AT&C) losses of the company stood at 8.63 percent and 8.14 percent respectively in FY2024 as against 8.42 and 9.14 percent in FY2023. Acuite believes that the company will continue to draw benefits from its favorable consumer mix, improved AT&C losses along with healthy billing and collection efficiency.

Weaknesses

Decline in profitability albeit increase in revenue from operations The operational income of MESCOM improved and stood at Rs.6217.75 Cr. in FY2024 as against Rs.4682.28 Cr. in FY2023. This increase is backed by the increase in sales of energy in FY2024 as compared to the previous year along with increase in number of connections. However, the EBITDA margin was negative and stood at (7.65)% in FY 2024 as against 15.00% in FY2023. Likewise, the PAT margin stood at (3.28)% in FY 2024 as against 1.11% in FY2023. The decrease in margins is on an account of lower absorption of costs due to significant increase in power purchase costs wherein average power purchase cost increased to Rs.6.87 per unit in FY2024 as against Rs.4.82 per unit in FY2023 along with increase in employee and administrative costs. Further, the revenue is estimated to be Rs.4050.07 Cr. in 9MFY2025. Acuite believes that ability of the company to sustain its scale of operations while maintaining its profitability will remain a key monitorable factor. Intensive Working capital operations The working capital operations of the company are intensive marked by GCA days of 213 days as on 31st March 2024 as compared to 194 days as on 31st March 2023. Further, the debtor days stood at 94 days as on 31st March 2024 as compared to 108 days as 31st March 2023. On the other hand, the creditor days stood at 93 days as on 31st March 2024 as compared to 47 days in the previous year. The inventory days of the company stood at 3 days as on 31st March 2024 as compared to 5 days as on 31st March 2023. The other current assets of the company stood at Rs.1966.00 Cr. in FY2024 which mostly  included RE Subsidy dues to be written off in future years, amount recoverable from generators, receivables from other ESCOMs towards energy balancing dues. The working capital limits stood at an average of 75.48% for fund- based limits and 79.45% for non-fund based limits for the last twelve months ended February, 2025. Acuité expects that the working capital operations are likely to remain intensive in near to medium term due to nature of operation. Moderate Financial Risk Profile The financial risk profile of the company is moderated, marked by the net worth of Rs.919.54 Crores in FY2024 as against Rs.1051.78 Crores in FY2023. The decline in net worth is due to decrease in reserves on an account of losses booked by company in FY2024. Further, the total debt of the company stood at Rs.1623.30 Crore as on 31st March 2024 as against Rs.1400.98 Crore as on 31st March 2023. The capital structure of the company is marked by gearing ratio which stood at 1.77 times as on 31st March 2024 as against 1.33 times as on 31st March 2023. Further, the coverage indicators of the company are reflected by interest coverage ratio and debt service coverage ratio which stood at 1.43 times and 0.53 times respectively as on 31st March 2024 as against 3.27 times and 1.23 times respectively as on 31st March 2023. The TOL/TNW ratio of the company stood at 7.07 times as on 31st March 2024 as against 4.90 times as on 31st March 2023 and DEBT-EBITDA of the company stood at 8.36 times as on 31st March 2024 as against 3.34 times as on 31st March 2023. Acuité expects that going forward the financial risk profile of the company will remain in similar range in near to medium term on account of continuous debt laden capex plans. ­Regulated nature of operations The regulatory framework governing the power sector influences the revenues. State electricity regulatory commissions determine revenues of players such as MESCOM. The Karnataka Electricity Regulatory Commission (KERC) takes into account key parameters such as the cost structure and expected return on capital employed to arrive at distribution tariffs. Any significant changes in the regulatory environment will impinge on the credit profile of the company.

Assessment of Adequacy of Credit Enhancement under various scenarios including stress scenarios (applicable for ratings factoring specified support considerations with or without the “CE” suffix)

­Acuite takes into consideration the benefit derived by MESCOM from the 100% ownership of Government of Karnataka. Stress Case Scenario While the rating has been derived on the standalone credit risk profile and cash flows of MESCOM, Acuite believes given the 100% holding of Government of Karnataka, in case of any stress case scenario, the required support would come from the state of Karnataka.

Rating Sensitivities

­Credit profile of Government of Karnataka Dynamics in the regulatory environment Sustenance of scale of operations while maintaining profitability Movement in financial risk profile leading to further strech in liquidity

Liquidity Position

Stretched

The liquidity profile of the company is stretched with net cash accruals of Rs.58.54 Cr. as on 31st March 2024 against the debt repayment obligation of Rs.231.79 Crore over the same period. The shortfall were met by managing working capital cycle to meet debt repayments timely. Going forward, the company is expected to generate net cash accruals under the range of Rs.200.00 Crore to Rs.350.00 Crore against the debt repayment obligations up to Rs.385.29 Crore over the same period. In addition, the cash and bank balance available with the company stood at Rs.73.11 Crore as on 31st March 2024. The current ratio of the company stood at 0.96 times as on 31st March 2024. Further, the working capital limits stood at an average of 75.48% for fund- based limits and 79.45% for non-fund based limits for the last twelve months ended February, 2025. Acuité believes that going forward the liquidity position of the company is expected to remain stretched in near to medium term and will remain a key monitorable factor.

Outlook: Stable

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Other Factors affecting Rating

­None

Key Financials

Particulars	Unit	FY 24 (Actual)	FY 23 (Actual)
Operating Income	Rs. Cr.	6217.75	4682.28
PAT	Rs. Cr.	(203.78)	51.85
PAT Margin	(%)	(3.28)	1.11
Total Debt/Tangible Net Worth	Times	1.77	1.33
PBDIT/Interest	Times	1.43	3.27

Status of non-cooperation with previous CRA (if applicable)

­Not Applicable

Interaction with Audit Committee anytime in the last 12 months (applicable for rated-listed / proposed to be listed debt securities being reviewed by Acuite)

Not applicable

Any other information

­None

Applicable Criteria

• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Infrastructure Sector: https://www.acuite.in/view-rating-criteria-51.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Group And Parent Support: https://www.acuite.in/view-rating-criteria-47.htm • Public Finance - State Government Ratings: https://www.acuite.in/view-rating-criteria-26.htm • Explicit Credit Enhancements: https://www.acuite.in/view-rating-criteria-49.htm

Note on complexity levels of the rated instrument

­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.

Rating History

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook 18 Jun 2024 Term Loan Long Term 173.35 ACUITE A | Stable (Assigned) Term Loan Long Term 228.09 ACUITE A | Stable (Assigned) Term Loan Long Term 195.55 ACUITE A | Stable (Assigned) Term Loan Long Term 300.00 ACUITE A | Stable (Assigned) Term Loan Long Term 47.52 ACUITE A | Stable (Assigned) Term Loan Long Term 100.83 ACUITE A | Stable (Assigned) Term Loan Long Term 38.40 ACUITE A | Stable (Assigned) Working Capital Demand Loan (WCDL) Long Term 265.00 ACUITE A | Stable (Assigned) Working Capital Demand Loan (WCDL) Long Term 100.00 ACUITE A | Stable (Assigned) Working Capital Demand Loan (WCDL) Long Term 135.00 ACUITE A | Stable (Assigned) Proposed Long Term Bank Facility Long Term 70.92 ACUITE A | Stable (Assigned) Term Loan Long Term 3.57 ACUITE A | Stable (Assigned) Term Loan Long Term 2.60 ACUITE A | Stable (Assigned) Term Loan Long Term 79.17 ACUITE A | Stable (Assigned) Term Loan Long Term 7.12 ACUITE A | Stable (Assigned) Term Loan Long Term 3.80 ACUITE A | Stable (Assigned) Term Loan Long Term 101.86 ACUITE A | Stable (Assigned) Term Loan Long Term 100.00 ACUITE A | Stable (Assigned) Term Loan Long Term 72.22 ACUITE A | Stable (Assigned) Letter of Credit Short Term 200.00 ACUITE A1 (Assigned) Proposed Short Term Bank Facility Short Term 200.00 ACUITE A1 (Assigned) Proposed Letter of Credit Short Term 75.00 ACUITE A1 (Assigned)

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Annexure - Details of instruments rated

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating Union Bank of India Not avl. / Not appl. Letter of Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 200.00 Simple ACUITE A1 | Reaffirmed State Bank of India Not avl. / Not appl. Letter of Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 75.00 Simple ACUITE A1 | Reaffirmed Not Applicable Not avl. / Not appl. Proposed Long Term Bank Facility Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 70.92 Simple ACUITE A | Stable | Reaffirmed Not Applicable Not avl. / Not appl. Proposed Long Term Bank Facility Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 126.05 Simple ACUITE A | Stable | Assigned State Bank of India Not avl. / Not appl. Short-term Loan 16 Dec 2024 Not avl. / Not appl. 16 Oct 2027 100.00 Simple ACUITE A1 | Reaffirmed State Bank of India Not avl. / Not appl. Short-term Loan 25 Mar 2024 Not avl. / Not appl. 25 Jan 2027 100.00 Simple ACUITE A1 | Reaffirmed State Bank of India Not avl. / Not appl. Short-term Loan 25 Mar 2024 Not avl. / Not appl. 25 Jan 2027 40.00 Simple ACUITE A1 | Assigned State Bank of India Not avl. / Not appl. Term Loan 16 Dec 2024 Not avl. / Not appl. 16 Dec 2035 206.05 Simple ACUITE A | Stable | Reaffirmed Union Bank of India Not avl. / Not appl. Term Loan 31 Dec 2019 Not avl. / Not appl. 30 Nov 2028 62.50 Simple ACUITE A | Stable | Reaffirmed Canara Bank Not avl. / Not appl. Term Loan 01 Dec 2018 Not avl. / Not appl. 31 Oct 2027 74.08 Simple ACUITE A | Stable | Reaffirmed Canara Bank Not avl. / Not appl. Term Loan 31 Mar 2021 Not avl. / Not appl. 31 Mar 2030 83.33 Simple ACUITE A | Stable | Reaffirmed Bank of Baroda Not avl. / Not appl. Term Loan 31 Jul 2019 Not avl. / Not appl. 31 May 2028 55.56 Simple ACUITE A | Stable | Reaffirmed Bank of India Not avl. / Not appl. Term Loan 31 Mar 2021 Not avl. / Not appl. 31 Mar 2030 144.46 Simple ACUITE A | Stable | Reaffirmed Bank of India Not avl. / Not appl. Term Loan 30 Jun 2022 Not avl. / Not appl. 30 Jun 2031 196.98 Simple ACUITE A | Stable | Reaffirmed Indian Bank Not avl. / Not appl. Term Loan 18 Apr 2023 Not avl. / Not appl. 31 Mar 2031 171.09 Simple ACUITE A | Stable | Reaffirmed State Bank of India Not avl. / Not appl. Term Loan 28 Feb 2024 Not avl. / Not appl. 31 Mar 2034 297.25 Simple ACUITE A | Stable | Reaffirmed Rural Electrification Corporation Ltd. Not avl. / Not appl. Term Loan 13 Jan 2021 Not avl. / Not appl. 31 May 2031 40.96 Simple ACUITE A | Stable | Reaffirmed Rural Electrification Corporation Ltd. Not avl. / Not appl. Term Loan 31 Oct 2022 Not avl. / Not appl. 28 Feb 2032 88.22 Simple ACUITE A | Stable | Reaffirmed Rural Electrification Corporation Ltd. Not avl. / Not appl. Term Loan 28 Feb 2022 Not avl. / Not appl. 28 Feb 2032 33.60 Simple ACUITE A | Stable | Reaffirmed State Bank of India Not avl. / Not appl. Term Loan 16 Dec 2024 Not avl. / Not appl. 16 Dec 2035 133.95 Simple ACUITE A | Stable | Assigned Union Bank of India Not avl. / Not appl. Working Capital Demand Loan (WCDL) Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 265.00 Simple ACUITE A | Stable | Reaffirmed Canara Bank Not avl. / Not appl. Working Capital Demand Loan (WCDL) Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 100.00 Simple ACUITE A | Stable | Reaffirmed State Bank of India Not avl. / Not appl. Working Capital Demand Loan (WCDL) Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 135.00 Simple ACUITE A | Stable | Reaffirmed

*Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support)

Sr No Company Name 1  Mangalore Electricity Supply Company Limited  2 Government of Karnataka

Contacts

Mohit Jain Senior Vice President - Rating Operations Archita Sharma Associate Analyst - Rating Operations	Contact details exclusively for investors and lenders Mob: +91 8591310146 Email ID: analyticalsupport@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai. Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité. Please visit https://www.acuite.in/faqs.htm to refer FAQs on Credit Rating. Note: None of the Directors on the Board of Acuité Ratings & Research Limited are members of any rating committee and therefore do not participate in discussions regarding the rating of any entity.