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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 1000.00 | ACUITE AAA | Stable | Assigned | - |
| Total Outstanding Quantum (Rs. Cr) | 1000.00 | - | - |
| Rating Rationale |
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Acuite has assigned its long term rating of ACUITE AAA (read as ACUITE triple A) on the RS 1,000 Cr bank facilities of NLC India Limited (NLCIL). The outlook is 'Stable'.
The rating assigned factors in the strategic importance of NLC India Limited (NLCIL), a Navratna public sector undertaking (PSU), to the Government of India (GoI) in the mining and power generation and the majority shareholding (79.2%) of the GoI. The rating also draws comfort from the NLCIL’s strong business risk profile in lignite mining, coal mining and power generation. Further, the risk of fuel availability for its coal-based plants is also mitigated through long-term fuel linkages with the subsidiaries of Coal India Limited (CIL), Talabira coal mines and Pachwara South coal block in Odisha. The long-term power purchase agreements (PPAs) with the state discoms limit the demand risks for the power generation assets and the cost-plus tariff structure ensures steady profitability, resulting in comfortable debt coverage metrics. The rating also considers NLCIL’s diversification into renewable power generation. The rating strengths are however constrained by counterparty credit risks associated with weak to moderate credit profile off takers, large-size debt-funded capex plans and project implementation risks associated therewith. |
| About the Company |
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Incorporated in November 1956, NLC India Limited (NLC; erstwhile Neyveli Lignite Corporation Limited), is an integrated power company having captive lignite and coalmines and a consolidated generation capacity of 6,061 MW. The company was awarded the ‘Navratna’ status in the year 2011, and it acts as a Nodal Agency for lignite mining appointed by the Ministry of Coal (MoC), with majority market share in lignite mining in the country. NLCIL serves as an important source of power generation to the states of Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, Telangana, Rajasthan, and Union Territory of Puducherry. It operates four open cast lignite mines with current capacity of 30.1 MTPA, namely Mine I, Mine IA, Mine II and Barsingsar Mine. It also operates an open cast coalmine, Talabira II & III having current capacity of 20.0 MTPA. NLC has lignite thermal power generation capacity of 3640 MW, with 4 pithead power plants at Neyveli, Tamil Nadu, 1 pithead power plant at Barsingsar, Rajasthan and a 1000 MW coal plant through JV (NTPL) in Tamil Nadu. The company also has solar energy capacity of 1370 MW and wind energy capacity of 51 MW. NLC operates on a cost plus basis with electricity tariff determined by CERC and also the lignite transfer price is determined by CERC.
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| Analytical Approach |
| Acuité has combined the business and financial risk profiles of NLC and its joint ventures (JVs)—NLC Tamil Nadu Power Ltd (NTPL; 89% held by NLC) and Neyveli Uttar Pradesh Power Ltd (51% held by NLC)—due to the stated position of the management of providing complete financial and managerial support to the JVs. |
Key Rating Drivers
| Strengths |
| Navratna PSU with strategic importance to the government
NLC was established by the GoI in the year 1956, following the discovery of lignite deposits in Neyveli, Tamil Nadu. With 79.20% stake as on March 31, 2023, the GoI majorly owns the company. The tripartite agreement between the GoI, state governments and the Reserve Bank of India (RBI) provides financial flexibility to the company in raising funds at competitive rates. India had total measured proved lignite reserves of 7,374 million tonne (MT) of which NLC had 5,107 MT (~70%). The company is a major provider of power for south India. Increased operational efficiency buoyed by presence of captive mines NLCIL has recorded a growth in operating income by ~38 per cent in FY 2023 as compared to FY 2022, as the revenue increased to Rs 17,383 Cr in FY 2023 from Rs 12,589 Cr in FY 2022, on account of higher plant load factor (PLF) due to higher power demand, better realisation from its mining activities and lower under-recoveries in the power business on better fuel availability. The company recorded highest ever power generation of 30.08 BU in FY23. Revenue from sale from the Coal of Talabira has witnessed a jump of 93 percent and stood at Rs.1,774 Cr, aiding the profitability of the mining division as the company sold the excess capacity in open market as per the GoI’s directive. Further, the fixed cost under-recoveries during FY23 reduced to Rs 507 Cr as against Rs 784 Cr in FY22. Acuite believes that the company has been able to maintain healthy EBITDA (prior adjustment of regulatory deferral account balances and extra ordinary item) of Rs. 7059 Cr in FY23 vis-à-vis Rs. 4926 Cr in FY22 as the tariff competitiveness of the projects are supported by the availability of captive mines. Further, commissioning of NUPPL (JV with Uttar Pradesh Rajya Vidyut Utpadan Nigam Ltd) plant of 1980 MW capacity during current year 2024, will augment the top line going forward. Low demand risk supported by long-term PPA arrangement All the power plants of NLC (thermal, wind and solar) have long-term PPAs of 25 years with the state power Discoms in southern India and Rajasthan with a regulated two-part tariff structure, mandated by the Central Electricity Regulatory Commission (CERC). The tariff structure of every thermal power plant of NLC is divided into two parts, i.e., capacity charges upon maintaining plant availability factor (PAF) ensuring recovery of all the fixed overheads for each power plant along with a fixed return on equity (RoE). Energy charges for lignite are decided by the CERC and incorporated by the CERC in its tariff order and billed along with the power tariff. Also, the under-construction project in Uttar Pradesh has tied up long-term PPAs with Uttar Pradesh and Assam for the entire capacity. Limited fuel supply risk The lignite-based power plants mostly operate as pithead power stations which have access to captive lignite mines with capacity of 30.10 MTPA as on March 31, 2023. Lignite from mines is used as fuel for pit- head thermal power plants, providing continuous demand for the mining segment and leading to low fuel risks for the thermal plants. While majority of NLCIL’s thermal stations are pit-head power plants, the 1,000- MW coal-based power plant in Tuticorin and the upcoming 1,980-MW coal-based unit in Uttar Pradesh are non-pit head plants. The coal supply for these plants is secured through long-term fuel linkages with the subsidiaries of Coal India Limited (CIL) and the supply from the 20-MTPA Talabira coal mines in Odisha and the 9.0 MTPA Pachwara South coal block in Jharkhand. Fuel requirement for the coal-based NTPL plant is partly met through a coal swapping arrangement entered with NTPC Limited wherein Mahanadi Coalfields Ltd supplies 2.4 million tonne per annum (MTPA) coal to NTPL in lieu of the coal from NLC’s Talabira, Orissa mines. Healthy financial Risk Profile The financial risk profile of the company is healthy with robust net worth, moderate leverage ratios and comfortable coverage indicators. The net worth of the company increased in FY 2023 to Rs 17,446 Cr as against Rs 16,184 Cr in FY 2022 and Rs 15,234 Cr in FY 2021, with healthy accretion of profits to its reserves. The leverage ratios of the company remains moderate with debt-equity ratio of 1.28 times in FY 2023 as against 1.36 times in FY 2022 and TOL/TNW ratio of 2.03 times in FY 2023 as against 2.06 times in FY 2022. Further, the tripartite agreement between the GoI, state governments and the Reserve Bank of India (RBI) provides financial flexibility to the company in raising funds at competitive rates. Due to the on-going planned capex debt-EBIDTA increased to 4.59 times in FY 2023 as against 3.99 times in FY 2022. The coverage indicators improved in FY23 supported by higher cash accruals, as interest- coverage-ratio stood comfortable at 4.81 times in FY 2023 as against 3.21 times in FY 2022. Debt-service- coverage-ratio also increased to 1.63 times in FY 2023 as against 1.49 times in FY 2022. Acuité believes despite large capex plans and expected regular dividend pay-out, the financial risk profile, is expected to remain healthy over the medium term backed by robust networth level, un-utilized bank limit and sizeable cash accrual. |
| Weaknesses |
| Exposure to counterparty credit risk; increase in receivables in FY23
NLC remains exposed to the counterparty credit risks on account of the weak financial profile of the state Discoms. The company has a receivable outstanding of Rs 4,794 Cr as on 31st March, 2023 as against Rs 3,958 Cr as on 31st March, 2022 from various discoms. The debtors increased in FY23 on account of the conversion of receivables from TANGEDCO into 48-month instalments under LPS scheme. Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) is one of the major customers and accounts for ~76 per cent of the total debtors. In Q1FY23, the Ministry of Power (MoP) vide notification dated June 03, 2022, notified Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, allowing the Discoms to liquidate overdue amount in instalments. Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) has availed the facility to repay the outstanding dues in 48 equally monthly instalments. Execution risks associated with large capex NLCIL has sizeable expansion plans with a planned capex of ~Rs. 15,000 crore over FY2024- FY2025. The key ongoing projects are the 1,980-MW power plant in Uttar Pradesh, 2,400- MW Talabira pit-head thermal power station, Talabira and Pachwara coal mines in Odisha and Jharkhand, FGD capex for existing units and 300 MW of Solar Power Project at Barsinsar, Rajastha and other new renewable power projects. These projects entail significant execution risks related to approvals, land acquisition and construction and are prone to delays and cost overruns. While the demand and fuel risks for these projects are low due to the long-term PPAs and captive fuel sources, the completion of the projects on time and within the budgeted costs remains a key rating monitorable. |
| ESG Factors Relevant for Rating |
| Not Applicable |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position: Superior |
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The liquidity of NLCIL is marked by strong cash accruals of Rs 3225 Cr as against its debt repayment obligations as on March 31, 2023. Further, the accruals are expected to be sufficient to meet the debt servicing obligations in FY2023 and FY2024. The funding for the capex programme is expected to be met through a mix of internal accruals and debt funding. The company has large undrawn working capital lines of ~Rs. 4,000 crore as on May 2023. Furthermore, the company being a ‘Navratna’ CPSE, has strong financial flexibility to raise additional debt at competitive rates. Acuité expects cash accrual, cash and equivalent and unutilised bank lines will sufficiently cover debt obligation, incremental capex and working capital requirement of FY2024.
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| Outlook: Stable |
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Acuité believes that the NLCIL will maintain 'Stable' outlook over the medium term from its strategic importance to the GoI and experienced management. The outlook may be revised to 'Positive' after the company successfully ramps up its operation and registers growth in revenues while improving its profitability. Conversely, the outlook may be revised to 'Negative' in case of non recovery of DPS resulting in deterioration in their financial risk profile and liquidity position.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 17383.22 | 12589.72 |
| PAT | Rs. Cr. | 1425.13 | 1115.13 |
| PAT Margin | (%) | 8.20 | 8.86 |
| Total Debt/Tangible Net Worth | Times | 1.28 | 1.36 |
| PBDIT/Interest | Times | 4.81 | 3.21 |
| Status of non-cooperation with previous CRA (if applicable) |
| Brickworks vide its press release dated 13th April 2023, had rated the company to BWR AAA; Issuer Not Cooperating. |
| Any other information |
| None |
| 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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| Rating History : |
| None |
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