Strategically important entity to Government of Odisha
The group is strategically important for the power sector infrastructure in the state of Odisha. OPGCL is also one of the key entities for undertaking power generation activity in the state of Odisha other than OHPCL. The status of being a government- owned entity provides adequate financial flexibility. OPGCL's credit profile is also supported by its access to funds at low cost and its ability to mobilize financial resources from several financial institutions and multilateral development institutions. The rating also factors ongoing support extended by GoO to OPGCL in the form of equity infusion at regular interval.

Odisha has been one of the fastest growing states in India with a low debt to gross state domestic product of 20.90 percent in 2020-21 as compared to many other states.The GoO has significantly increased its focus on increasing industrial development in the state. It is also focusing on asset creation towards infrastructure and social sectors.

Acuité believes that OPGCL shall continue to benefit from the financial, operational, and managerial support received from GoO from time.

Low offtake risk
There is low off take risk as there is Power Purchase Agreements (PPA) with Gridco (state owned power transmission company). OPGCL has a power purchase agreement (PPA) with GRIDCO based on a two-part tariff structure for sale of the entire power generated from its operational capacity of 420 megawatt (MW). Regular maintenance of the power stations has enabled OPGCL to consistently maintain plant availability factor higher than the normative level of 68.49 per cent (as defined in the PPA), thus leading to full recovery of fixed costs.

Further, the OPGCL has already entered into a PPA with GRIDCO for the capacity addition of (2*660 MW) for the 3 and 4th unit where OPGCL and GRIDCO entered into a PPA where 75 per cent of the contracted capacity i.e 990 MW (75 % of 1320 MW) would be sold to GRIDCO from the date of commencement to 31st March’2023. From 1st April 2023, 100 per cent of the capacity would be directly sold to GRIDCO for a period of 25 years. Further, for the balance 25 percent- PPA has been entered through a supplementary agreement entered into in Jan’2019 between GRIDCO and OPGCL.

OPGCL has fuel supply agreement (FSA) with Mahanadi Coalfields Limited (MCL) which ensures the steady supply of raw material. In addition, OCPL has signed fuel supply with OPGCL regarding sale of extracted coal from Manoharpur coal mines.

Acuite believes the scale of operation is likely to improve in the medium term driven by rise in mining activity in OCPL and rise in overall plant load factor in power plants.

Comfortable financial risk profile
The consolidated financial risk profile stood at a comfortable level marked by its strong net worth, high gearing and modest debt protection metrics. The net worth of the group stood at Rs.3073.86 crore in FY2022 as compared to Rs.2916.58 crore in FY2021.The gearing of the group stood at 2.97 times in FY22 as compared to 3.08 times in FY21.The group has high reliance on external debt because of large debt funded capex plans.The interest coverage ratio (ICR) stood at 1.51 times in FY22 as compared to 1.13 times in FY21. NCA/TD stood at 0.04 times in FY22 as against 0.02 times in FY21.Acuite believes financial risk profile will continue at similar levels over the medium term backed by ongoing capex plan in OPGCL.

Improvement in standalone performance
The company had posted revenue of Rs 523 Cr in FY22 with six months of operation as scheduled completion date for the mine was 30 September 2021. Further, EBITDA margin of the company stood strong at 42.90 percent which led to healthy coverage ratios. Interest coverage and DSCR stood at 5.79 times and 1.95 times in FY22. In current fiscal year, company has already registered Rs 648 Cr of revenue with EBITDA margin of 77 percent during Q1FY23. Hence the company is expected to witness significant improvement in FY23.

­Working capital intensive nature of operation
The working capital-intensive nature of operations is marked by high gross current asset (GCA) days of 185 days in FY2022 as compared to 138 days in FY2021. The inventory days stood at 57 days in FY22 against 39 days in FY21. Debtor days stood high at 90 days in FY22 as compared 76 days in FY21.Acuité believes that the operations of the group will continue to be working capital intensive over the medium term because of stretched receivable from discoms.

Exposure to Regulatory Risks:
GRIDCO is the sole counterparty for OPGC's power output (for existing and 75 per cent of newly added capacity) and is directly exposed to the health of the Odisha discoms. Thus, OPGC's collection efficiency largely depends on state of the power sector in Odisha. However, these risks are mitigated by presence of a robust two payment security mechanism comprising a letter of credit and an escrow mechanism, which has led to timely realization from discoms.