­Acuité has consolidated business and financial risk profile of Pioneer Power Corporation Ltd and Pioneer Genco Ltd reffered as "Pioneer Group" to arrive at the rating. The consolidation is in the view of commona management, identical business line and inter company linkage.

Extensive experience of the management through the larger Penna Group
Pioneer group is part of larger Penna group, incorporated in 1991 and promoted by Mr.Pratap Reddy who also acts as a managing director for the Pioneer Group
Penna Group is a conglomerate with a presence in various industries such as cement manufacturing, power generation, aluminum extraction, constructions and hospitality businesses. Penna group has provided shortfall guarantee for pioneer group and Penna Group’s flagship company Penna Cement Ltd(ACUITE AA-) has pledged its shares as a security guarantee to Pioneer group.

Long term PPAs provide for cash flow visibility over the medium term
Pioneer group operates four hydro power plants with the capacity of 24.75MWs each with the combine capacity of 99 MWs. Unit 1 of PPCL and unit2 of PGL are located on Cauvery river and Unit2 of PPCL and Unit2 of PGL are located on Krishna river. Unit1, Unit2 of PGL and unit 1 of PPCL with combine capacity of 74.25 MWs has long term PPA with Bangalore Electricity Supply Company (BESCOM) and Unit2 of PPCL with the capacity of 24.75 MWs has short term PPAs with other third parties. PPAs with BESCOM is fixed priced long term PPAs with price range of Rs. 2.8-3.41/kwh, whereas short term PPAs with third parties are at price range of 4.39/kwh.  This  substantially mitigates  demand and price risk  associated with the projects ensuring cash flow visibility for medium and long term.

Stable operational track record
Two projects on Cauvery river namely PPCL unit1 and PGL unit1 recorded PLF level of 65.9% and 58.04% respectively in FY22 against 54.71% and 47.15% in FY21. Similarly, projects on Krishna river (erstwhile KHEL and Laxmi jalavidyut) namely PPLCL unit 2 and PGL unit 2 recorded PLF level of 30.30% and 19.12% respectively in FY22 against 31.15% and 29.17% in FY21. Fall in PLF of PGL unit 2 is due to failure of few excitation panels and management has confirmed that the repairs have been carried out and plant is fully operational. Average PLF for past 3 years for PGL unit 1 and PPCL unit 1 is at 48.34% and 57.66%. For PGL unit 2 and PPCL unit 2 average PLF for past 3 years stood at 22.15% and 28.45%. Improved power generation is primarily attributable to good rainfall in the catchment area.

Timely realization of receivable from BESCOM and other counter parties
The Group has been able to receive its receivable from BESCOM and other third parties in timely manner and this has been reflected in overall receivable days which stood at 62 days as on March 31st 2022. Going forward group’s ability to maintain its receivable cycle would be key rating sensitivity.
 

Hydrological risks associated with run-of-the-river power generation:
Run-of-the-river power is intrinsically an unstable source of power, as there is little or no capacity for water storage. However, Pioneer group has mitigated this risk to a degree by the construction of a barrage. The construction of the barrage ensures adequate water supply to generate power for minimum 3-4 hours even during lean season of the year. However, the project primarily depends on adequate flow of river water and is dependent on well spread monsoon to support higher unit generation. The project area receives major rainfall during the period from June to November with peak plant load factor (PLF) of about 100 percent in August and low PLF of 7-8 percent in January to march. Cauvery river projects's average PLF nevertheless, has been about 50 percent for 6 months of FY2022. Since, revenue is entirely dependent on generation, absence of or volatile power generation in certain months may adversely impact the cash flows and financial flexibility. However, this risk is offset to some extent by the support available from Penna group.

Counter Party Risk

Althrough group has long term PPAs with BESCOM and other third parties with a fixed tariff rate, counter party risk is evovlved over period of time and with increase in receivable cycle in last fiscal. Any further stretch might have negative impact on operations of the group and could present liquidity issues in coming times.