| 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, aluminium extraction, constructions and hospitality businesses. Penna group has provided shortfall guarantee for Pioneer group and Penna Group’s flagship company Penna Cement Ltd has pledged its shares as a security guarantee to Pioneer group.
Long term PPAs with BESCOM providing 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. Unit1, Unit 2 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 Unit 2 of PPCL with the capacity of 24.75 MWs has short term PPAs with other third parties. PPAs with BESCOM are at fixed price of Rs. 2.8 per unit, whereas short term PPAs with third parties are at average price of Rs.4.45 per unit. This substantially mitigates demand and price risk associated with the projects ensuring cash flow visibility for medium and long term. PPA between BESCOM and PPCL unit 1 will be expiring by 2026. The group is in plans of extending the PPA with BESCOM for 10 more years at a higher revised price per unit.
Stable operational track record:
Two projects on Cauvery river namely PPCL unit1 and PGL unit1 recorded PLF level of 81.59 percent and 57.40 percent respectively in FY23 against 65.9 percent and 58.04 percent in FY22. Similarly, projects on Krishna river (erstwhile KHEL and Laxmi jalavidyut) namely PPLCL unit 2 and PGL unit 2 recorded PLF level of 33.45 percent and 25.92 percent respectively in FY23 against 30.30 percent and 19.12 percent in FY22. Improved power generation is primarily attributable to good rainfall in the catchment area.
However, the power generation in Q1FY24 remained relatively lower, the plants in PGL and PPCL have generated an average PLF of 12.83 percent during the period compared to average PLF of 33.38 percent during the Q1FY23. Acuite believes that the group's ability to increase its PLF and subsequently power generation during the year will be a key rating monitorable.
Timely realization of receivable from BESCOM and other counter parties:
The company has strong payment track record from its counterparty-BESCOM, thereby, leading to low counterparty risk. The company receives its payments from BESCOM within 60 to 120 days and the payments are routed through a Trust and retention account (TPA). Presence of TRA ensures that 50 percent of the amount received goes towards repayment and balance towards other expenses. The overall receivable days stood at 48 days as on March 31, 2023. Going forward group’s ability to maintain its receivable cycle would be key rating sensitivity.
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| 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 of 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 project's average PLF nevertheless, has been about 50 percent for 6 months of FY23. 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.
Counter Party Risk
Although group has long term PPAs with BESCOM and other third parties with a fixed tariff rate, counter party risk is evolved over period of time. and with increase in receivable cycle in last fiscal. Elongation of receivable cycle might have negative impact on operations of the group and could present liquidity issues in coming times.
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