S­trategically important entity and support from the government of Punjab
PSPCL is a wholly owned undertaking of the Punjab government. It is a strategically important entity which forms the backbone of the power sector for Punjab. The status of the company as a 100 per cent government of Punjab owned entity provides financial flexibility. Government of Punjab provides support to PSPCL by way of providing security for its loans in the form of irrevocable and unconditional guarantee for the entire bank facilities of the company. This enables PSPCL to procure loans from Banks/ Financial Institutions at a competitive rate of interest. The government also provides support to the company in the form of subsidy payments. In FY23, the there was a delay in the subsidy payments received from the government. However, the company has started receiving subsidy payments on time. As per the management, the total subsidy received upto September’ 23 is Rs. 9732.77 Cr.

Acuité believes that PSPCL, being a 100 per cent undertaking of GoP, shall continue to benefit from the financial, operational and management support from time to time. The GoP has demonstrated financial support by way of loans to GoP on a regular basis. Any changes in the ownership pattern of PSPCL or any event that impinges PSPCL's overall credit profile shall remain a key rating sensitivity.

Moderate Financial Risk Profile
The financial risk profile of the company is moderate marked by moderate net worth, moderate gearing, and weak debt protection metrics. The tangible net worth of the company declined and stood at Rs. 25,324.58 Cr. in FY23 as against Rs. 29,805.93 Cr. in FY22. The total debt of the company increased and stood at Rs.17,815.47 Cr. as on 31st March 2023 as against Rs. 16,645.84 Cr. as on 31st March 2022. The debt outstanding in FY23 comprises of long-term debt of Rs.12,854.05 Cr. and Rs. 4961.42 Cr. of short-term debt. The gearing of the company stood comfortable at 0.70 times for FY23 as against 0.56 times in FY22. The TOL/TNW also stood at 1.31 times as on 31st March 2023 as against 0.99 times as on 31st March 2022. The debt protection metrics remained weak with debt service coverage ratio of -0.58 times in FY23 as against 1.03 times in FY22 and interest coverage ratio stood at -1.36 times in FY23 as against 2.62 times in FY22. Despite low DSCR, the company was able to service its debt obligations on timely receipt of the legacy subsidies received from the Govt.
Acuité believes that the financial risk profile of the company will continue to moderate.

Moderate Working Capital Operations
The operations of the company are working capital moderate in nature marked by GCA days of 156 days in FY23 as against 190 days in FY22. The receivable days of the company stood moderate at 61 days in FY23 as compared to 68 days in FY22. The inventory levels of the company stood low at 6 days during the same period compared against 5 days for FY22. The creditor days of the company stood at 55 days for FY23 compared against 45 days for FY22.
Acuité believes that the working capital operations of the company will continue to moderate.

­Profitability significantly impacted despite growth in scale of operations
PSPCL has recorded growth in the operating income to Rs. 37,954.45 Cr. in FY23 as against Rs. 34, 427.26 Cr. in FY22. However, the margins of the company witnessed a decline as reflected in the EBITDA of FY23 which stood at -8.87% in FY23 as against 6.13% in FY22. The PAT margins of the company also declined to -12.58% in FY23 as against 3.11% in FY22. The primary reason for this drastic drop is on account of high power purchase cost, high generation cost and high employee cost (due to payment of arrears). Furthermore, Punjab State Electricity Regulatory Commission had not granted a hike in the tariff rates as per the requirements of PSPCL. PSPCL for its fuel requirements remained dependent upon imported coal in FY 2022-23 as its mines did not generate sufficient coal to meet its requirements. The generation of coal from PSPCL mine till date is 17.12 Lakh Tonne, whereas the same was remained at 0.50 lakh Tonne during 2022-23 as the mine operations started from January 2023. However, going forward the demand for coal will largely be met from PSPCL mine during resulting into decreased generation cost in future which is expected to improve the profitability of the company. Furthermore, PSERC has approved a tariff hike of about 8% during the current financial year and started receiving legacy subsidy payments on time which is also expected to improve the cashflows of the company.
Acuité believes that the improvement in profitability and timely receipt of legacy subsidies from GoP will remain a key rating sensitivity going ahead.

Aggregate Technical and Commercial Loss
The Aggregate and Technical Commercial Loss remained range bound and stood at 11.26% in FY23 as against 11.67% in FY22. Further, the collection efficiency in FY23 improved and stood at 100.31% as against 93.22% in FY22. Going forward, with the aim to reduce losses, the company has undertaken the Results Linked Distribution Sector Scheme (RDSS). The RDSS project involves working to improve the quality and reliability of power supply to consumers through a financially sustainable and operationally efficient distribution Sector. The Scheme aims to reduce the AT&C losses to pan-lndia levels of L2-L5% and the ACS-ARR gap to zero by 2024-25. The Nodal Agency (PFC) has sanctioned the scheme amounting to Rs. 9,563.08 Cr.

Regulated nature of operations
The revenues are influenced by the regulatory framework governing the power sector. Revenues of players such as PSPCL are determined by state electricity regulatory commissions. The Punjab State Electricity Regulatory Commission (PSERC) takes into account key parameters such as the cost structure and expected return on capital employed to arrive at distribution tariffs.
Acuité believes that significant changes in the regulatory environment will impinge on the credit profile of the company.