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 FY24, 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 November’ 24 is Rs. 11901.26 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 PSPCL 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.

Comfortable Financial Risk Profile

The financial risk profile of the corporation has improved marked by improving net worth, gearing, and debt protection metrics. The tangible net worth of the corporation improved and stood at Rs. 26,286.10 Cr. in FY24 as against Rs. 25,324.58 Cr. in FY23. The total debt of the corporation increased and stood at Rs.20170.45 Cr. as on 31st March 2024 as against Rs. 17815.47 Cr. as on 31st March 2023. The gearing of the corporation stood comfortable at 0.77 times for FY24 as against 0.70 times for FY23. The TOL/TNW also stood at 1.31 times as on March 31, 2024 and March 31, 2023. The debt protection metrics remained at 0.98 times in FY24 as against -0.58 times in FY23 and interest coverage ratio stood at 2.30 times in FY24 as against -1.36 times in FY23.

Acuité believes that the financial risk profile of PSPCL will continue to remain moderate over the medium term.

Moderate Working Capital Operations

The working capital operations of the corporation are moderate in nature marked by GCA  of 145 days in FY24 as against 156 days in FY23. The receivable days of the corporation stood moderate at 61 days in FY24 and FY23. The inventory levels of the company stood low at 8 days during the same period compared against 6 days for FY23. The creditor days of the company stood at 40 days for FY24 compared against 55 days for FY23.

Acuité believes that the working capital operations of the company will continue to moderate.

Moderate profitability albeit growth in scale of operations

PSPCL has recorded growth in the operating income to Rs. 43,040.56 Cr. in FY24 as against Rs. 37,954.45 Cr. in FY23. In H1FY2025, the corporation recorded operating income of Rs. 29,537.41 Cr, the improvement is on the back of revisions in tariff rates and capacities.
Further, the margins of the company witnessed an improvement as reflected in the EBITDA of FY24 which stood at 6.77% in FY24 as against -8.87% in FY23. The PAT margins of the company also improved to 1.86% in FY24 as against -12.58% in FY23. The primary reason for this drastic improvement is on account of lower purchase cost and lower generation cost. PSPCL for its fuel requirements remained dependent upon domestic coal in FY 2023-24 as its mines generated sufficient coal to meet its requirements. In the future, the demand for coal will largely be met from PSPCL mine and Local suppliers resulting into decreased generation cost in future. Also, PSPCL started receiving subsidy payments on time.
Team believes that the operating profile of the corporation would remain moderately stable on the back of revisions in tariffs time to time and increased capacities.

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.