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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 1677.10 | ACUITE A+ | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 1677.10 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE A+’ (read as ACUITE A plus) on the Rs. 1677.10 Cr bank facilities of West Bengal State Electricity Transmission Company Limited (WBSETCL). The outlook remains ‘Stable’.
Rationale for the rating The rating takes into consideration the stable business risk profile of WBSETCL, marked by steady revenues levels, steady profitability margins, and a healthy financial risk profile. The rating also factors in the support from the government of West Bengal to WBSETCL, as and when necessary. These strengths are partly offset by the inherently regulated nature of operations in the electricity transmission business and the counterparty exposure to the state distribution entity, WBSEDCL, which has a relatively weaker credit profile.
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| About the Company |
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West Bengal State Electricity Transmission Company Limited (WBSETCL) was incorporated in April 2007, post unbundling of the erstwhile West Bengal State Electricity Board (WBSEB), in line with the requirement under the Electricity Act 2003. The erstwhile WBSEB has been unbundled into West Bengal State Electricity Distribution Company Limited (WBSEDCL) (rated at ACUITE BBB/Stable/A3+) and West Bengal State Electricity Transmission Company Limited (WBSETCL) in accordance with a transfer scheme notified by the State Government of West Bengal dated January 2007. As a part of the transfer scheme, the business of power transmission and load dispatch activities have been transferred and vested in WBSETCL and the business of power distribution and activities related to hydropower undertakings have been transferred and vested in WBSEDCL. Currently, WBSETCL operates and maintains a transmission network of 15417 CKM of Extra High Voltage Transmission lines along with 139 sub-stations (ranges from 132 KV to 400 KV) and total transformation capacity of 50266 MVA, spread over the entire stretch of the state of West Bengal. Moreover, WBSETCL maintained a transmission system availability of 99.92 per cent and transmission losses of only 2.23 per cent in FY2022.
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| Standalone (Unsupported) Rating |
| ACUITE A-/Stable |
| Analytical Approach |
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Acuité has taken a standalone view of the business and financial risk profile of WBSETCL to arrive at the rating. Acuité has also factored in benefits emanating from the ownership by Government of West Bengal. GoWB’s financial support to WESETCL is in the form of its 100 per cent ownership and its guarantee for certain borrowings of WBSETCL.
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Key Rating Drivers
| Strengths |
| Strategically important entity and support from the government of West Bengal
WBSETCL is a wholly-owned undertaking of the GoWB and a strategically important entity for the power sector infrastructure in the state of West Bengal. The ownership structure provides adequate financial flexibility. It is also the nodal agency of the government for undertaking power transmission activities in the state. Being the transmission licensee, WBSETCL is mandated to ensure the development of an efficient, coordinated and economical transmission network for smooth flow of power to the load centres. WBSETCL's credit quality is also supported by its access to funds at low cost and its ability to mobilise financial resources from several financial institutions and multilateral development institutions due to its status as a state owned entity. West Bengal has been one of the fastest-growing states in India and is the sixth-largest state economy in India with gross state domestic product (GSDP) growing at 18.10 per cent in 2021- 22. While the state’s revenue deficit has been relatively modest at 2.15 per cent, its fiscal deficit stood at 3.48 per cent in 2021-22. GoWB has significantly increased its focus on increasing industrial development in the state, which gets reflected from the improving FDI inflows onto the state. However, the state’s overall borrowing level continues to remain high and is a challenge to its overall fiscal profile. Acuité believes that WBSETCL, being a 100 per cent undertaking of GoWB, shall continue to benefit from the financial, operational and management support from time to time. The GoWB has demonstrated financial support by way of loans to WBSETCL on a regular basis. Any changes in the ownership pattern of WBSETCL or any event that impinges GoWB's overall credit profile shall remain a key rating sensitivity. Inbuilt ‘cost plus tariff’ structure The billing of transmission charges by WBSETCL is regulated and fall under the gamut of the Annual Revenue Requirement (ARR) of a ‘cost-plus’ based tariff mechanism. The regulator allows a post-tax return on equity of 15.5 per cent and other uncontrollable expenses are allowed to be passed through in tariff through the Annual Performance Review (APR) process. Acuité believes the ‘cost-plus’ based tariff mechanism will continue to sustain the stable business outlook for the company. Steady business risk profile buoyed by favourable operating efficiency WBSETCL has achieved revenues of Rs.1713.11 Cr in FY2022 as compared to revenues of Rs.1854.63 Cr in FY2021 and Rs.1437.92 Cr in FY2020. Further, the company has achieved revenue of Rs. 2160.60 Cr in FY2023 (provisional). The profitability margins of the company are healthy with operating margin of 67.40 per cent in FY2022 as compared to 72.16 per cent in FY2021. The PAT margins stood at 28.47 per cent in FY2022 as against 34.26 per cent as on FY2021. The steady profitability margins have translated into healthy ROCE levels for the company of about 9.18 per cent in FY2022 as against 12.26 per cent in FY2021. Healthy financial risk profile The company’s healthy financial risk profile is marked by healthy networth, comfortable gearing and healthy debt protection metrics. The tangible net worth of the company improved to Rs. 6,057.75 Cr as on March 31, 2022 from Rs. 5,477.35 Cr as on March 31, 2021 due to accretion of reserves. Gearing of the company stood comfortable at 0.56 times as on March 31, 2022 as against 0.68 times as on March 31, 2021. The Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 0.92 times as on March 31, 2022 as against 1.03 times as on March 31, 2021. The healthy debt protection metrics of the company is marked by Interest Coverage Ratio at 4.43 times as on March 31, 2022 and Debt Service Coverage Ratio at 1.32 times as on March 31, 2022. Net Cash Accruals/Total Debt (NCA/TD) stood low at 0.24 times as on March 31, 2022. Acuité believes that going forward the financial risk profile of the company will remain comfortable backed by steady accruals. |
| Weaknesses |
| Regulated nature of operations
WBSETCL continues to be exposed to regulatory uncertainty, given that revenues or transmission charges are influenced by the regulatory framework governing the power sector. The company operates through a cost-plus return on equity model laid down by WBERC. Any change or reduction in return on equity or a tightening of the WBERC norms could result in lower operating cash flows. Further, a lack of timely tariff revisions could result in cash flow mismatch in the medium term. The entity is also subject to counterparty or delayed payment risk from WBSEDCL which has a relatively weaker credit profile as compared to WBSETCL. |
| ESG Factors Relevant for Rating |
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Not Applicable
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| Rating Sensitivities |
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• Timely support from the Government of West Bengal
• Timelines for tariff revision • Any significant increase in receivables from WBSEDCL |
| Material covenants |
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None
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| Liquidity Position: Strong |
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The company’s liquidity is strong marked by net cash accruals of Rs.805.74 Cr in March 31, 2022 as against debt repayment obligation of Rs.301.27 Cr. The company has not availed any loan moratorium or additional covid loans. The cash and bank balances of the company stood at Rs.184.63 Cr as on March 31, 2022 as compared to Rs.301.25 Cr as on March 31, 2021. The company has put aside fund of of Rs.190.12 Cr as on March 31, 2022 and Rs.264.17 Cr as on March 31, 2021 to be utilized for redemption of debentures and unforeseen exigencies. The fund based limit remains utilised at around 7.6 per cent over the six months ended Apr, 2023. However, the current ratio stood below unity at 1.05 times as on March 31, 2022, on account of high other current liabilities due to amount received from Power Grid Corporation, consumer contribution to capital asset, payable to WBSETCL Pension Trust and provision for employee benefits. Acuité believes that going forward the company will maintain strong liquidity position due to steady accruals.
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| Outlook: Stable |
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Acuité believes that the company will maintain 'Stable' outlook over the medium term due to the steady cash flows inherent in the power transmission business along with its strategic importance and the support provided by the state government. The outlook may be revised to 'Positive' in case the company registers consistent growth in revenues while maintaining its profitability and liquidity. Conversely, the outlook may be revised to 'Negative' in case of any unexpected deterioration in the financial profile, elongation of working capital cycle or any significant pressures on the fiscal position of the state government.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 1713.11 | 1854.63 |
| PAT | Rs. Cr. | 487.69 | 635.39 |
| PAT Margin | (%) | 28.47 | 34.26 |
| Total Debt/Tangible Net Worth | Times | 0.56 | 0.68 |
| PBDIT/Interest | Times | 4.43 | 4.61 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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| Any other information |
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Not Applicable
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| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Service Sector: https://www.acuite.in/view-rating-criteria-50.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Group And Parent Support: https://www.acuite.in/view-rating-criteria-47.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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