CRISIL upgrades DB Power's rating after Adani Power calls off acquisition

CRISIL also removed the company from "on watch status" and assigned "stable" outlook

Rating agency CRISIL has upgraded DB Power Ltd’s (DBPL) long-term rating from “A+” to “AA-” after Adani Power Ltd’s plans to acquire DBPL were called off. It also removed the company from “on watch status” and assigned a “stable” outlook.

On August 30, 2022, the rating agency placed DB Power’s rating on watch following Adani Power Ltd’s announcement to acquire DBPL. The long stop date of transaction (the acquisition) under the memorandum of understanding expired on February 15, 2023.

CRISIL Ratings in a statement said it understands that the transaction has been called off and hence the rating watch has been resolved.

The rating upgrade factors in the improvement in the financial risk profile of DBPL, driven by the sustenance of strong operating performance, further prepayment of debt, and enhancement of liquidity. It also reflects the expected sustaining of a healthy business risk profile.

DBPL has a healthy business risk profile, supported by its established track record of generation and strong operating efficiency (driven by low cost of generation). These strengths are partially offset by modest, though improving, financial risk profile and exposure to weak counterparties, CRISIL said.

The operating performance was strong during the 9 months through December 2022 and high cash accrual was driven by greater-than-expected power demand and healthy sales in the short-term market.

DB Power’s Earnings before interest, tax, depreciation and amortisation (Ebitda) was Rs 1,091 crore during this period against Rs 1,504 crore during FY22. Operating performance is expected to sustain over the medium term owing to steady and healthy power demand, and low cost of generation.

Its debt protection metrics improved significantly on prepayment debt of Rs 310 crore in the current fiscal (Rs 415 crore in FY22).

The liquidity has also strengthened, with total cash and equivalents of Rs 1,396 crore as on December 31, 2022 (Rs 1,128 crore as on March 31, 2022).

With significant improvement in receivables (77 days as on December 2022, against 119 days as on March 2022), unutilised bank limit also improved to Rs 715 crore from Rs 381 crore.