Fitch Ratings has today affirmed India's Noida Power Company Limited (NPCL) National Long-term rating at 'A-(ind)'. Fitch has also assigned a rating of 'A-(ind)' to its INR350m term loan. At the same time, the agency has affirmed NPCL's term loans amounting to INR474.4m at 'A-(ind)', its fund-based working capital limits amounting to INR400m and non-fund-based working capital limits amounting to INR50m at 'A-(ind)/F2+(ind)'. The Outlook is Stable.
NPCL's ratings reflect the relatively low level of business risk arising out of high entry barriers and a "cost-plus" regulatory regime in the electricity distribution business, which assures 16% post tax Return on Equity as part of tariffs by the Uttar Pradesh Electricity Regulatory Commission (UPERC). The ratings also draw strength from NPCL's high efficiency of operations and a favourable consumer mix skewed towards high-voltage industrial consumers. The company recently commissioned its first of two 132/33 kV substations which is expected to provide additional transmission capacity, thereby enabling the import of power from alternative sources and consequently higher sales.
At FYE09, NPCL's Total Gross Debt/EBITDAR rose to 3.26x (FYE08: 2.4x) from increased working capital borrowings and reliance on inter-corporate loans from group companies to part finance its regulatory asset of INR1007m; when assigning the initial ratings, Fitch recognised that NPCL might be constrained by its relying on additional borrowings in the short-to-medium term so as to finance the regulatory asset. NPCL filed its Annual Revenue Requirement (ARR) with UPERC in November 2008, seeking a substantial increase in tariffs so as to meet the increased power purchase costs and amortisation of the regulatory asset, which is currently under evaluation.
The existence of the single-buyer paradigm for State-owned power utilities and a uniform tariff regime in the State of Uttar Pradesh implies that UPERC would need to factor in revenue requirements of all utilities to determine the final retail supply tariff. Any delay in the amortisation of the regulatory asset or failure to source cheaper power through long-term power purchase agreements, which would in turn lead to further deterioration in the credit profile would act as a negative rating guidance. On the other hand, growth in sales coupled with successive tariff increases to cover allowed costs and prompt recovery of regulatory assets, enabling repayment of additional borrowings would act as a positive rating guidance.
Incorporated in 1992, NPCL is an electricity distribution licensee under the Electricity Act 2003 for the Greater Noida region in Uttar Pradesh. The company is promoted by the RPG Group which collectively holds 73% of the total equity, with the balance held by the Greater Noida Industrial Development Authority (GNIDA). For the FY09, the company had sales of 492 million units and revenue of INR2130m (provisional and unaudited).
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
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