NLC India soars after ICRA reaffirms credit rating at 'AAA' with 'stable' outlook

NLC India jumped 4.57% to Rs 231 after the company said that the credit rating agency ICRA has reaffirmed the company's long-term rating at '[ICRA] AAA' with 'stable' outlook.

ICRA said that the rating reaffirmation continues to factor in the strategic importance of NLC India (NLCIL), a Navratna public sector undertaking (PSU), to the Government of India (GoI) in the mining and power generation sectors and the majority shareholding (79.2%) of the GoI. This provides strong financial flexibility to the company and ability to access funds at competitive rates.

The rating also draws comfort from the NLCIL Groups strong business risk profile in lignite mining, coal mining and power generation. Lignite from mines is used as fuel for pit-head thermal power plants, providing continuous demand for the mining segment, thereby leading to low fuel risks and supporting the tariff competitiveness of the thermal power plants.

Further, the risk of fuel availability for its coal-based plants is also mitigated through long-term fuel linkages with the subsidiaries of Coal India Limited (CIL) and the supply from the 20-MTPA Talabira coal mines and the 9.0 MTPA Pachwara South coal block in Odisha.

The long-term power purchase agreements (PPAs) with the state discoms limit the demand risks for the power generation assets and the cost-plus tariff structure ensures steady profitability, resulting in comfortable debt coverage metrics. The rating also considers NLCILs diversification into renewable power generation with an operating portfolio of 1,380-MW solar and 51-MW wind power units,andplans to add 300-400 MW annually over the medium term.

ICRA also takes note of the additional revenue potential through the sale of coal in the open market as the production output at the Talabira coal mines improves.

The rating is, however, constrained by NLCILs exposure to financially modest discoms such as Tamil Nadu Generation and Distribution Corporation Ltd (TANGEDCO) and the discoms in Telangana, Andhra Pradesh, Karnataka, Kerala and Rajasthan, leading to delays in receiving payments.

The rating also considers the execution risks associated with the sizeable capex programme as the company is planning a capital expenditure of Rs. 25,000 crore over FY2024 to FY2027 to develop new thermal and renewable power projects and coal mining projects in Odisha and Jharkhand. The completion of the under-construction projects on time and within budgeted costs and the subsequent approval of the tariffs by the CERC without any major disallowances will be a key rating monitorable.

NLC India is a public sector undertaking that is involved in lignite mining, coal mining and power generation. The company, at present, has a lignite mining capacity of 30.1 million tonnes per annum (MTPA), coal mining capacity of 20 MTPA and installed power generation capacity of 6,071 MW as on date. Its power stations cater to the five southern states of Tamil Nadu, Andhra Pradesh, Telangana, Kerala and Karnataka, the Union Territory of Puducherry, as well as Rajasthan through its thermal plant in Barsingsar.

A total of 6,020 shares of the company were traded on the BSE so far as compared with an average trading volume of 2.62 lakh shares in the past two weeks.

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