Moody’s upgrades Tata Power rating from Ba2 to Ba1

Rating firm Moody’s Investors Service has upgraded the corporate family rating of Tata Power Company to Ba1 from Ba2 and maintained the stable outlook.

“The rating upgrade to Ba1 is driven by Tata Power’s solid financial metrics, which are projected to remain above the upgrade trigger set for the earlier Ba2 rating,” said Yong Kang, a Moody analyst.

The company’s standalone credit quality is supported by predictable cash flow from its distribution businesses that benefit from a stable regulatory framework, and from its fixed-tariff long-term power purchase agreements (PPAs) for its renewable generationcapacity, Moody’s said.

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Under Moody’s base case projection, Tata Power’s operating cash flow pre-working capital to debt will remain solid at 9%-11% over the next two to three years, it said.

Although the projected credit metrics are lower than the actuals recorded in fiscal 2023, Moody’s expects Tata Power to be able to sustain these credit metrics, thereby supporting the upgrade.

Tata Power’s takeover of distribution companies in Odisha and the subsequent improvement in its operations,underpinned by declining electricity losses, have strengthened its business profile. The company’s regulated distribution businesses will likely continue to generate core earnings and support its financial metrics at least over the next 1-2 years, it said.

Moody’s expects Tata Power will likely receive support from its major shareholder, Tata Sons, if needed, evidenced by Tata Sons’ ability to provide support and its track record of providing
timely support to its investee companies.

Tata Sons‘ shareholding in Tata Power has increased to 45% from 35% after a preferential allotment of Tata Power’s shares to Tata Sons in 2020. Moody’s expectation of parental support also reflects Tata Power’s role in supporting the decarbonization of the Tata group companies

That said, the rating action does factor in the company’s substantial capital spending plan to expand its renewable business; the continued uncertainty around its Mundra ultramega power plant (UMPP); and the volatile cash flow from ts coal mining assets in Indonesia.

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Moody’s assumes a gradual decline in coal prices toward fiscal 2021-22 levels over the next 1-2 years and a limited utilization of the Mundra UMPP.

The company’s exposure to the Mundra UMPP is mitigated by earnings from its Indonesian coal mining interests when coal prices are high. The plant’s lower utilization in the fiscal year ended March 2022 (fiscal 2022) also reduced ths plant’s losses. The plant’s availability was 29% in fiscal 2022, which
was lower than 80% in fiscal 2021.

The Mundra UMPP relies entirely on imported coal, and the costs incurred cannot be fully passed through under its existing PPAs. Come from Sports betting site VPbet

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