Moody's: Tata Power's FY2016 results are in line with expectations

Tata Power Company's (TPC, Ba3 stable) FY2016 results are within Moody's expectations and continues to support its Corporate Family Rating of Ba3.

For the fiscal year ending March 2016 (FY16), TPC reported a 10% increase in the consolidated EBITDA year-on-year (YoY), which was driven mainly by improved profitability of Coastal Gujarat Power (CGPL, unrated) -- TPC's 100% -owned subsidiary -- mainly due to a reduction in fuel expenses.

"Tata Power's FY2016 results are in line with our expectations, with revenues growing by 7% year on year and with the improved performance of CGPL", says Abhishek Tyagi, a Moody's Vice President and Senior Analyst.

Tata Power's coal revenues declined by 5% year on year, on the back of a 1.7% reduction of total coal sold and a 13% reduction in coal realizations. The 11% year on year reduction in cash cost of mining helped cushion the impact of fall in coal prices during the year.

Based on Tata Power's FY2016 results, its credit metrics remain within the tolerance limits for its Ba3 ratings. For example, FFO interest coverage is around 1.8x compared to the tolerance range of 1.4-2x and Debt / book capitalisation as at 31 March 2016 is approximately 70%, which is within the tolerance range of 65-75%.

Over the next 12-18 months, Moody's expects Tata Power's financial position to remain stable.

Tata Power reversed an impairment of Rs 23 billion on its CGPL investment but at the same time accounted for an impairment loss of Rs 25 billion on its goodwill for coal mining investments made in Indonesia. These items have no material impact on the rating.

Tata Power's consolidated debt declined by 2% year on year to Rs401 billion in FY16.

The April 2016 judgment of Appellate Tribunal of Electricity (ATE) has allowed relief to CGPL under the Force Majeure clause as per its power purchase agreement (PPA) and supports Tata Power's rating.

ATE has directed the Central Electricity Regulatory Commission (CERC) to assess the extent of impact under the Force Majeure clause and to complete the process within next three months. However, it is also likely that that the state-owned distribution companies may appeal against the ATE judgment in the Supreme Court.

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