Moody's upgrades ratings of Tata Power

Tata Power Company said that Moody's Investors Service has upgraded its rating on the company to 'Ba2' with 'stable' outlook from 'Ba3' with 'stable' outlook.

"The Ba2 corporate family rating assigned to Tata Power reflects the company's predictable cash flow from its regulated business, exposure to thermal coal prices for its Mundra project and Indonesian coal mines, growing renewable energy business, and moderately high financial leverage," says Abhishek Tyagi, a Moody's vice president and senior credit officer.

"The rating also benefits from Tata Sons 45.2% ownership in Tata Power and its track record of supporting the company," adds Tyagi.

Tata Power's regulated operations in Mumbai and Delhi support the company's consolidated financial profile. The recent acquisition of distribution companies in the state of Odisha has further increased the footprint of its regulated business. Tata Power's regulated business contributed 57%-58% of the company's EBITDA over the past two years, and Moody's expects a similar contribution over the next two to three years.

Tata Power's ratings consider the growth in its regulated and renewable energy businesses, which are more predictable and less volatile, and thus, reduce the impact of the company's commodity price-driven businesses, including coal mines in Indonesia and the Mundra power project in India.

Tata Power's credit profile considers its high carbon transition risk because a significant part of its generation business is reliant on coal-fired generation (69.5%). However, Tata Power's commitment to not add any new coal-based capacity, phase out the existing ones once their power purchase agreements expire and significantly increase its renewable energy footprint provides clarity regarding its carbon-transition plan.

The Ba2 rating factors in moderate governance risk given the concentrated shareholding of Tata Sons. However, this risk is partially tempered by the experienced management team, which is further supported by experienced board members in the areas of corporate governance, business strategy, and operational and financial capabilities, among others.

The stable outlook is based on Moody's expectation that Tata Power's underlying business and financial profile will remain steady and that Tata Sons will support the entity if required.

The Tata Power Company (TPC) is one of the largest private-sector power utilities in India, with an installed generation capacity of 12,808 megawatts as of September 2021. The company's business operations include power generation from thermal, hydro, solar and wind sources, transmission and distribution. The company also owns coal mines in Indonesia and a license for coal mining in Russia.

The company's consolidated net profit surged 36% to Rs 506 crore in Q2 FY22 from Rs 370.93 crore posted in Q2 FY21. Consolidated revenue rose 13% year on year to Rs 9,502 crore.

The scrip rose 1.18% to end at Rs 239.80 on the BSE yesterday.

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