Rating Rationale
Brickwork Ratings Up-grades the Rating of ‘BWR A-’ for the Long term
Bank credit facilities and reaffirms the Rating of ‘BWR A2+’ for Short term
credit facilities of Madurai Power Corporation Pvt. Ltd. (MPCPL).
Brickwork Ratings (BWR) has Upgraded/reaffirms following Ratings1 for Bank Loan Facilities
of Madurai Power Corporation Pvt. Ltd. (‘MPCPL’ or ‘the Company’).
Facility
Tenure
Term Loan
Amount
Rated
Previously
( ₹ Cr)
Amount
Rated
Presently
( ₹ Cr)
46.22
31.44
Rating
BWR A(BWR A Minus)
Cash Credit
(Fund
Based)**
Long
Term
(Outlook –
Stable)
125.00
100.00
(Up-graded
from BWR
BBB+ (BWR
Triple B Plus)
Bank
Guarantee/LC
* (Non – Fund
Based)
BWR A2+
Short
Term
(BWR A Two
80.00
84.00
Plus)
(reaffirmation
of the Rating)
Total
251.22
215.44
INR Two Hundred and Fifteen Crores and Forty Four Lacs only
** One way inter-changeability from FBWC to LC limit up to 50% of FBWC of SBI
* 100% interchangeability between LC and BG
The rating has, inter alia, factored MPCPL successfully operating 106 MW liquid fuel based
power plant, long term fuel supply arrangements with IOCL & BPCL, long term PPA with
TANGEDCO for the supply of entire power generated by the Company and steady revenues
stream therefrom and Company’s moderate debt profile. The rating is however constrained by
declining trend of PLF, high operating & maintenance cost of the plant, low operating and
profitability margins, high level of receivables and contingent liabilities. The rating is sensitive
to timely renewal of PPA by TANGEDCO which is expiring in September 2016, timely recovery
of receivables from TANGEDCO and the Company not taking financial exposure to unrelated
business activity.
1
Please refer to www.brickworkratings.com for definition of the Ratings
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BWR has essentially relied upon the audited financial results of MPCPL up to FY14, unaudited
6M FY15, projected financials and clarifications/information provided by the Company.
Background
Madurai Power Corporation Private Limited (MPCPL), incorporated in 1995, owns and operates
a 106 MW liquid fuel based power plant, i.e. LSHS (Low Sulphur Heavy Stock) / LSFO (Low
Sulphur Fuel Oil), commissioned in September 2001 at Samayanallur Village, Madurai District,
Tamil Nadu and is engaged in the generation and sale of power to the Tamil Nadu Generation
and Distribution Corporation (‘TANGEDCO’).
It was initially promoted by Covanta Energy Corporation (CEC), USA, through its Mauritius
based subsidiary that held 76.6% stake in the company, while the remaining 24.4% was held by
the SPI Power Group through its Group Company, Samayanallur Power Investments Pvt. Ltd.
Further in October 2011, CEC sold off its stake in MPCPL to SPI Power Pvt Ltd (SPPL). SPPL
then merged with MPCPL, effective from 1st October 2011.
The power plant was setup at a project cost of ₹ 429 Crs and the plant started commercial
operations on 22nd September 2001. The power plant comprises seven diesel engines (15.14 MW
x 7), seven generators (20 MVA each at 0.8 power factor), purification, storage and handling
systems for LSHS/LSFO and lubricating oil, exhaust gas boilers for the production of steam for
heating the liquid fuel along with associated auxiliary equipment. The plant was constructed by
EPC contractor namely Wartsila, Finland. The plant is having residual life of ~20-25 years, as it
had operated with a PLF of ~40% only.
MPCPL supplies the entire power generated by it to TANGEDCO (previously TNEB) pursuant to
a PPA signed in September 1997 for a term of 15 years from commercial date of operations,
which is September 2001. MPCPL also entered into a 15 year FSA with IOCL for the sale and
purchase of liquid fuel. The sale price of power to TANGEDCO, the sole customer of the
Company, is determined as per the tariff structure provided for in the PPA. The Company is
guaranteed of the payment of fixed costs at a “Plant Load Factor” (‘PLF’) availability level of
68.49%. The O&M contract was initially carried out by Covanta Madurai Operating Pvt Ltd
(CMOPL), though MPCPL acquired CMOPL in October 2011 and the O&M activities are thus
presently undertaken in-house. The PPA is expiring in FY16, however, the Company is confident
about renewal of the PPA with TANGEDCO as it is one of the peak load plant in Tamil Nadu.
During FY14 (12 Months), the plant generated 354.50 million units at an average Plant Load
Factor (PLF) of 37% as compared to 366.28 million units in FY13 at a avg. PLF of 39% during
the twelve months period ended March 31, 2013. As per PPA, all MPCPL variable cost is
reimbursed by the sole consumer TANGEDCO fully, and there is no impact on MPCPL
profitability by increase or decrease in PLF. As per PPA with TANGEDCO the availability of the
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plant is to be above 68.50% and generally it is around 95% as the PLF is purely based on the
demand from TANGEDCO and the Company has no control over it.
MPCPL has also floated a subsidiary, viz. SPI Infra Pvt Ltd, wherein it owns 76% equity stake
and the remaining 24% is held by the industrial consumer; the subsidiary has purchased
windmill assets of about 9 MW with a long-term PPA signed with the industrial consumer.
During FY14, Its investments increased to ₹ 112.23 Crs, mainly due to ₹ 59 Crs in SPI Aero
Ventures Inc. USA for the purpose of acquisition of Global Engine Maintenance LLC, USA,
engage in MRO (maintenance, repair, Overhaul) of Aircraft Engines. The Company informs that
they have gone into this activity as it expects to generate additional revenue and as the
requirement of technical capabilities and expertise are very similar to maintenance of its power
plants.
Rating Sensitivities
During FY14, the Company was having Contingent liabilities of ₹ 222.14 Crs. Of which ₹ 104.22
Crs of Corporate Guarantees were provided to SPI Cinema and Krishanveni, towards non-core
business activities. These are promoter group Companies. During the year the contingent
liabilities towards the non-core activities have been reduced to about ₹ 30 Crs and are expected
to be fully redeemed by June15. Other Guarantees are towards related business activities of the
Company. The Rating would be sensitive to any liabilities taken by the Company in any
unrelated activity.
Financial Performance
During FY14 (12M), the Company’s operating revenue has witnessed a fall of ~3% to ₹ 463.81
Crs in FY14 from ₹ 478.60 Crs in FY13. EBIDTA decreased by ~16% to ₹ 59.89 Crs in FY14
from ₹ 71.64 Crs in FY13. However, during the same period PAT increased to ₹ 25.92 Crs in
FY14 from ₹ 19.72 Crs in FY13, mainly due to low interest cost and the higher other income.
While Long term borrowings have decreased to ₹ 20.97 Crs in FY14 from ₹ 42.20 Crs in FY13,
Short term borrowings have also decreased to ₹ 64.17 Crs in FY14 from ₹ 77.84 Crs in FY13.
Also, MPCPL is having ~₹ 84 Crs of non-fund based facilities towards fuel supply requirements.
Operating margins slightly decreased to 12.91% in FY14 as compared to 14.97% in FY13.
However, Net profit margin improved to 5.59% up from 4.12% in FY13. Tangible Net-worth
stood at ₹ 234.90 Crs as of FY14. In FY14, Cash and Cash Equivalents include ₹ 115 Crs of FDs,
for the purpose of guarantees provided to fund the working capital requirements of SPI Power,
SPI Cinemas P Ltd, Krishnaveni Film Exhibitors and MAG Engines Systems P Ltd.
During H1 FY14 (6M), Operating revenues stood at ₹ 208.90 Crs with profit after tax at ₹ 16.22
Crs with cash accruals of ₹ 21.64 Crs. Long term borrowings stood at ₹ 31.53 Crs with Cash and
Cash Equivalents at ₹ 64.56 Crs.
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Rating Outlook
MPCPL has an established track record of more than a decade of operation of 106 MW liquid
fuel based power plant. It has a long term FSA with IOCL towards fuel supplies and the current
long term PPA with TANGEDCO will expire in September 2016. The Company expects that
TANGEDCO will renew the PPA keeping in view certain technical aspects helpful to the latter.
However, while the Company is assured of a minimum return under the PPA, it is also obliged to
supply entire power produced to TANGEDCO and thus its revenue is totally dependent on
TANGEDCO. On the other hand, it is also essential for the Company to get the PPA renewed as
sale of power to any other third party would be difficult as it produces high cost power.
During the period under review, the Company’s liquidity has improved as receivables from
TANGEDCO are being recovered faster though the margins continue to be low and restricted.
The Company’s operations during the next twelve months are expected to be stable. The key
rating sensitivities are the Company’s ability to improve operational efficiency and price
realization, timely recovery of receivables from TANGEDCO, renewal of PPA by TANGEDCO,
and the Company not taking any financial exposure outside its prime activity of power business.
Analyst Contact
Relationship Contact
[email protected]
[email protected]
Phone
Media Contact
1-860-425-2742
[email protected]
Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources,
which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or
completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty
of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR
should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses
incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any
reasons.
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