nlc bankloan 2500cr aaa rating

www.brickworkratings.com 1 3 Apr 2014

Rating Rationale

Brickwork Ratings reaffirms BWR AAA for the Long term Bank

Facilities of 2500 Cr for Neyveli Lignite Corporation Limited (NLC)

Brickwork Ratings (BWR) reaffirms the Rating1 BWR AAA (BWR Triple A) with a Stable

Outlook for Long Term Bank Loan Facilities of Neyveli Lignite Corporation Limited (NLC

or the Company) for 2500 Cr.

Credit facilities with this rating are considered to have the highest degree of safety

regarding timely servicing of financial obligations and carry lowest credit risk.

The rating takes into consideration the Companys efficient operations and healthy financial

profile. Sufficient fuel supply on account of its captive lignite mines, cost-plus based tariff

mechanism applicable for its power generation plants, favourable demand outlook in view

of the power deficit scenario in the southern states and a healthy financial risk profile

characterised by favourable capital structure and strong liquidity. Further, the rating also

takes into account the dominant ownership of Government of India. However, the ratings

are constrained by delay in payment of dues by Tamil Nadu Generation and Distribution

Company (TANGEDCO) resulting in elongation of average collection period and time and

cost over-run in the execution of its expansion projects.

The ability of the company to execute its projects timely and within the cost envisaged

together with improvement in average collection period remains the key rating sensitivities.

Business and Operation:

NLC currently operates six lignite mines with an aggregate capacity of 30.6 million tonnes

per annum (mtpa). The Company has limited fuel supply risk since the company sources its

entire raw material requirement from its captive mines. All the mines, except Mine I A, are

linked to NLCs thermal power stations. Mine I A supplies lignite to ST-CMS Electric Co Pvt

Ltd, an Independent Power Producer (IPP) located in Neyveli that sells power to

TANGEDCO. Two of the mines, Barsingsar Mine and Mine II Expansion, were

commissioned in 2009-10 and have achieved their rated production capacity; however,

lignite extraction has been low from the mines since one of the linked thermal power

stations (TPS) namely Barsingsar TPS was commissioned only in January 2012 and the

other TPS II Expansion is still under execution.

1 Please refer to www.brickworkratings.com for definition of the Ratings


NLC operates four lignite fired thermal power generating stations with an installed capacity

of 2,740 MW. The most recent unit, the Barsingsar TPS with an installed capacity of 250

TPS, was commissioned in late 2011-12.

NLC is currently executing three thermal projects:

a) TPS II Expansion project expected to be commissioned during the current financial year

b) Coal-based thermal station at Tuticorin through a joint-venture with TNEB with partial

fuel linkages with Mahanadi Coal Fields and expected to be operational by end of 2013-14

c) New Neyveli Thermal Power Station (NNTPS) project, a 1,000 MW lignite based station

to replace the existing TPS I, that received GoI sanction in June 2011. The said project is

currently in the initial stages and is expected to be operational by 2016-17. The details of the

companys power stations are provided below.

Power Plant Station

Location Installed capacity

(MW)

Status

Thermal Power Station Neyveli 600 Operational

(TPS) I

TPS-I Expansion Neyveli 420 Operational

TPS-II Neyveli 1470 Operational

Barsingar TPS Barsingar 250 Operational

TPS-II Expansion Neyveli 500 Project completion stage

Coal based Power Station Tuticorin 1000 Under Construction

New Neyveli TPS Neyveli 1000 Under process of

tendering

Mine Name

Total Reserves (MT)

Production (MTPA)

Status

Mine 1 365 10.5 Operational

Mine 1 A 120 3 Operational

Mine II 390 10.5 Operational

Mine II Expansion 250 4.5 Operational

Barsingar (Raj.) 53 2.1 Operational

Total 1,178 30.60


Segment-Wise Performance:

Mines The aggregate installed Capacity of all lignite mines stands at 30.6 MTPA as on 31st

march 2013. The aggregate OB removal and lignite production during the year under review

were 1674.85 Lm3 and 262.23 LT, respectively compared to 1651.47LM and 245.90 LT

achieved during the year 2011-12.

Power -The Present installed capacity of the thermal Power plant of NLC is 2740 MW . The

aggregate power generation during the year under review was 19902.34 MU as Compared to

18789.44 MU generated in FY12. The detail Plant Wise Performance is mentioned below:

Financial performance:

Brickwork Rings notes the delays in NLCs ongoing projects, particularly TPS II Expansion

and Tuticorin project, which has resulted in cost overruns. Approval of the revised project

costs by the regulator would remain critical for the company so as to earn the normative

returns on the full capital costs incurred. Further, the companys Barsingsar project is

operating at lower than normative availability level due to stabilisation issues, thereby

resulting in under-recovery of fixed costs; the company is expecting a resolution on this

matter in the near term. BWR however takes comfort from the healthy cash accruals from

the companys other operating power plants and the cash balances of Rs 4,413 crore available

as on August 2013, which provides it with enough cushion to absorb such under-recoveries

for the near term.

NLC reported a profit after Tax (PAT) of Rs.1457.76 Crore on a total income of Rs. 5590.07

Crore in FY 13 as compared to PAT of Rs. 1411.33 Crore on the income of Rs. 4866.85 Crore

in FY12.The Companys capital structure has remained comfortable in the range of 0.42x to

0.52x as at end of last three years. Further, the debt protection metrics measured in terms of

interest service coverage ratio and net cash accruals to total debt ratio are also comfortable.

Power

Generation

(MU)

Power

Exported

(MU)

PLF %

FY12 FY13 FY12 FY13 FY12 FY13

TPS-I (600 MW) 3987.85 4035.43 3171.82 3215.98 75.67% 76.77%

TPS-I Expansion

(420 MW) 3042.68 3319.77 2809.97 3035.58 82.47% 90.23%

TPS-II (1470

MW) 11087.65 11238.09 9278.76 9455.81 85.87% 87.27%

Barsingsar TPS

(250 MW)* 617.68 1280.85 510.79 1114.33


Outlook

NLC is maintaining healthy operational performance given its efficient operations, low

demand risk, cost-plus tariff structure and healthy financial risk profile. Going forward, the

funding mix and timelines for implementation of its on-going projects together with timely

collection of receivables are the key rating sensitivities.

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.

nlc bankloan 2500cr aaa rating

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