S&P expects Power Grid to benefit from continued commissioning of new projects, which would lead to EBITDA growth of 4-9% annually and significant free operating cash flows of more than ₹10,000 crore over fiscal 2021 and 2022
MUMBAI: S&P Global Ratings has assigned Power Grid Corporation's stand-alone credit profile a 'BBB' rating from 'BBB-' earlier, on stronger financials.
The rating agency has also affirmed its 'BBB-' long-term issuer credit rating and 'BBB-' long-term issue rating on the company's senior unsecured.
Power Grid's leverage will continue to improve over the next three years due to slowing capital expenditure and robust cash flows and the company has financial headroom to accommodate higher capex and a moderate increase in dividend payouts, the global ratings agency said.
Power Grid is India's largest power transmission company, accounting for about 85% of the interstate transmission system. The company is the third-largest transmission utility globally, according to the World Bank.
"Capital spending is likely to decrease from historical peak levels of ₹22,500 crore- ₹25,000 crore annually, on fewer growth projects and also, completion of several large projects has removed transmission bottlenecks and strengthened the transmission system in India and estimate Power Grid's capex will taper to ₹10,000 crore- ₹15,000 crore annually over the next three fiscal years assuming a moderate pace of winning about 50% of competitive bid projects" it added.
S&P expects Power Grid to benefit from continued commissioning of new projects, which would lead to EBITDA growth of 4-9% annually and significant free operating cash flows of more than ₹10,000 crore over fiscal 2021 and 2022.
"We believe the company has sufficient cushion to accommodate higher-than-anticipated capital spending if large projects materialize in later years. Such projects will boost the company's Regulatory Asset Base (RAB) capitalization and earnings. Power Grid also benefits from resilient cash flows and good earnings visibility given its availability-based tariff that recovers on costs and guaranteed returns," said S&P.
Power Grid's role as a central transmission utility has been transferred to its newly incorporated subsidiary - the Central Transmission Utility of India. A maturing transmission network, renewed thrust on renewable power projects having shorter gestation periods, and uncertainty on timing of competitive bids indicate reduced visibility on capex compared to the erstwhile five-year planning mechanism.
The stable outlook on Power Grid reflects the outlook on the sovereign credit rating on India. The rating on Power Grid is capped by the sovereign rating.