Tata Power on Wednesday said CRISIL Ratings has upgraded Tata Power’s outlook to positive and expects the company’s profitability position to improve this fiscal. The agency has upgraded its outlook for Tata Power to AA/Positive from AA/Stable. “The rating for Tata Power’s commercial paper program and short-term banking facilities has been affirmed at ‘CRISIL A1+’,” it said in a press release.

“The revision to the outlook reflects the possibility of a better-than-expected business risk profile if the improvement in operating profitability in fiscal 2024 continues across the power generation and distribution business, while maintaining healthy financial performance with consolidated net debt (net debt to debt ratio) ratio Between debt and adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) remains within the rating threshold, it continues.

According to the report, increase in operating profitability of Tata Power since FY2023 is mainly due to better profitability of Mundra Ultra Mega Power Project (Mundra Power Plant), improved efficiency in Discom business in Odisha and sustained growth in renewable energy (RE ). Business with constant capacity growth. Profitability in the last financial year was also supported by higher margins in its overseas coal mining business amid increased coal prices.

Overall, CRISIL Ratings expects Tata Power’s Consolidated Adjusted Ebitda to be over ₹12,000 crore in FY2024 and FY2025 each (approximately ₹11,500 crore in FY2023 and around ₹9,600 crore in FY2022). Adjusted Ebitda stood at ₹6,694 crore in the first half of fiscal 2024, the report added.

“CRISIL Ratings has revised its outlook on Tata Power’s long-term bank facilities and non-convertible debentures to ‘Positive’ from ‘Stable’ while affirming its rating at ‘CRISIL A’. The rating for Tata Power’s commercial paper program and “short-term banking facilities have been reaffirmed at ‘CRISIL A1+’,” the filing said.

The filing states that the scale of operations has increased, resulting in improved operational efficiency and steady cash flow in heat generation, and the regulated business is expected to support cash inflows from operations. “This would be despite an expected decline in revenue from the coal mining business amid lower coal prices this financial year. Increasing the level of integration in the RE business by establishing its own module manufacturing and EPC (Engineering, Procurement and Construction) business provides support,” it adds.

CRISIL Ratings also notes that there is a large cash balance in Tata Power’s Odisha distribution business. However, this was not taken into account when calculating net debt at this stage as cash is charged against customer deposits, the report said.

CRISIL Ratings believes that the healthy margins of Tata Power’s regulated and stable business will continue to improve due to increase in growth capex, resulting in healthy cash flows to support debt for the said capex as well as maintaining consolidated net debt. The same should also apply to important monitoring values, it is said.