“The rating upgrade to Ba1 is driven by Tata Power’s solid financial metrics, which are projected to remain above the upgrade trigger set for the earlierBa2 rating,” Moody’s Analyst Yong Kang said.
In a note, Moody’s said it could upgrade Tata Power’s rating if the company’s standalone credit quality improves, such that its CFO pre- WC/debt rises above 13%on a sustained basis.
Tata Power’s rating incorporates the company’s standalone credit quality and a one-notch uplift for shareholder support in Tata Sons, the note said adding that company’s standalone credit quality is supported by predictable cash flow from its distribution businesses that benefit from a stable regulatory framework, and from its fixed-tariff long-term power purchase agreements (PPAs) for its renewable generation capacity.
Under Moody’s base case projection, Tata Power’s operating cash flow pre-working capital to debt (CFO pre- WC/debt) will remain solid at 9%-11% over the next two to three years. Although the projected credit metrics are lower than the actuals recorded in fiscal 2023, Moody’s expects Tata Power to be able to sustain these credit metrics.
Tata Power’s takeover of distribution companies in Odisha and the subsequent improvement in its operations, underpinned by declining electricity losses, have strengthened its business profile, the note said. The company’s regulated distribution businesses will likely continue to generate core earnings and support its financial metrics at least over the next 1-2 years, it added.
Tata Sons’ shareholding in Tata Power has increased to 45% from 35% after a preferential allotment of Tata Power’s shares to Tata Sons in 2020 and Moody’s expects parental support to help Tata Power’s decarbonisation drive in line with other Tata group companies.However, Tata Power’s liquidity will likely remain weak, mainly because of the high proportion of short-term debt in its capital structure, the note warns.
The Tata Power stock ended at Rs 262.40 on the NSE, up by Rs 4.35 or 1.69%.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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