RATING RATIONALE 21 July 2021 Adani Power Maharashtra Ltd

Brickwork Ratings reaffirms ratings for the Bank Loan Facilities aggregating ₹ 16534 Crores of Adani Power Maharashtra Ltd

Particulars Amount (Rs. Crs) Rating*

Facility** Tenure Previous Previous Present Present (July 2020)

BWR A BWR A 14273 12760 Long Term Outlook: Stable Outlook: Stable Fund Reaffirmation Based BWR A2+ 0 2500 Short Term NA Assignment

Long BWR A (Outlook: Non-Fund BWR A (Outlook: 1244 1274 Term/Short Stable)/ BWR A2+ Based Stable)/ BWR A2+ Term Reaffirmation

INR Sixteen Thousand Five Hundred and Thirty Four Total 15517 16534 Crores Only *Please refer to BWR website www.brickworkratings.com/ for the definition of the ratings ** Details of bank facilities are provided in Annexure-I

Rating Action / Outlook Brickwork Ratings (BWR) has reaffirmed the ratings of BWR A (Stable)/A2+ for the bank loan facilities of Adani Power Maharashtra Ltd (APML or the company). The reaffirmation factors in the strong parentage of APML, availability of domestic coal for nearly the entire fuel requirement through FSA/linkages and inter-plant transfer (IPT) from Adani Power (Mundra) Ltd (APMuL), offtake agreements for the entire power generation capacity (net of auxiliary consumption) involving a two-part tariff structure, along with a moderate counterparty risk, receipt of favourable order from Appellate Tribunal for Electricity (APTEL) for compensation on account of deallocation of Lohara coal block related to 800 MW capacity and realisation of substantial amount against the claims raised in the matter. The rating also takes note that the company has created DSRA to the satisfaction of both RTL and ECB lenders. The rating, however, is constrained on account of accumulation of substantial receivables pertaining to the compensatory tariff (CT) dues and lack of clarity as to when and in how many tranches the said amounts will be cleared by the MSEDCL (Maharashtra State Electricity Distribution Company Ltd). While the company has received significant payments pertaining to both 2500 MW and 800 MW capacities, a major portion is yet to be cleared by MSEDCL. The rating is also constrained on account of the strained working capital position of the company.

www.brickworkratings.com Page 1 of 7 The outlook has been maintained at Stable as the company’s performance is expected to continue to remain healthy leading to generation of sufficient cash accruals to meet debt obligations.

Key Rating Drivers

Credit Strengths-: Strong Promoter Group: The company is a wholly owned subsidiary of Adani Power Ltd (APL), Adani Group’s flagship company in the thermal power generation segment. The promoters have a long track record in the power sector and have been supporting all the subsidiaries by way of infusing necessary funds at regular intervals. APL is one of the largest independent power producers (IPP) in the country with a portfolio of 14 GW generation capacity (including the under construction capacity). While the plant has become self-sustainable and is no longer reliant on the funding from promoters, need-based support from the group, in case of any eventuality in the future, has been factored in while arriving at the ratings.

Fuel Supply Arrangements (FSA) in Place: The company requires a minimum fuel supply of 13.50 MTPA to operate the plant at a normative level (availability factor of 85%). The company received FSA from SECL for 4.91 MTPA (now enhanced to 5.46 MTPA), which was insufficient to meet the requirement; thus, the company entered an agreement with APMuL for the inter-party transfer of 6.40 MTPA coal from the linkages received by APMuL from mines located near the plant of APML. The same was also approved by Coal India Ltd. While, the pricing of this coal was done at the next best available source of coal to APML, which was e-auctioned/imported coal, both the parties agreed that APML would pay only the price charged by CIL until the compensatory tariff dues of APML are not cleared by the MSEDCL. The balance requirement, however, continued to be met from e-auction/imported coal. Subsequently, the company received linkages for 5.85 MTPA under SHAKTI during August 2017, and supply commenced from April 2018, resulting in lower reliance on e-auctioned/imported coal. It also helped in lowering the average cost per tonne of coal, thereby improving the profitability of the company.

Off-take Agreements for Entire Capacity (Net of Auxiliary Consumption): APML has entered power purchase agreements for 3085 MW (net of auxiliary consumption) with the MSEDCL at a two-part tariff structure - fixed charge + variable charge. The company will be able to recover the fixed charge if the plant is operated at the normative availability factor. The MSEDCL has also opened a monthly revolving letter of credit with APML as a payment security mechanism in compliance with the regulatory requirement. Furthermore, with respect to PPAs entered for 60% of the company’s capacity, it is eligible to receive escalation in tariff on account of changes in energy charges and the inland transportation cost linked to the CERC index. Additionally, the PPAs have a validity for another ~ 20 years, lending adequate revenue visibility over the long term.

Consistent Operational Performance: Post receiving coal linkages under SHAKTI, the company’s operational performance has reported considerable improvement. The plant availability factor (PAF) consistently improved over the last three years with a PAF of 90% for FY21. While the plant load factor (PLF), which improved considerably during FY19 and FY20, declined in FY21 on account of the fall in power demand, the company was able to recover entire fixed costs on account of maintenance of PAF at above the normative levels. www.brickworkratings.com Page 2 of 7 Realisation of Substantial Amount Towards Compensatory Tariff Dues: The company has received a favourable order from the APTEL for deallocation of Lohara coal block related to the 800 MW capacity, allowing it compensatory tariff based on the mining costs method. The company recognised a principal of Rs. 3561 Crs in the matter during FY21 and also recovered Rs. 2993 Crs partly through the bills discounting facility against the bills duly accepted by MSEDCL. While MSEDCL has filed a civil appeal with the Supreme Court in the matter, the company expects a favourable outcome and realisation of pending receivables in the next two years.

Credit Risks-: Strained Working Capital Position: In order to procure coal under the linkages, the company is required to make advance payments to Coal India Ltd and its subsidiaries. This leads to continuous high utilisation of the working capital limits. The management has confirmed that it is receiving the dues related to regular power supply from MSEDCL within the agreed credit period, the company’s average working capital utilisation remained above 90% during the past 12 months. Also, the company did not receive any additional payments with respect to the CT dues related to 2500 MW capacity during FY21 a substantial amount of claims for both 2500 MW and 800 MW remain to be cleared by MSEDCL. Although the management is confident that it will be able to recover the entire dues during the next two years, there is still no clarity regarding the timing of payments from MSEDCL.

Analytical Approach and Applicable Rating Criteria To arrive at the rating, BWR has analysed the company on a standalone basis. Terms of PPAs, project parameters, audited financials until FY21 and financial projections of the company have been taken into account. The expectation of timely and need-based support from the promoters is also factored in while arriving at the rating.

The methodology applied by BWR is highlighted and mentioned at the end.

Rating Sensitivities- Positive: Favourable order from the Supreme Court for the civil appeal filed by MSEDCL and realisation of a majority of the outstanding claims with respect to the total CT dues including both 2500 MW and 800 MW capacities. Negative: A deterioration in the PAF, impacting revenue, as well as profitability, and deterioration in the payment cycle for regular power dues from the MSEDCL

Liquidity Position: Adequate The company’s cash accruals from operations (excluding the impact of Rs. 3561 Crs recognised as CT in FY21) have remained around Rs. 1000 Crs. Additionally, the company received payments against the recognised CT dues amounting to Rs. 2993 Crs taking the cash flows generation to close to Rs. 4000 Crs. Against this, the company’s debt obligations for FY22 and FY23 at ~ Rs. 1100 Crs which the company should be able to service. The company has sanctioned working capital limits of Rs. 2733 Crs for which the average utilisation has remained at above 90% in the past year as the company is required to make advance payments for procurement of coal. Nonetheless, the company has received favourable orders at all the forum till now with respect to the compensatory dues and also expects a similar outcome at the Supreme Court also. MSEDCL has also cleared substantial payments in this regard. The company expects to realise the balance dues also in the next 2-3 years which will improve its liquidity position substantially. www.brickworkratings.com Page 3 of 7 Company Profile Incorporated in April 2007, Adani Power Maharashtra Limited (APML) was floated as a wholly owned subsidiary of Adani Power Limited to implement a 3300 MW supercritical, domestic coal-based thermal power generation plant at Tiroda in Maharashtra. The project was implemented in three phases – Phase I (2 x 660 MW), Phase II (1 x 660 MW) and Phase III (2 x 660 MW). These units became operational between September 2012 and October 2014. APML has entered long-term power purchase agreements with the MSEDCL for 3085 MW capacity (net of auxiliary consumption), out of which the PPA for 440 MW became operational mid-February 2017 onwards.

Key Financial Indicators Particulars Units FY20 (A) FY21 (A) Revenue from Operations Rs. Crs 8314.92 10024.01 EBITDA Rs. Crs 2087.75 5647.09 PAT Rs. Crs 35.19 3667.22 Tangible Net Worth Rs. Crs 3967.50 7634.07 Total Borrowings Rs. Crs 13623.04 13948.60 Total Debt/TNW Times 3.43 1.83 Note: All financials have been reclassified as per BWR standards.

Non-cooperation With Previous Rating Agency If Any: NA

Rating history for the past three years (including ratings suspended/withdrawn)

Current Rating (2020) Rating History Facility Amount Tenure Rating 2020 2019 2018 (₹ Crs) Fund Based Rupee Term 7786 Loan BWR ECB 1756 BWR BWR A/Stable Long Term BWR A/Stable A/Stable A/Stable Cash Credit 3100 CELC 118 NA NA Bills Discounting Short Term 2500 BWR A2+ NA NA NA Facility Non-Fund Based BWR BWR BWR Long/Short BWR A/Stable/ BG/LC 1274 A/Stable/ A/Stable/ A/Stable/ Term BWR A2+ BWR A2+ BWR A2+ BWR A2+ INR Sixteen Thousand Five Hundred and Thirty Four Total 16534 Crores Only

Complexity Levels Of The Instruments: Simple For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf www.brickworkratings.com Page 4 of 7 Hyperlink/Reference To Applicable Criteria ● General Criteria ● Approach to Financial Ratios ● Power Generation Projects

Analytical Contacts

Aakriti Sharma Vipula Sharma Manager - Ratings Director– Ratings Board: +91 11 2341 2232 Ext: 111 Board: +91 80 4040 9940 [email protected] [email protected]

1-860-425-2742 [email protected]

Adani Power Maharashtra Ltd Annexure I - Details of Bank Facilities Rated Bank wise Details (Consortium) - Rs. Crs Bank/FI CC NFB RTL Total Indian Bank 80 - 258 338 BOB 200 - 159 359 Canara Bank 240 135 655 1030 ICICI Bank 300 - - 300 IDBI Bank 60 - 537 597 IOB 100 - 102 202 J&K Bank 50 - 86 136 SBI 1053 135 2486 3674 TMB 50 - 81 131 UCO Bank 100 - 289 389 PNB 250 - 665 915 Union Bank of India 251 332 688 1271 Yes Bank - 526 - 526 Central Bank of India - - 84 84 IIFCL - - 1205 1205 LIC - - 361 361 PSB - - 129 129 Proposed 366 146 - 512 Total 3100 1274 7786 12160

Details of ECB - Rs. Crs CDB 601 ICBC 313 SCB 240 China EXIM 278 IIFCL UK 325 Total 1756 www.brickworkratings.com Page 5 of 7 Details of CELC - Rs. Crs Indian Bank 7.00 UCO Bank 7.00 Union Bank 18.00 SBI 70.00 BOB 17.00 Total 118.00

Details of Bills Discounting - Rs. Crs SBI 1000 Canara Bank 1000 Indian Bank 500 Total 2500

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