RATING RATIONALE 22 April 2021 Adani Power Rajasthan Ltd

Brickwork Ratings reaffirms rating for the Bank Loan Facilities amounting to ₹ 205 Crores and withdraws the short-term rating for the Bank Loan Facilities amounting to ₹ 130 Crores of Adani Power Rajasthan Ltd

Particulars Amount (₹ Crs) Rating* Facility** Tenure Previous Previous Present Present (March 2020) BWR A-/Stable 205 205 Long Term BWR A-/Stable Non-Fund Based Reaffirmation 130 Nil Short Term BWR A2+ Rating Withdrawal Total 335 205 INR Two Hundred and Five 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 Note: While the company has other debt facilities also, our rating is valid only to the extent of the above mentioned non-fund-based facilities

Rating Action / Outlook Brickwork Ratings (BWR) has reaffirmed the long-term rating at BWR A- (Stable) and withdrawn the short-term rating of BWR A2+ for the LC (Letter of Credit) facility as the same has been fully repaid and closed by Adani Power Rajasthan Ltd (APRL or the company). The rating derives comfort from the availability of the pledge of shares of Adani Ports and Special Economic Zone Ltd (APSEZ), Adani Power Ltd (APL) and Adani Enterprises Ltd (AEL) providing a coverage of 1.50x for the rated facility and positive regulatory events with respect to the allowance of the compensatory tariff (CT), as well as the carrying cost pertaining to a shortfall in the availability of domestic coal. The Appellate Tribunal for Electricity (APTEL) and Supreme Court have also rejected the review petitions filed by Rajasthan Discoms pertaining to the allowance of CT dues on 28 September 2020 and 2 March 2021, respectively. The rating further continues to draw strength from the company’s strong parentage and being a part of the larger Adani Group, demonstrated track record of the group in the power segment, established operational track record of the Kawai power plant since 2013, healthy revenue visibility on account of the long-term PPA in place for nearly the entire generation capacity, two-part tariff structure under the PPA providing for both fixed capacity charge and variable cost, availability of coal linkages for the plant under SHAKTI for 4.12 MMTPA, improved operational performance and generation of adequate cash to meet debt obligations. The rating, however, continues to remain constrained on account of significant pending dues towards compensatory tariff (including carrying cost), the timely realisation of which is important to strengthen the company’s overall liquidity profile, and counterparty risk associated with Rajasthan Discoms for both the receipt of regular dues, as well as the large amounts due on account of the compensatory tariffs and carrying cost. www.brickworkratings.com Page 1 of 6 The outlook has been maintained as Stable as the company’s operational performance is expected to remain stable over the medium term with the availability of adequate cash accruals to ensure timely debt servicing.

Key Rating Drivers

Credit Strengths: Availability of Pledge of Shares of Adani Group’s Listed Entities as Security for Facility: The rated facility is secured by a pledge of shares of APSEZ, APL and AEL, providing a minimum coverage of 1.50x. The total bank guarantee limit is split into two tranches of Rs.160 Crs and Rs. 45 Crs. The company has to provide a top-up in case the coverage falls below 1.25x for the Rs. 160 Crs tranche and below 1.30x for the Rs. 45 Crs tranche.

Strong Promoters and their Demonstrated Support: The company is a wholly owned subsidiary of APL, Adani Group’s flagship company in the thermal power generation segment. APL is a listed entity and has high financial flexibility in terms of raising funds to support its SPVs. APL has a consolidated asset base of more than 14 GW and has thermal power plants located in various states, catering to different discoms. The promoters also converted their unsecured loans in the company, along with some additional amount, into unsecured perpetual securities amounting to Rs. 2200 Crs in FY19. Although the plant is self-sustainable, need-based support from the group is expected to be available to the company in future.

Allowance of Compensatory Tariff for Shortage in Domestic Coal: Post the Supreme Court of India’s judgement in the Energy Watchdog matter, the company became eligible to receive compensatory tariff for the shortage of domestic coal, along with its carrying cost. While Rajasthan discoms had cleared the partial dues amounting to Rs. 2427 Crs during FY19 and FY20, they had also filed a review petition against the said order. The review petitions of the discoms were rejected by APTEL on 28 September 2020 and the Supreme Court on 2 March 2021. The company has raised substantial claims till 31 December 2020 in this regard, and now with the review petitions of the discoms being rejected by both the APTEL and Supreme Court, the balance amount is also expected to be realised by the company soon.

Fuel Linkages Received under SHAKTI: APRL has received fuel linkages under SHAKTI for 4.12 MMTPA in February 2018. This meets the majority of the company’s coal requirements. For the balance requirement, APRL has an option to purchase e-auctioned coal or procure coal through an inter-party transfer mechanism with Adani Power Mundra Ltd. Therefore, the company now has 100% domestic coal available to run its operations. With this, the company’s fuel cost has also come down from Rs. 2.48/kWh in FY20 to Rs. 2.26/kWh in 9M FY21, leading to better operating profitability.

Healthy Revenue Visibility over Long Term: The company has a long-term PPA with Rajasthan Discoms for nearly 100% of the company’s net generation at 1200 MW for a long term of 25 years, lending healthy visibility in terms of revenue. Furthermore, the tariff structure provides for both fixed-capacity charge, as well as the variable charge; thus, even if the power is not taken up by the offtaker, the discoms will still have to pay for the fixed cost as long as the plant’s availability is maintained at/or above the normative level (85%). With the fuel availability in place, the company maintained the plant’s availability at 90% for www.brickworkratings.com Page 2 of 6 FY20 and was able to realise the entire capacity charge for the year. The company’s realisations under the PPA have remained above Rs. 4/kWh for the past three years.

Improved Operational Performance: Post receiving coal linkages under SHAKTI, the company’s operational performance has been consistently improving, marked by higher availability and load factors of the plant. The Plant Availability Factor has increased from 90% in FY20 to 98% in 9M FY21, and the Plant Load Factor has also increased from 69% in FY20 to 74% in FY21. Due to the company’s favourable merit order position, it was able to report a better PLF during 9M FY21 also, negating the impact of the disruptions caused by the covid-19 pandemic.

Credit Risks: Significant Dues Outstanding towards Compensatory Tariff and Overall Counterparty Risk: The company has a PPA with Rajasthan Discoms, which have a relatively weak credit profile. However, the Discoms have been able to manage their dues by way of support from the Rajasthan Government and raising debt. While considering the critical nature of payments to power suppliers, the Discoms are expected to pay these dues; however, there can be issues with respect to the timeliness of these payments. Additionally, APRL has a substantial amount pending to be recovered from Discoms with respect to compensatory tariff and its carrying cost, and there is no clarity at present with respect to the timeline of payment for these dues. As the receipt of the said dues can improve the company’s liquidity position significantly, the same is a key rating monitorable.

Analytical Approach and Applicable Rating Criteria To arrive at the rating, BWR has considered the terms of the PPA and FSA, project’s operational performance, audited financials till FY20 and financial projections of the company. The expectation of timely and need-based support from the promoters has also been also factored in while arriving at the rating. While the rated facilities are backed by a pledge of shares of APSEZ/APL/AEL providing a cover of 1.50x, BWR has not derived any external credit enhancement from the same, as the pledged shares can only be liquidated after the invocation of the BG. The comfort from the pledge, however, has been built into the assigned rating for the said facility.

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

Rating Sensitivities

Positive: Continuous improvement in the operational performance of the company, achievement of the projected financial performance and prompt payments from Rajasthan Discoms towards the power dues Negative: Delay in the receipt of outstanding power supply dues, as well as dues with respect to the compensatory tariff and carrying cost, which can negatively impact the company’s liquidity position.

Liquidity Position: Adequate The company’s annual cash accruals are expected to be in the range of Rs. 700-900 Crs per year going forward in comparison with the company’s annual debt obligation in the range of Rs. 250-400 Crs over the next few years, indicating the availability of adequate cash flows to www.brickworkratings.com Page 3 of 6 meet the debt obligations. The company has created a DSRA for one quarter of principal and interest obligations as against the requirement of two quarters under the sanction letter. APRL has also received waivers for the second quarter of DSRA from its ECB lenders and around 96% of its RTL lenders by value, whereas a similar proposal is pending with one of the RTL lenders.

Company Profile Adani Power Rajasthan Limited (APRL), incorporated on 25 January 2008, is a 100% subsidiary of Adani Power Limited, a publicly listed company in India. The company operates a coal-based 1320 MW (2*660 MW) Supercritical Thermal Power Project at Kawai Village, Baran District in Rajasthan. Unit-I and Unit-II have been operational since 31 May 2013 and 31 December 2013 respectively. The entire project was developed at a total cost of Rs. 8773 Crs (Rs. 6.65 Crs/MW), funded by debt and equity in the ratio of 70:30. The company has received coal linkages under SHAKTI from SECL and NCL with a combined capacity of 4.12 MMTPA. The balance requirement is met through the inter-party transfer from APMuL or e-auctioned coal. APRL has a long-term PPA with RRVUNL. The PPA is for a net capacity (net of auxiliary consumption) of 1200 MW.

Key Financial Indicators Particulars Units FY19 (A) FY20 (A) Revenue from Operations Rs. Crs 3862.85 3257.23 EBITDA Rs. Crs 1148.34 1038.29 PAT Rs. Crs 80.25 927.03 Total Debt Rs. Crs 6720.55 6388.16 Tangible Net Worth Rs. Crs 2460.47 3386.87 Total Debt/TNW Times 2.73 1.89 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 withdrawn/suspended) Current Rating Rating History Facility Amount Tenure Rating 2020 2019 2018 (₹ Crs) BWR DSRA BG Long Term 205 BWR A-/Stable A-/Stable NA NA Rating LC Short Term Nil BWR A2+ Withdrawn Total 205 INR Two Hundred and Five Crores Only

Complexity Levels Of The Instruments For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf

www.brickworkratings.com Page 4 of 6 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 Rajasthan Ltd Annexure I - Details of Bank Facilities Rated

Facility Tenure Amount (Rs. Crs) DSRA BG Long Term 205.00 Total 205.00

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