The revision in the ratings of the company factors in the improved profitability of Mundra operations primarily on account of extension in power sales under Section 11 of the Electricity Act by the Ministry of Power (MoP), turnaround in the operational and financial performance of Odisha discoms as reflected by significant reduction in AT&C losses along with commissioning of the 4.3 GW module manufacturing facility allowing backward integration in the renewable space.

The ratings favorably factor in TPCL’s diversified presence in power business, including generation, transmission, distribution and engineering procurement construction (EPC) space. The ratings also take comfort of the presence of long-term power purchase agreement (PPA) for majority of its capacities thus providing long-term revenue visibility.

The ratings also factor in its fuel supply agreements (FSA) with Coal India Limited’s subsidiaries, its healthy operational performance across business segments coupled with presence of long-term mining license with provision to extend by 10 years in Indonesian coal mines, which acts as a partial hedge to an extent to counter adverse fuel price movement.

Despite the reported improvements, TPCL’s elevated leverage profile, large capex plan and lumpy repayments temper its rating strengths to a certain extent. Furthermore, the ratings continue to be sensitive to the risk of fuel cost recovery, especially for its Mundra plant due to higher international coal prices.

The ratings are further constrained on account of delay in signing of supplementary PPAs for the Mundra plant, low operating margins in solar EPC segment, significant regulatory assets attributable to the power distribution business, project execution and counterparty credit risks associated with its generation business.

Tata Power Company (TPCL) is an integrated power utility company and one of the major companies of the Tata group. The company is into power generation, transmission, distribution and trading and fuel and logistics.

The company's consolidated net profit increased 11% to Rs 1,046 crore in Q4 FY24 as compared with Rs 939 crore in Q4 FY23. Revenue from operations jumped 27.24% to Rs 15,846 crore during the quarter as compared with Rs 12,453.76 crore in the corresponding quarter last year.

The scrip shed 0.69% to currently trade at Rs 440.50 on the BSE.