| NTPC Mining Limited | ||||||
| 'CRISIL AAA/Stable/CRISIL A1+' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings to the proposed bank facilities of NTPC Mining Ltd (NML).
The ratings reflect the proposed arrangement wherein NML (wholly owned subsidiary of NTPC Ltd {NTPC; CRISIL AAA/Stable/CRISIL A1+}) will cater to the captive fuel requirement of parent, NTPC. NTPC is currently developing six coal blocks allocated by the Government of India for captive consumption, which are being transferred to NML. Of these mines, three are operational and others are at different stages of development. The proposed scheme of arrangement has been approved by respective boards of NTPC and NML and is awaiting other requisite approvals. The scheme is expected to be completed in the current fiscal.
Further, any capital expenditure (capex) requirement of NML, related to proposed acquisition of mines, future land acquisition and other mine development, is expected to be funded in debt equity mix of 70:30. The equity portion of the capex is expected to be funded via a mix of internal cash accrual and any need-based support will be provided by the NTPC. This will remain a key monitorable going forward.
The ratings also considers strong financial and managerial linkages of NML with NTPC reflecting the high strategic importance of NML and healthy revenue visibility due to long-term mining leases. These strengths are partially offset by exposure to regulatory risks around mining activities and susceptibility to implementation risk owing to large capex. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in support from NTPC due to the strategic importance of NML to NTPC and the strong financial, operational, and managerial linkages of NTPC with NML. |
Key Rating Drivers & Detailed Description Strengths: High strategic importance for and strong financial and managerial linkages with parent, NTPC NTPC is a dominant player in the domestic power sector, apart from having a robust financial risk profile and track record of providing timely support to subsidiaries. NTPC has nearly ~60 gigawatt (GW) of coal-powered thermal capacity and plans to add more in the future, which will require further supply of coal in the future. NML will be strategically important for NTPC as it will meet 20-25% of the coal requirement of NTPC over the medium term. Also, some of the fuel supply agreements (FSAs) with Coal India are set to expire from fiscal 2028 onwards, which will be replaced with the enhanced output of NML going forward.
Further, the board of NML consists of NTPC personnel; all key management positions are from NTPC. Additionally, the strong parentage of NTPC enables timely realisation of receivables, driven by strong market position in the power sector. CRISIL Ratings understands that NTPC shall provide need-based and distress support to NML.
Healthy revenue visibility, supported by long-term mining leases All six coal blocks, which are being transferred to NML, have a total mineable reserve of over 2,000 million tonne and an average mine lease of around 35 years, supporting a long-term revenue visibility. At peak rated production capacity of 71 million ton per annum (MTPA), reserve of these coal blocks are expected to sustain over 28 years. This, along with a reliable counterparty such as NTPC, driving consumption of over 25% of India’s total domestic coal production, and a price determination mechanism as per CERC regulations, provides additional comfort. That said, any change in the power demand outlook of the country, adversely impacting coal consumption, will remain a key monitorable going forward.
Weaknesses: Susceptibility to implementation risk owing to large capex plans The company has large capex plans to reach an overall peak rated capacity of over 60 MTPA from 34 MTPA, targeted for fiscal 2024. Further, two other captive coal blocks and one commercial coal mine block are under various stages of development. While land is available for expansion and ramp-up of coal blocks over the medium term, significant land acquisition is required for operations to continue in the long-term on sustainable basis. Furthermore, participation in future commercial coal blocks auctions will drive the capex requirement going forward. Nonetheless, CRISIL Ratings draws comfort from the strong track record of NTPC over the last five years. NML will likely fund the capex in a debt-equity ratio of 70:30, in line with CERC regulations. While the company has equity commitment from NTPC, equity is expected to be mainly funded out of internal cash accrual. Further, CRISIL Ratings believes that risk related to daily operations of mines is largely mitigated with presence of the Mine Developer and Operator (MDO) arrangement for operational mines. Any change in our understanding related to future land acquisitions and capex plans will remain a key monitorable.
Exposure to sociopolitical and regulatory risks Mining of metals and minerals is heavily regulated globally due to its impact on the environment and social aspects. The company is also exposed to delays, if any, in obtaining environmental and forest approvals, especially in greenfield projects. Further, flexibility is restricted by sociopolitical factors, which mandate development activities in coal mining areas, impacting the cost structure. However, the company is expected to play an important role in ensuring internal fuel security for NTPC, which contributes 25% of total power generation of the country. Any change in the regulatory or sociopolitical policies impacting the business will remain a key rating sensitivity factor. |
Liquidity: Superior Net cash accrual is projected at Rs 700-1,000 crore per annum, over the medium term supporting future debt obligations and equity portion of the capex. The company is expected to avail of fund-based working capital limit of around Rs 500 crore, which will be adequate to meet working capital requirement over the medium term. Being a subsidiary of NTPC also adds to its ability to raise funds. |
Outlook: Stable NML will benefit from its strategic importance to NTPC. The ability to generate steady cash accrual on the back of long-term mining leases and significant mineable reserves will continue to support the credit risk profile. |
Rating Sensitivity Factors Downward Factors
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About the Company NTPC incorporated a wholly owned subsidiary company -- NML -- on August 29, 2019, for carrying out its mining business by creating a dedicated workforce with focused approach. It is expected that undertaking of the mining business by this subsidiary for the coal mines allotted to NTPC would result in the timely development of the mines with efficient handling of contracts by expert/specialised teams, thereby achieving substantial efficiency. The transfer of mines from NTPC to NML is expected to be completed by the end of fiscal 2024.
About the Parent NTPC was incorporated in 1975. As on June 30, 2023, the company had installed power generation capacity of 73,824 megawatt (MW), including capacity owned by subsidiaries and joint ventures. This includes 60,274 MW of coal-based capacity, 6,511 MW of gas-based and 3,725 MW of hydropower, with the balance comprising other renewable energy. The company has been conferred the Maharatna status by the Government of India, which had 51.1% shareholding as on June 30, 2023. |
Key Financial Indicators*
*Currently, NML has no active operations |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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Criteria Details
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