Regulations support Adani Transmission's EBITDA, collection delays: Fitch
Aug 12, 2020
Singapore, Aug 12 : The operating profit of Adani Transmission Ltd's (ATL's) electricity transmission and distribution business is largely immune to lower volume caused by coronavirus pandemic as it benefits from a favourable regulatory framework, Fitch Ratings said on Wednesday.
However, the group faces cash-collection delays from both state-owned power-distribution utilities and retail customers in Mumbai due to logistical challenges in collections, lower demand and payment concessions amid the pandemic.
Fitch said ATL's recurring EBITDA of Rs 1,100 crore billion in the first quarter of the financial year ending March 2021 was supported by availability-based payments under a favourable regulatory framework.
The assets of ATL's distribution business, housed in Adani Electricity Mumbai Ltd's (AEML) obligor group, are based on a cost-plus tariff framework while its transmission projects are either governed under the return-based framework or were awarded through tariff-based competitive bidding.
"Revenue under both frameworks is based on system availability and is not exposed to volume risk. ATL maintained availability of its transmission assets and distribution business above regulatory benchmarks in Q1 FY21," said Fitch.
The company did not face major operating issues during India's pandemic-related lockdown as the government classified electricity supply as an essential service.
However, ATL faces cash-collection delays, as most of its customers are state-owned power-distribution utilities whose operational and financial profiles have weakened from the pandemic-related drop in electricity demand and payment concessions to end customers.
ATL group's cash collection deteriorated to 60 to 65 per cent in Q1 FY21. However, Fitch said any delay in recovering accrued revenue will be recouped with interest costs in line with slated regulations.
The company says that economic activity and electricity demand have picked up in Mumbai since the relaxation of the lockdown in late June with collections at the AEML obligor group and the rest of ATL group improving to 99 and 80 per cent respectively in July.
"Nevertheless, we believe ATL has ready access to working capital facilities, owing to its regulated contracted asset base, should counterparty payments be delayed and that regulatory penalties will cover interest costs on working capital," said Fitch.
