S&P affirms Power Grid's BBB-minus rating with stable outlook

Singapore, Feb 11 : S&P Global Ratings has affirmed BBB-minus long-term issuer credit rating on Power Grid Corporation, the largest power transmission company in India which manages about 85 per cent of the country's inter-state transmission system.
It raised the assessment of Power Grid's stand-alone credit profile to reflect improving financial ratios on lower capex and resilient cash flows.
"We forecast the company's leverage will improve steadily with a ratio of funds from operations to debt of 15 to 19 per cent over the three fiscal years ending March 2023 from about 13 per cent in fiscal 2020," said S&P.
Capital spending is likely to decrease from historical peak levels of Rs 22,500 crore to Rs 25,000 crore annually, given fewer growth projects. Also, the completion of several large projects has removed transmission bottlenecks and strengthened the transmission system in India.
"We estimate Power Grid's capex will taper to Rs 10,000 crore to Rs 15,000 crore annually over the next three fiscal years, assuming a moderate pace of winning about 50 per cent of competitive bid projects."
At the same time, strong cash flows from project commissioning and a large regulated asset base will support deleveraging.
S&P expects Power Grid to benefit from continued commissioning of new projects which will lead to EBITDA growth of 4 to 9 per cent annually and significant free operating cash flows of more than Rs 10,000 crore over fiscals 2021 and 2022.
The company has sufficient cushion to accommodate higher-than-anticipated capital spending if large projects materialise in later years. Such projects will boost the company's regulatory asset base capitalisation and earnings, said S&P.
The stable outlook on Power Grid reflects the outlook on the sovereign credit rating on India.