According to S&P Global Ratings’ notice, the company has also been taken off of the “CreditWatch with positive implications” where it was listed on June 13, 2024. The ratings improvement that is currently in effect is expected to be “positive.”Â
The potential for “extraordinary support” for Tata Power from parent company Tata Sons, which is stronger than what the ratings agency anticipated, is a major factor in the ratings increase.
“Tata Power’s standalone credit profile continues to benefit from steady growth in business scale and diversity, with a vast majority of cash flows being predictable, especially with temporary reprieve on the previously loss-making Mundra plant,” said the note.
Tata Power’s Financial Risk
S&P Global Ratings went on to say that because the rating is capped at the sovereign rating, the positive outlook is a reflection of the prognosis for India’s sovereign credit rating.
Less than 10% of Tata Power’s debt is denominated in foreign currencies, according to the ratings agency, which further stated that the company’s modest exposure to foreign currency liabilities can mitigate the impact of any prospective sovereign stress scenario. Tata Power is strategically significant to Tata Sons, according to S&P Global.
Other elements mentioned in the note that contributed to the rating increase are:
1. closely associated with the standing of the Tata Group structurally in line with the corporate strategy.
2. Although accounting for a mere 10% of the business’s consolidated EBITDA.
3. Tata Sons’s sway over strategy and financial policy as the biggest shareholder.
4. a more established stance inside the group when it comes to energy transition tactics
5. Cash flow’s largely predictable character.
S&P Global anticipates that increased capital spending will, nevertheless, have a negative impact on Tata Power’s financial risk profile and only slightly raise the company’s leverage. It projects capex to be roughly ₹15,000 crore on average over the next two to three years.
“We also believe the company will adjust its investment plans prudently to manage its leverage,” said the note. On Tuesday, August 20, Tata Power shares closed 0.64% higher at ₹421.5 a share. Thus far this year, the stock has increased by 27.61%.
