Rationale

 The assigned ratings factors in the leading market position of Adani Power Limited (APL) as the largest private thermal power producer in the country with a diversified project portfolio located across eight Indian states. APL has been able to increase its operational portfolio over the years through a mix of organic expansion and various acquisitions to 17.55 Gigawatt (GW) as on December 31, 2024, from 11.81 GW in FY2020. The ratings draw comfort from the availability of long-term and medium-term power purchase agreements (PPAs) for 87% of the operational capacity with a two-part tariff structure, providing revenue visibility over the medium to long term for the company. Moreover, the proximity of its coal-based plants without long-term PPAs to pit heads and the strong operational efficiencies enable a competitive cost of generation for sale in the short-term market. The ratings factor in the diversified counterparty profile of APL by virtue of its exposure to eight state distribution companies (discoms), Bangladesh power utility, private discoms and a strong industrial customer. APL has tied up fuel supply agreements (FSA) with Coal India Limited (CIL) and its subsidiaries for its domestic coal-based power plants that accounted for 50-60% of its overall coal requirement. The projects using imported coal (40-50% of the overall capacity currently) source the raw material from the open market through traders. Further, the upcoming projects are being bid under the design, build, finance, own and operate (DBFOO) model with coal linkages from CIL allocated to the bid inviting discoms, which mitigates the fuel supply risk to a large extent. It is to be noted that ~80% of the long-term PPAs signed by APL have the fuel cost pass-through provision, which mitigates the fuel cost escalation risk to a large extent. APL is currently sourcing 35-40% of its coal through imports. However, it plans to decrease its dependence on imported coal over the next five years. This comes on the back of the company planning to appoint mining, developer and operator (MDO) for its four commercial captive coal mines of 13 million tonnes per annum (MTPA) in the medium term. This, coupled with the increased sourcing of coal through FSA tie-ups with CIL, is expected to reduce the dependence on imported coal and raise the cost competitiveness of its power plants. The ratings also draw comfort from the execution efficiencies derived from being a part of the Adani Group, which is a diversified conglomerate having interests across the energy sector value chain, including coal mining, coal logistics, thermal and renewable power generation, power transmission and power distribution along with superior execution capabilities. The operational performance of APL has remained strong with plant availability at over 90%, well above the normative level, improvement in the plant load factor (PLF) from 48% in FY2023 to 65% in FY2024 and further to 69% in 9M FY2025. APL has also benefitted from the robust tariffs in the merchant market as a result of strong power demand in the country for its open capacity over the last two years, leading to merchant sales contributing 10-15% to the company’s consolidated EBITDA. However, the company will remain exposed to any adverse movement in merchant tariffs for its open capacity.