Moody's upgrades Tata Power rating to Ba1, maintains stable outlook

Tata Power on Friday said Moody's Investors Service has upgraded the corporate family rating of Tata Power to Ba1 from Ba2 and maintained a stable outlook. According to a report from Moody's, the rating upgrade to Ba1 is driven by Tata Power's solid financial metrics, which are projected to remain above the upgrade trigger set for the earlier Ba2 rating.

"Moody's Investor Service has upgraded the corporate family rating of the Tata Power Company Ltd to Ba1 from Ba2, and maintained the stable outlook," a BSE filing said.

Tata Power's rating incorporates the company's standalone credit quality and a one-notch uplift for shareholder support.
The company's standalone credit quality is supported by predictable cash flow from its distribution businesses that benefit from a stable regulatory framework, and from its fixed-tariff long-term power purchase agreements (PPAs) for its renewable generation capacity, the agency said.

Under Moody's base case projection, Tata Power's operating cash flow pre-working capital to debt (CFO preWC/debt) will remain solid at 9-11 per cent over the next two to three years.

Although the projected credit metrics are lower than the actuals recorded in fiscal 2023, Moody's expects Tata Power to be able to sustain these credit metrics, thereby supporting the upgrade.

Tata Power's takeover of distribution companies in Odisha and the subsequent improvement in its operations, underpinned by declining electricity losses, have strengthened its business profile, the agency said in the report.

The company's regulated distribution businesses will likely continue to generate core earnings and support its financial metrics at least over the next 1-2 years, it added.

Tata Power's Ba1 rating benefits from a one-notch parental support uplift.

Moody's expects Tata Power to receive support from its major shareholder Tata Sons Ltd, if needed, evidenced by Tata Sons' ability to provide support and its track record of providing timely support to its investee companies, it said.

Tata Sons' shareholding in Tata Power has increased to 45 per cent from 35 per cent after a preferential allotment of Tata Power's shares to Tata Sons in 2020.

Moody's expectation of parental support also reflects Tata Power's role in supporting the decarbonisation of the Tata group companies, it stated.