Rationale

 ICRA has reaffirmed and withdrawn the long-term rating of [ICRA]AAA(Stable) assigned to the Rs. 533.39-crore bonds of NHPC Limited (NHPC) as there are no outstanding dues against the same. The redemption payments have been independently verified. ICRA has also reaffirmed and withdrawn the long-term rating of [ICRA]AAA(Stable) assigned to the Rs. 877.72-crore bonds of NHPC as the rated bonds have not been placed. The ratings have been withdrawn at the request of the company. The rating action factors in the strategic role of NHPC Limited (NHPC) in the hydropower generation sector as India's largest power generation utility and its strategic importance to the Government of India (GoI) which held a 70.95% stake in the entity as on March 31, 2022. The rating also factors in the low business risk for the company because of the cost-plus tariff structure for all its operational assets, ensuring regulated returns. ICRA also favourably notes the competitive tariff level for the company's power plants and strong operating efficiencies, reflected in its plant availability factor (PAF) over the years. Further, the rating continues to factor in the healthy track record of power generation from the operational hydel power projects, aided by a favourable hydrology. The company's credit profile is also supported by a favourable capital structure, reflected in a debt-to-equity ratio of 0.74 times on a consolidated basis, and a strong liquidity as evident from cash and bank balances of Rs. 3,186 crore on a consolidated basis as on March 31, 2022. Further, the company continues to benefit from the long tenure of debt, including subordinate debt from the GoI, at a low interest rate for some projects in Jammu and Kashmir (J&K). NHPC has superior financial flexibility for having a strong parent, and a long life of its hydro projects, which support its liquidity. ICRA expects its revenue and cash flows to scale up significantly post the commissioning of its two critical projects - Subansiri Lower and Parbati II - over the next 12-18 months. ICRA, however, takes cognisance of the execution risks, including the risk of time and cost overruns, inherent in greenfield hydropower projects. Several of NHPC's recent and ongoing hydropower projects have seen significant time and cost overruns and further overruns cannot be ruled out. However, construction work on Subansiri Lower 2,000-MW HEP, which was stalled since December 2011, was resumed in October 2019 and it is expected to be commissioned in FY2024. Two units of 200 MW each of the Parbati II (800 MW) hydropower project were synchronised, and the project is expected to be commissioned in Q4 FY2023. Apart from the Subansiri lower and Partbati II project, NHPC is executing various thermal projects with a total capacity aggregating to 1,470 under standalone and subsidiaries. Given the large-sized projects under construction, the company's ability to commission these projects on time and within the budgeted cost without compromising on its annual dividend payout, along with requisite approval from the CERC remains crucial from a credit perspective. ICRA also takes into consideration the counterparty credit risk associated with the exposure to state distribution utilities like J&K and UPPCL. The Stable outlook on the [ICRA]AAA rating reflects ICRA's opinion that NHPC will be able to sustain its generation performance with a satisfactory collection efficiency. Moreover, its under-construction projects are likely to be completed without significant time and cost overruns.