S&P Global Ratings has upgraded Tata Power’s credit rating, removing the “CreditWatch with positive implications” status that the company had been under since June 13, 2024. The outlook for the newly upgraded rating is “positive.”
The primary reason for the ratings boost is the anticipated “extraordinary support” from Tata Sons, Tata Power’s parent company, which exceeded the agency’s expectations.
“Tata Power’s standalone credit profile continues to improve due to consistent growth in its business scale and diversity,” S&P’s note stated, adding that a significant portion of the company’s cash flows remain predictable, particularly following a temporary reprieve at the previously loss-making Mundra plant.
The positive outlook also reflects India’s sovereign credit rating, as Tata Power’s rating is capped at the sovereign level. S&P highlighted that the company’s limited exposure to foreign currency liabilities—less than 10% of its total debt—could help mitigate the impact of any potential sovereign stress.
S&P Global emphasized Tata Power’s strategic importance to Tata Sons, citing several factors behind the upgrade:
- Tata Power’s close alignment with the Tata Group’s reputation.
- The company’s structural fit with the group’s overall strategy, despite contributing only 10% of the group’s consolidated EBITDA.
- Tata Sons’ significant influence over Tata Power’s financial policy and strategy as the largest shareholder.
- Tata Power’s critical role in the group’s energy transition plans.
- The largely predictable nature of Tata Power’s cash flow.
Despite the upgrade, S&P Global cautioned that Tata Power’s financial risk profile could be impacted by high capital expenditures, which are expected to average around ₹15,000 crore annually over the next two to three years. This could modestly increase the company’s leverage. However, the agency believes that Tata Power will manage its investments prudently to keep its leverage in check.
On Tuesday, August 20, Tata Power shares closed 0.64% higher at ₹421.5 per share, with the stock having gained 27.61% so far this year.