Press Release

VIS Upgrades Entity Ratings of AJ Power (Private) Limited (AJPPL)

Karachi, August 19, 2024: VIS Credit Rating Company Limited (VIS) has upgraded the entity ratings of AJ Power (Private) Limited (‘AJPPL’ or ‘the Company’) from ‘A/A-2’ (Single A/A-Two) to ‘A+/A-2’ (Single A Plus/A-Two). The medium to long-term rating of ‘A+’ signifies good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on July 19, 2023.

Incorporated in 2014, AJPPL is primarily engaged in the production and sale of electricity as an Independent Power Producer (IPP). It operates a 12MW solar power plant located in Adhi Kot, District Khushab, Punjab. The business risk profile of the Company is also supported by the O&M contract in place with experienced contractors coupled with the long-term Energy Purchase Agreement (EPA) with the CPPA-G on ‘take or pay’ basis, largely mitigating the offtake risk.

Assigned ratings take into account the medium-to-low business risk profile of the renewable energy sector. The power demand is driven by population growth, urbanization, lifestyle preferences, and industrial activity. Government support for renewable energy aims to increase the share of renewable sources in the energy mix, although the current installed capacity from renewables remains low. The sector faces barriers due to economic conditions, political uncertainty, regulation, and capital requirements.

Upgrade in ratings considers further improvement in the Company’s strong operational track record, encompassing profitability, capitalization, liquidity, and coverage profiles. Revenue grew despite a slight change in energy output, driven by tariff rate escalation, leading to improved margins. Other income increased significantly due to higher returns on short-term investments, offsetting higher finance costs. Timely debt repayments, primarily long-term foreign currency loan, and sustained equity growth with retention of profits have improved gearing and leverage indicators. Liquidity is supported by a strong current ratio and secured trade debts, with excess liquidity invested in short-term securities. Funds from Operations (FFO) have also improved, leading to better cash flow coverages.

Going forward, key business and financial risk indicators include the Company's ability to sustain its sound topline performance and profitability metrics through continued energy offtake and tariff adjustments. Additionally, maintenance of the liquidity position as well as capitalization levels will be important from a rating’s perspective as well.

For further information on this ratings announcement, please contact at 042-35723411-13 or email at info@vis.com.pk.




Applicable Rating Criteria: Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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