| Inox Green Energy Services Limited | ||||||||
| Rating outlook revised to ‘Stable’ on Rs.35 crore bank facilities; Rating upgraded to ‘CRISIL AA+(CE)/CRISIL PPMLD AA+(CE)/Stable’ on Rs.156.5 crore bank facilities and debt instruments. | ||||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||
| 1 crore = 10 million | ||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the Rs.35 crore long-term bank facilities of Inox Green Energy Services Limited (IGESL) to ‘Stable’ from ‘Positive’, while reaffirming its rating at ‘CRISIL BBB+’. CRISIL Ratings has also withdrawn its rating on bank loan facilities worth Rs 257.5 crore, basis receipt on relevant withdrawal documentation from respective bankers and as requested by the client. This is in line with CRISIL Ratings’ withdrawal policy. CRISIL Ratings has also withdrawn its rating on the NCDs worth Rs 120 crore at the request of the company and on confirmation from the debenture trustee. This is in line with the rating withdrawal policy of CRISIL Ratings.
CRISIL Ratings has also upgraded its rating on the Rs.156.5 crore bank facilities, long term principal protected market linked debentures (PPMLD) worth Rs 75 crore and non-convertible debentures worth Rs 120 crore to ‘CRISIL AA+(CE)/CRISIL PPMLD AA+(CE)/Stable’ from 'CRISIL AA(CE)/CRISIL PPMLD AA(CE)/Positive' basis a similar rating action on Gujarat Fluorochemicals Ltd (GFL; ‘CRISIL AA+/Stable/CRISIL A1+’). These facilities are backed by a corporate guarantee from GFL.
The revision in outlook reflects a similar revision in outlook for Inox Wind Ltd (IWL; rated ‘CRISIL AA+(CE)/PPMLD AA+(CE)/BBB+/Stable/CRISIL A2), owing to its lower-than-expected operating performance in fiscal 2023, marked by revenue of Rs 740 crore and operating loss of around Rs 250 crore (vis-a-vis Rs 630 crore and Rs 295 crore, respectively, in fiscal 2022). Order execution was impacted by supply chain issues with 104 MW supplied in fiscal 2023 and one-off items provisioning for receivables impacting the operating margin. Healthy net order book of over 1,300 MW as at June 30, 2023 (including letter of intent from Adani for 501 MW) should provide revenue visibility in the near term. Operating margin should also improve in the near term, led by higher execution of orders, especially for higher-margin 3.3 MW turbines, inorganic acquisitions in the operations and maintenance (O&M) segment and revival in the overall wind sector. While operating performance has improved in the first quarter of fiscal 2024, driven by softening of commodity prices, ramp up in order execution, leading to sustained growth in revenue and profitability, is a key monitorable.
Furthermore, external debt was elevated against CRISIL Ratings’ expectations and is estimated around Rs 1,765 crore as on March 31, 2023, compared to Rs 1,750 crore, a year earlier. This is despite significant fund infusion of over Rs 1,300 crore by the promoters in fiscal 2023, towards loss funding, working capital requirement, capex towards common infrastructure development and repayment of capital advances by GFL. The management however articulated that it plans to reduce the external term debt in fiscal 2024, and raise further equity through rights issue and dilution of promoters’ stake. However, overall debt may remain elevated given the likely increase in working capital requirement due to increased scale of operations. CRISIL Ratings also notes the planned merger between IWL and Inox Wind Energy Ltd (IWEL), which remains credit neutral while simplifying the group holding structure.
IWL executed a 50 MW project in fiscal 2023, housed under the special-purpose vehicle (SPV), Nani Virani, for the second tranche of Solar Energy Corporation of India (SECI) auctions. The SPV is expected to be down sold and raise an additional liquidity of nearly Rs 100 crore.
The rating continues to reflect strong support from the INOX-GFL group and the extensive experience of its promoters in the wind turbine business. These strengths are partially offset by the subdued operating performance and large working capital requirement.
The rating on the PPMLDs and NCDs centrally factors in the unconditional and irrevocable corporate guarantee extended by GFL. The debenture trustee administers the payment mechanism to ensure timely payment. IGESL will deposit funds into the escrow account at least seven business days prior to any coupon payment or redemption date. If IGESL fails to do so, the guarantors will make the requisite payment four business days prior to the final date of payment.
The ratings on guaranteed long-term facilities factor in the unconditional and irrevocable corporate guarantee provided by GFL and an additional undertaking provided by it.
The guarantee and undertaking together cover the principal, interest and other monies payable on these facilities. For the guaranteed bank facilities, as per the undertaking provided, if IGESL fails to make payment on the due date, the guarantor will make the requisite payment on invocation of corporate guarantee by the lender or within seven working days (for term loan of Rs 125 crore), seven calendar days (for the term loan of Rs 50 crore) from the final date of payment, whichever is earlier.
Adverse movement in the credit risk profile of the guarantor and non-adherence to the payment mechanism will be key rating sensitivity factors. |
Analytical Approach To arrive at the ratings on guaranteed bank facilities, PPMLD and NCDs, CRISIL Ratings has applied its criteria on rating instruments backed by guarantees.
For arriving at the ratings of non-guaranteed instruments, CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support available to IGESL from IWL. |
Key Rating Drivers & Detailed Description Strengths: Structured payment mechanism: As per the undertaking for the guaranteed bank facilities, if IGESL fails to make payment on the due date, the guarantor will make the requisite payment either on invocation of the corporate guarantee by the lender or 7 working days (for Rs 125 crore term loans) or 7 calendar days (for Rs 50 crore term loan) from the final date of payment, whichever is earlier.
For the NCDs, IGESL will deposit funds into the escrow account at least 7 business days prior to any coupon payment or redemption date. If IGESL fails to do so, the guarantors will make the requisite payment 3 business days prior to the final date of payment.
For the PPMLDs, IGESL will deposit funds into the escrow account at least 7 business days prior to any coupon payment or redemption date. If IGESL fails to do so, the guarantors will make the requisite payment 4 business days prior to the final date of payment.
The payment structure is designed to ensure full and timely payment to the lender. The guarantee will remain unaffected even if IGESL faces a bankruptcy; in case of dissolution, insolvency, or liquidation; or on winding up proceedings initiated by, or against, the issuer.
Strong support from the Inox-GFL group: IWEL holds 54.7% equity in IWL, while the promoter family holds 17.31%, giving the group complete control over the operations. The INOX-GFL group has extended support to IWL and IGESL, through IWEL and GFL by enabling them to raise funds through NCDs, term debt and working capital facilities as and when required. Moreover, group entities have provided support through capital advances and intercorporate deposits in the past. Expected improvement in operating performance over the near term, reducing the need for support, will remain key monitorable.
Strong linkages with IWL: IGESL handles O&M activities for projects of IWL, post commissioning. The entities have strong operational linkages as often, the projects have all three components: material supply, engineering, procurement, and construction (EPC) and O&M. The company receives strong financial support, via intercorporate deposits and optionally convertible debentures from IWL. Moreover, the entities have a common treasury.
Driven by the extensive experience of the promoters and the healthy order book, IWL should witness a turnaround in its operations in near term. This remains a key rating sensitivity factor.
Strong linkages between IGESL and IWL should continue to support the rating on the long-term and short-term bank facilities of IGESL.
Weaknesses: Subdued operating performance of IWL: Performance remained weak in fiscal 2023, on account of slower-than-expected execution, amidst the continued impact of the Covid-19 pandemic and supply chain issues in China. Operating margin was negative for the past three fiscals. As a result, debt protection metrics were weak.
The company is executing projects won from NTPC Ltd (NTPC; rated CRISIL AAA/Stable/CRISILA1+), which should turnaround the operating performance in medium term. Furthermore, IWL has received Type C approval for production of higher-margin 3.3-MW turbines, which is likely to begin commercial production in the second half of fiscal 2024 (subject to timely approvals) and support profitability in the near term. Revival in project execution, leading to healthy revenue growth and improvement in the operating margin, will remain a key rating sensitivity factor.
Large working capital requirement of IWL: Operations are working capital intensive, as reflected in receivables (net of provisions) of over Rs 1,000 crore as on March 31, 2023. Working capital requirement was large under the feed-in-tariff regime, as there were delays in commissioning or signing of power purchase agreements (PPAs). The situation was compounded by an abrupt halt in signing of PPAs by distribution companies after the advent of wind auctions in February 2017. While the company has taken steps to reduce receivables, by allocating some of the stuck machinery against new orders under the auction regime, receivables remain sizeable because of deferral in commissioning on account of delay in receipt of evacuation infrastructure.
Large working capital requirement and slow order execution have led to pressure on cash flows. CRISIL Ratings will continue to monitor the company’s ability to execute orders and ensure timely realisation of payments, leading to improvement in cash flow. |
Liquidity: Adequate Liquidity of IGESL is in line with that of IWL. It remains constrained by the large working capital requirement. Efficient working capital management, following successful execution of orders and timely receipt of payments, will remain a key monitorable.
Liquidity draws support from the financial flexibility derived by IWL from being part of the INOX-GFL group. The group companies have provided direct funds via intercorporate deposits and advances for supplies and have enabled the company to avail funds from banks, supported by guarantees, letters of comfort or pledging of their own funds.
Liquidity for guaranteed bank facilities, NCDs and PPMLD: Strong Liquidity for the rated bank facilities, NCDs and PPLMLDs, derives comfort from the unconditional and irrevocable guarantee from GFL, which should ensure timely servicing of debt. The guarantee will remain unaffected even if the company faces bankruptcy; in case of dissolution, insolvency or liquidation; or on winding up of proceedings initiated by or against the issuer.
Outlook for guaranteed bank facilities, PPMLD and NCDs: Stable The outlook on guaranteed bank facilities, PPMLD and NCDs of IGESL reflects the outlook of CRISIL Ratings on the credit quality of GFL. The ratings will remain sensitive to any change in the credit view of CRISIL Ratings on GFL.
Rating sensitivity factors for guaranteed bank facilities, PPMLD and NCDs Upside/downside scenario
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Outlook: Stable CRISIL Ratings believes the credit risk profile of IGESL will continue to benefit from its strong linkages with IWL. The business risk profile of IWL will be driven by the healthy order book and the growing operations and maintenance portfolio. The financial risk profile will continue to be supported by the INOX-GFL group. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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Adequacy of credit enhancement structure GFL has provided an unconditional and irrevocable guarantee for the rated facilities and instruments, ensuring timely payment of interest and principal obligations. |
Unsupported ratings: CRISIL BBB+ CRISIL Ratings has introduced the suffix ‘CE’ for instruments with an explicit credit enhancement feature, in compliance with the Securities and Exchange Board of India circular dated June 13, 2019. |
Key drivers for unsupported ratings For arriving at the unsupported rating, CRISIL Ratings has applied its parent notch-up framework for support available to IGESL from IWL. |
About the Company IGESL was incorporated as a wholly owned subsidiary of IWL in May 2012. The company offers O&M and common infrastructure facility services for wind turbine generators manufactured and supplied by IWL. It currently manages around 3,000 MW of wind turbine generators on a pan-India basis. |
About IWL IWL was incorporated in April 2009, under the Inox-GFL group. It manufactures nacelles, hubs, rotor blades and towers, which are used to make wind turbines. It also provides associated services such as O&M of wind turbines, project execution and infrastructure development for wind farms. The company has four units: one for nacelles and hubs in Una (Himachal Pradesh); one for blades and towers in Rohika (Gujarat); one for nacelles, hubs, blades and towers in Barwani (Madhya Pradesh) and a leased nacelle facility in Bhuj.
In the first quarter ended June 2023, the company reported a negative profit after tax (PAT) of Rs 64 crore on operating income of Rs 349 crore, against negative PAT of Rs 130 crore and Rs 211 crore, respectively, in the corresponding period of the previous fiscal.
About GFL GFL, which houses the chemicals business of the Inox-GFL group, has a diverse product portfolio, including caustic soda, chloromethanes, PTFE, HCFC and value-added products. The company is one of the largest chemical players in India, with a combined installed capacity of 65,000 TPA of HCFC, 16,200 TPA of PTFE, 134,750 TPA of caustic soda and 108,500 TPA of chloromethane. |
Key Financial Indicators Inox Wind (consolidated)
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List of covenants
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Interchangeable with non-fund-based facilities
Annexure - Details of Rating Withdrawn
*CRISIL Ratings has received an intimation from the issuer on early redemption of this instrument (ISIN INE510W07060). CRISIL Ratings has withdrawn the rating on this instrument upon independent confirmation of the same. |
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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