| Inox Green Energy Services Limited | ||||||||
| Ratings upgraded to 'CRISIL A-/Stable/CRISIL A2+' on Rs.135 Crore BLR Facilities; Rs.56.5 Crore BLR Facilities and Long Term Principal Protected Market Linked Debentures Reaffirmed | ||||||||
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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 upgraded its ratings on the bank facilities of Inox Green Energy Services Ltd (IGESL) to ‘CRISIL A-/Stable/CRISIL A2+’ from ‘CRISIL BBB+/Stable/CRISIL A2’. Also, CRISIL Ratings has reaffirmed its ‘CRISIL PPMLD AA+ (CE)/CRISIL AA+ (CE)/Stable' ratings on principal-protected market-linked debentures (PPMLD) worth Rs 75 crore and bank loan facilities worth Rs 56.5 crore. These facilities are backed by a corporate guarantee from GFL.
The rating upgrade reflects the deleveraging efforts by raising equity to the tune of ~Rs 1300 crore in two tranches (~Rs 500 crore in August 2023 and ~Rs 800 crore in October 2023) by promoters’ stake dilution resulting in significant improvement in financial risk profile. Further, the upgrade also factors in the improvement in business risk profile reflected in the significant improvement in operating performance in the first half of fiscal 2024. The deleveraging along with expected improvement in operating performance will result in improvement in debt protection metrics.
The raised funds net of transaction expenses would be infused in Inox Wind Limited through hybrid instruments (Non-Cumulative Non – Convertible Redeemable Preference Shares) and interest free debt (by way of ICDs and promoter debt) and primarily would be used to pare down debt. IWL has already repaid ~Rs 360 crores of debt in the first week of November 2023 from the raised proceeds and is in active discussion with lenders to pre-pay further debt. Promoter group is now holding ~52.87% stake (reduced from 72.01% in June 2023) in Inox Wind Limited, with INOXGFL group maintain complete control over the operations.
In terms of operating performance, company reported a revenue growth of 124% in H1FY24 and operating profit of Rs 73 crores against operating loss of Rs 52 crores for the corresponding period during previous fiscal. The improvement in operating performance is led by higher order execution and softening commodity prices. Company executed ~143 MW (megawatts) in the first half of fiscal 2024 against execution of ~103 MW in fiscal 2023 and is expected to further execute ~250 MW in second half of fiscal 2024.
IWL had a healthy net order book of ~1,276 MW as on September 30, 2023 (including letter of intent from Adani for 501 MW), which provides revenue visibility in the near term. Operating profitability is expected to improve in the second half of fiscal 2024 with ramp up in execution of orders, especially for the relatively higher-margin 3.3-megawatt (MW) turbines, inorganic acquisitions in the operations and maintenance (O&M) business supported by tailwinds in the wind sector.
The ability to scale up profitability with ramp-up in order execution and commercialization of the 3.3 MW turbine, to manage increased scale of operations with no major reliance on working capital borrowings and to reduce debt will be key monitorables.
CRISIL Ratings also notes the planned merger of IWL and Inox Wind Energy Ltd (IWEL), which remains credit neutral and will simplify the group holding structure. The company has also sold its stake in its SPV Nani Virani due to which it is classified as assets held for sale resulting in further debt reduction.
The ratings continue to reflect the strong support IGESL receives from the INOX-GFL group and the extensive experience of its promoters in the wind turbine business. These strengths are partially offset by subdued operating performance and large working capital requirement.
The ratings on the PPMLDs and NCDs centrally factor 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 rating on the guaranteed long-term bank facilities factors in the unconditional and irrevocable corporate guarantee and an additional undertaking provided by GFL.
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 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 the guaranteed bank facilities, PPMLDs and NCDs, CRISIL Ratings has applied its criteria on rating instruments backed by guarantees.
For arriving at the rating 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 on invocation of the corporate guarantee by the lender or seven working days (for Rs 125 crore term loan) or seven 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 seven business days prior to any coupon payment or redemption date. If IGESL fails to do so, the guarantors will make the requisite payment three business days prior to the final date of payment.
For PPMLDs, 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 payment structure is designed to ensure full and timely payment to the lender. The guarantee will remain unaffected even if IGESL faces a bankruptcy; or 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: The promoter group holds ~53% stake in IWL post the recent dilution with the INOXGFL group maintaining complete control over operations. The INOXGFL 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. Given the weak accrual, CRSIL Ratings expects timely support from the group, along with refinancing, to aid debt servicing in the near term. Expected improvement in operating performance over the near term, leading to reduction in requirement of support, will remain a key monitorable.
Strong linkages with IWL: IGESL handles operations and maintenance (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 through intercorporate deposits and optionally convertible debentures from IWL. Moreover, the entities have a common treasury.
Driven by the extensive experience of the promoters and a healthy order book, IWL should witness a turnaround in its operations in the near term. This will remain a key rating sensitivity factor.
Subdued, albeit improving, operating performance: Performance has significantly improved in first half of fiscal with though it still remains subdued. The company is executing projects from NTPC Ltd (NTPC; ‘CRISIL AAA/Stable/CRISIL A1+’), which should further help in improving the operating performance over the medium term. Furthermore, IWL is expected to begin commercial production of its 3.3-MW turbines in the second half of fiscal 2024 (subject to timely receipt of approval for commissioning) and support profitability in the near term. Ramp up in project execution leading to healthy revenue growth and improvement in the operating margin remain key rating sensitivity factors.
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 September 30, 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 IWL has taken steps to reduce receivables, by allocating some of the stuck machinery against new orders under the auction regime, the 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 flow. CRISIL Ratings will continue to monitor the ability of IWL 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 is 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.
However, the company derives financial flexibility as part of the INOXGFL group. The group companies have provided direct funds in the form of intercorporate deposits and advances for supplies and have helped IGESL avail of funds from banks, supported by guarantees, letters of comfort or by pledging of their own funds.
Liquidity for guaranteed bank facilities, NCDs and PPMLD: Strong Liquidity for the rated bank facilities, NCDs and PPMLDs, is supported by the unconditional and irrevocable guarantee from GFL, which should ensure timely servicing of debt. The guarantee will remain unaffected even if IGESL faces bankruptcy; or 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, PPMLDs 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, PPMLDs and NCDs Upward/downward Factors
Outlook for other bank facilities: Stable CRISIL Ratings believes IGESL will continue to benefit from its strong linkages with IWL. The business risk profile of IWL will be driven by its healthy order book and growing O&M portfolio. The financial risk profile will continue to be supported by the INOX-GFL group.
Rating sensitivity factors for other bank facilities 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 A-’ CRISIL Ratings has introduced the ‘CE’ suffix 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 to factor in the support received by 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 manages around 3,000 MW of wind turbine generators pan-India. |
About IWL IWL was incorporated in April 2009 under the INOXGFL 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 each at Una in Himachal Pradesh for nacelles and hubs, Rohika in Gujarat for blades and towers, Barwani in Madhya Pradesh for nacelles, hubs, blades and towers, and a newly tied-up nacelle manufacturing facility at Bhuj in Gujarat.
In the first six months of fiscal 2024, the company's profit after tax (PAT) was negative Rs 89 crore and operating income was Rs 712 crore, against negative Rs 271 crore and Rs 318 crore, respectively, in the corresponding period of the previous fiscal.
About GFL GFL, which houses the chemicals business of the INOXGFL group, has a diverse product portfolio, including caustic soda, chloromethanes, polytetrafluoroethylene (PTFE), HCFC and value-added products. The company is one of the largest chemical players in India, with 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 for 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)
nterchangeable with non-fund-based facilities |
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
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Criteria Details
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