Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities and commercial paper programme of Inox Wind Ltd (IWL) at ‘CRISIL BBB/Stable/CRISIL A3+’. CRISIL Ratings has also assigned its ‘CRISIL AA(CE)/Stable’ rating to Rs 32.1 crore bank loan facilities, which are backed by corporate guarantee from Gujarat Fluorochemicals Ltd (GFL; CRISIL AA/Stable/CRISIL A1+).

 

CRISIL Ratings has also assigned a ‘Provisional CRISIL AA(CE)/Stable’ rating to Rs 99 crore NCDs backed by corporate guarantee from GFL. CRISIL Ratings has reaffirmed its 'CRISIL AA(CE)’ rating on the guaranteed NCDs of IWL, while revising the outlook to ‘Stable’ from ‘Negative’, in line with a similar rating action on the rating of GFL, the guarantor of these NCDs.

 

Furthermore, CRISIL Ratings has withdrawn its rating on Rs 49 crore NCDs on the company’s request, as they have been fully redeemed. CRISIL Ratings has received independent confirmation on the redemption. The rating action is in line with CRISIL Ratings’ withdrawal policy.

 

The operating performance of IWL remains weak on account of continued lower-than-expected execution. The industry is estimated to have added 1.1 gigawatt (GW) of wind capacity in fiscal 2022 against 3-5 GW annual capacity added during the feed-in-tariff (FiT) regime until fiscal 2017. Operating margin was impacted too, as IWL sold the stuck inventory at lower prices. Consequently, the company reported operating loss of Rs 69 crore and 62 crore in fiscals 2022 and 2021, respectively, against operating profit of Rs 67 crore in fiscal 2020.

 

Performance should revive over the medium term owing to expected improvement in execution as well as launch of 3.3-megawatt (MW) turbines in fiscal 2023. The company has received an order for 150-MW turbines from NTPC. Timely execution of orders leading to healthy build-up of revenue and profit will remain a rating sensitivity factor.

 

The financial risk profile remained weak in fiscal 2022, with total debt of around Rs 1,500 crore as on March 31, 2022, against Rs 1,121 crore as on March 31, 2020. Debt protection metrics were weak because of operating losses in fiscals 2022 and 2021. The capital structure, however, is supported by GFL in the form of guarantees, liquidity support and capital advances.

 

IWL is executing a 50-MW project housed in the special purpose vehicle (SPV) Nani Virani for the second tranche of SECI auctions. The company has already achieved financial closure for the project loan for this SPV and has drawn down around Rs 165 crore against the loan. The SPV is expected to be commissioned in the first half of fiscal 2023. The SPV following the commissioning will be down sold.

 

The ratings continue to reflect strong support from the Inox group and the promoters’ longstanding experience in the wind turbine manufacturing business. These strengths are partially offset by weaker-than-expected operating performance and large working capital requirement constraining liquidity.

 

The rating on the NCDs and guaranteed bank facility of Rs 32.1 crore centrally factors in the unconditional and irrevocable corporate guarantee by GFL.

 

The guarantee and the undertaking together cover the principal, interest and other monies payable on these facilities. For the NCDs, the payment mechanism is administered by the debenture trustee to ensure timely payment. Any adverse movement in the credit risk profile of the guarantor and non-adherence to the payment mechanism are key rating sensitivity factors.

 

For the guaranteed bank facility, as per the undertaking provided, if IWL fails to make payment on the due date, the guarantor will make the requisite payment either on invocation of a corporate guarantee by the lender or in seven calendar days from the due date of payment, whichever is earlier. Any adverse movement in the credit risk profile of the guarantor and non-adherence to the payment mechanism are key rating sensitivity factors.

Analytical Approach

For arriving at the ratings on the NCDs and working capital facilities backed by the corporate guarantee of GFL, CRISIL Ratings has applied its criteria on rating instruments backed by guarantees.

 

For arriving at the ratings of non-guaranteed instruments, CRISIL Ratings has combined the business and financial risk profiles of IWL and its subsidiary, Inox Green Energy Services Ltd (IGESL). Both the companies, together referred to as IWL herein, are in related businesses and have common promoters.

 

CRISIL Ratings has applied its group notch-up framework to factor in the strong strategic and financial support from the Inox group, which includes Inox Wind Energy Ltd, IWL GFL and their subsidiaries.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths

• Structured payment mechanism: For payment of the NCDs, the company will deposit funds into the escrow account at least seven business days prior to any coupon payment or redemption date. If it fails to do so, the guarantors will make the requisite payment one business day prior to the final date of payment.

 

As per the undertaking for the guaranteed bank facility, if IWL 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 seven calendar days from the due date of payment, whichever is earlier.

 

The payment structure is designed to ensure full and timely payment to the lender. 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.

 

• Strong support from the Inox group: Inox Wind Energy Ltd holds 55.37% equity in IWL, while the promoter family holds 18.02%, thus giving the group complete control over operations. The Inox group has extended support to IWL and IGESL through Inox Wind Energy and GFL by enabling them to raise funds through NCDs, term debt and working capital facilities as and when required. Group entities have also supported liquidity through capital advances and inter-corporate deposits. The promoters maintain their stance of financial and managerial support to the company given its strategic importance to the group.

 

• Established track record: The promoter group has a track record of over 10 years in the wind turbine manufacturing business. IWL has been a leading wind turbine manufacturer in India. Revenue of IWL registered compounded annual growth rate of around 40% over fiscals 2015-2017, leading to the company garnering a market share of over 15%. Driven by the extensive experience of the promoter and the healthy order book, IWL is expected to witness a turnaround in its operations from fiscal 2023, which remains a key rating sensitivity factor.

 

Weaknesses

• Weaker-than-expected operating performance: Performance in fiscal 2022 remained weak, with lower-than-expected execution, primarily because of continued impact of the Covid-19 pandemic. The operating margin was impacted significantly, as the company disposed stuck inventory at lower prices, leading to negative operating margin in fiscals 2022 and 2021. As a result of operating losses, debt protection metrics remain weak.

 

The company is executing projects that were auctioned by SECI during the second tranche in its own SPV, Nani Virani. Furthermore, it is expected to launch 3.3-MW turbines, which should further support project execution in fiscal 2023. Revival in project execution leading to healthy revenue growth and improvement in the operating margin will remain key rating sensitivity factors.

 

• Large working capital requirement: Operations remain working capital intensive, with receivables (net of provisions) at over Rs 1,100 crore as on March 31, 2022. Working capital requirement was high under the FiT 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 auctions regime, receivables remain high because of deferral in commissioning on account of delay in receipt of the evacuation infrastructure.

 

Large working capital requirement and slow order execution have led to continuous pressure on liquidity. CRISIL Ratings will continue to monitor the company’s ability to execute orders and ensure timely realisation of payments, leading to improvement in the cash flow.

Liquidity: Adequate

Unencumbered cash and equivalents stood at around Rs 65 crore as on March 31, 2022. Liquidity is constrained by large working capital requirement. Any improvement in working capital management following successful execution of orders and timely receipt of payments remains a key monitorable.

 

Liquidity is strengthened by the financial flexibility derived by IWL from being part of the Inox group. The group companies have provided direct funds in the form of inter-corporate 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 to provide liquidity support.

 

Liquidity for NCDs and bank guarantee: Strong

Liquidity for the rated NCDs and bank guarantee derives comfort from the guarantee structure (unconditional and irrevocable guarantee from GFL), which should ensure timely repayment 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 Stable

IWL might be impacted by continued low execution of the order book. However, the credit risk profile continues to be supported by the Inox group.

Rating Sensitivity factors

Upward factors

• Improvement in liquidity, driven by increase in cash accrual and realisation of deleveraging plans
• Sustained increase in cash flow from operations, with higher revenue and operating margin sustaining at above 10%
• Significant improvement in working capital management leading to a better capital structure

 

Downward factors

• Any material changes in shareholding by, or diminution in support from, the Inox group
• Fall in cash accrual on account of decline in revenue, with the operating margin sustaining at below 8%

 

Outlook for NCDs and bank guarantee: Stable

The outlook reflects CRISIL Ratings' outlook on the credit quality of GFL.

 

Rating sensitivity factors for NCDs and bank guarantee

Downward factors

• Revision in the credit risk profile of GFL leading to decline in the rating by one or more notches
• Non-adherence to the payment structure

 

Upward factor

• Revision in the credit risk profile of GFL leading to improvement in the rating by one or more notches

Adequacy of credit enhancement structure

GFL has provided an unconditional and irrevocable guarantee for the rated instruments, thus ensuring timely payment of the interest and principal obligations.

Unsupported ratings - ‘CRISIL BBB’

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

CRISIL Ratings has combined the business and financial risk profiles of IWL and its subsidiary, IGESL. Both the companies, together referred to herein as IWL, are in related businesses and have common promoters. CRISIL Ratings has applied its group notch-up framework to factor in the strong strategic and financial support from the Inox group.

Additional disclosures for the provisional rating

The provisional rating is contingent upon occurrence of the following:

• Debenture trustee deed and signed term sheet in line with the terms assessed are executed
• The provisional rating shall be converted into a final rating after receipt of duly executed transaction documents and on confirmation of completion of the pending steps within 90 days from the date of issuance of the proposed NCDs.

 

The final rating assigned after conversion shall be consistent with the available documents and completed steps. In case of non-completion of steps or non-receipt of the duly executed transaction documents within the specified timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days, in line with its policy on provisional ratings.

Rating that would have been assigned in the absence of the pending documentation

In the absence of pending steps/documentation considered while assigning the provisional rating as mentioned above, CRISIL Ratings would have assigned the ‘CRISIL BBB/Stable’ rating.

 

Key drivers for rating in the absence of pending documentation

CRISIL Ratings has combined the business and financial risk profiles of IWL and its subsidiary, IGESL. Both the companies, together referred to herein as IWL, are in related businesses and have common promoters. CRISIL Ratings has applied its group notch-up framework to factor in the strong strategic and financial support from the Inox group.

Risks associated with the provisional rating:

The 'Provisional' prefix indicates that the rating is contingent on occurrence of certain steps or execution of certain documents by the issuer, as applicable. If the documents received and/or completion of steps deviate significantly from the expectations, CRISIL Ratings may take an appropriate action, including placing the rating on watch or changing the rating/outlook, depending on the status of progress on a case-to-case basis. In the absence of the pending steps / documentation, the rating on the instrument would not have been assigned ab initio.

About the Company

IWL, established in April 2009, is part of the Inox group. The company manufactures nacelles, hubs, rotor blades and towers used to make and assemble wind turbines. It also provides associated services, such as operations and maintenance 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. IWL has a technical tie-up with AMSC Windtech, which provides control systems and vets suppliers for other parts from across the world.

 

For the nine months ended December 31, 2021, the company's profit after tax (PAT) was negative Rs 174 crore on operating income of Rs 487 crore against PAT of negative Rs 201 crore on operating income of Rs 472 crore during the corresponding period of the previous fiscal.

List of covenants

* The guarantor irrevocably and unconditionally guarantees to the debenture trustee due and punctual payment of the entire obligations and the performance and/or discharge of all obligations by the issuer, in accordance with the terms of the transaction documents.

* During the subsistence of the deed, the guarantor shall have no right to terminate its obligations under the deed, and any such right is excluded.

Any other information: Not applicable

ISIN	Facility type	Date of allotment	Coupon rate (%)	Maturity date	Amount (Rs crore)	Complexity level
INE066P07018	Non-convertible debentures	10-Nov-20	9.50	10-Nov-23	49	Simple