| Inox Wind Limited | ||||||
| Bank loan ratings upgraded to 'CRISIL A-/Stable/CRISIL A2+'; Debt instruments reaffirmed | ||||||
| Rating Action | ||||||
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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 Wind Limited (IWL) 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 long term principal-protected market-linked debentures (PPMLD) worth Rs 75 crore and non-convertible debentures (NCDs) worth Rs 149 crore.’.
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.
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 IWL receives from the INOXGFL group and the extensive experience of its promoters in the wind turbine business. These strengths are partially offset by subdued albeit improving operating performance and large working capital requirement.
The ratings on the principal protected market linked debentures (PPMLD) and NCDs centrally factor in the unconditional and irrevocable corporate guarantee by Gujarat Fluorochemicals Ltd (GFL). The payment mechanism is administered by the debenture trustee to ensure timely payment. The guarantee covers the principal, interest and other monies payable on these facilities.
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 PPMLD backed by the corporate guarantee of GFL, CRISIL Ratings has applied its criteria for 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 subsidiaries, Inox Green Energy Services Ltd (IGESL; ‘CRISIL A-/Stable/CRISIL AA+ (CE)/Stable/CRISIL A2+’) and Resco Global Wind Services Pvt Ltd (Resco; ‘CRISIL A-/Stable/ CRISIL AA+ (CE)/Stable’). These entities, collectively referred to 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 provided by the INOXGFL group, which includes IWEL, 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 NCDs worth Rs 99 crore, IWL will deposit funds in the escrow account at least five business days before any coupon payment or redemption date (that is, T-5). If it fails to do so, the guarantors will make the requisite payment three business days before the due date (T-3). Or else, there will be an invocation by the debenture trustee on T-3 and payment will be received by T-1.
For the Rs 50 crore NCDs, the company will deposit funds in 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 five business days prior to the due date. If not, there will be an invocation by the debenture trustee on T-5 and payment will be received by T-1.
For PPMLD, the company will deposit funds into the escrow account at least seven business days before any coupon payment or redemption date. If it fails to do so, the guarantors will make the requisite payment four business days prior to the final date of payment. Or else, there will be an invocation by the debenture trustee on T-3 and payment will be received by T-1.
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; or in case of dissolution, insolvency or liquidation; or on winding up of proceedings initiated by or against the issuer.
Strong support from the INOXGFL 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.
Established track record: The promoter group has a track record of over 10 years in the wind turbine manufacturing business. IWL is a leading wind turbine manufacturer in India. Backed by the extensive experience of the promoters, revival in the wind sector and healthy order book of over ~1,276 MW and commercialisation of the 3.3 MW turbine, IWL should witness a turnaround in its operations in the near term, which will be a key monitorable.
Weaknesses: 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: 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 (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 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 Unencumbered cash and equivalents stood ~Rs 66 crore as on September 31, 2023. Liquidity is constrained by large working capital requirement. Debt obligation of over ~Rs 270 crore in remaining fiscal 2024 are likely to be repaid through mix of internal accruals and recent funds raised at Inox Wind Energy Limited.
Further, 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 IWL avail of funds from banks, supported by guarantees, letters of comfort or by pledging of their own funds.
Liquidity for NCDs and PPMLD: Strong Liquidity for the rated NCDs and PPLMLD is supported by the guaranteed structure (unconditional and irrevocable guarantee from GFL), which should ensure timely servicing of debt. The guarantee will remain unaffected even if IWL faces bankruptcy; or in case of dissolution, insolvency or liquidation; or on winding up of proceedings initiated by or against the issuer. |
Outlook: Stable 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 INOXGFL group. |
Rating Sensitivity factors Upward Factors
Downward Factors
Outlook for NCDs and PPMLD backed by guarantee: Stable The outlook reflects the CRISIL Ratings outlook on the credit quality of GFL.
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 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 CRISIL Ratings has combined the business and financial risk profiles of IWL and its subsidiaries, IGESL and RESCO, as they are in related businesses and have common promoters. Also, CRISIL Ratings has applied its group notch-up framework to factor in the strong strategic and financial support received from the INOXGFL group. |
About the Company Incorporated in April 2009, IWL is a part of the INOXGFL group. The company manufactures nacelles, hubs, rotor blades and towers 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. IWL has a technical tie-up with AMSC Windtech, which provides control systems and vets suppliers for other parts from across the world.
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. |
Key Financial Indicators
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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 letter of credit and bank guarantee ^^Rs.50 Crore is interchangeable with Letter of credit **Rs.25 Crore Limits is interchangeable with Letter of credit & bank guarantee each ##Rs.215 Crore is interchangeable with Bank Guarantee ^Rs.100 Crores is Interchangeable with Bank Guarantee |
Annexure – List of Entities Consolidated
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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*Interchangeable with letter of credit and bank guarantee
^^Rs.50 Crore is interchangeable with Letter of credit
**Rs.25 Crore Limits is interchangeable with Letter of credit & bank guarantee each
##Rs.215 Crore is interchangeable with Bank Guarantee
^Rs.100 Crores is Interchangeable with Bank Guarantee
Criteria Details
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