Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Benefits derived from being part of the Renew Power group

All the SPVs are likely to receive strong managerial and financial support from the Renew Power group. The management extends support towards project debt in the initial stages of implementation and stabilisation and provides financial support in case of any cash flow mismatches post commissioning of the project. The group is expected to maintain adequate liquidity to meet any exigency across the portfolio. Any change in the support philosophy will be a key rating sensitivity factor.

Strong market position of the group driven by diversity in asset portfolio and revenue visibility

The strong market position is driven by size, diversity, vintage, and healthy revenue visibility of the asset portfolio. The Renew Power group is one of the largest renewable energy players in India, with a portfolio of 12.8 GW (including capacity under construction and under development), with a commissioned capacity of around 8.1 GW as of June 2022 comprising 53% wind, 46% solar and 1% hydro projects. Commissioned projects had a weighted average operational track record of close to four years as of June 2022. The group portfolio is also diversified in terms of location and counterparty, with assets in Gujarat, Rajasthan, Madhya Pradesh, Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana, Uttar Pradesh, Uttarakhand, and Karnataka. The assets have strong revenue visibility, with most of the portfolio tied-up in PPAs of 25 years at pre-determined tariffs with over 15 state and central counterparties.

Healthy financial flexibility and liquidity

The group has an established track record of raising funds in the debt and capital markets, both in India and abroad. In the past, the group raised equity funds from marquee investors including Goldman Sachs and Canadian Pension Plan Investment Board, Abu Dhabi Investment Authority, JERA Power, and many of them have infused capital in progressive rounds too. Further, the group got listed on the NASDAQ in August 2021. This enhanced access to international debt and equity capital markets will help the group raise equity for future growth plans.

The group has healthy liquidity through fund-based working capital lines and track record of maintaining free cash balance. Fund-based working capital lines were sizeable at more than Rs 2,000 crore as of March 2022, which can be used across portfolio. Additionally, the group is expected to maintain a liquidity buffer (unencumbered across the group) of over Rs 2,000 crore which can also be used across the group, apart from project level debt service reserve accounts (DSRAs).

Weakness:

Average financial risk profile stemming from increased receivables, high capex intensity and weak operational performance

The group had gross debt to Ebitda [1] ratio of 8.0 times as on March 31, 2022, as against 8.7 times a year earlier. Expected reduction in leverage has been delayed on account of higher-than-expected capex, an increase in receivables from state discoms and weak operational performance (especially in the wind portfolio). Although, the debt coverages of project-level borrowings have remained in line with CRISIL Ratings’ expectations, with the blended average debt service coverage ratio (DSCR) of around 1.29 times [2].

Moreover, there may be a delay in leverage correction to around 6.5 times going forward within the next fiscal due to high capex. However, sustained increase in leverage through delayed reduction in receivables and/ or operational underperformance will be a rating sensitivity factor.

Receivables [3] shot up to 282 days as on March 31, 2022, from 272 days a year earlier on account of longer payment delays by some weaker state discoms as well as pending payment at reduced tariff from Andhra Pradesh discoms. However, recently there have been positive developments in terms of receipt of payments from Andhra Pradesh and Madhya Pradesh discoms as these have joined the recently announced LPS scheme by the government, in which the discoms need to clear all outstanding dues within 12-48 months. Any material delay in the correction of the payment cycle will be a rating sensitivity factor.

Implementation risk for under-construction projects

The group remains exposed to implementation risks for its under-construction project pipeline of 4.7 GW as of June 2022. The group is also diversifying into solar cell and module manufacturing and transmission business, although the quantum of capex towards such diversification is only about 10% of the overall capex planned currently. Timely commissioning of such capacities and subsequent stabilisation will remain key monitorable.

Exposure to risks inherent in operating renewable assets

Cash flows of renewable power projects are sensitive to plant load factor (PLF), which depends entirely on the wind and solar patterns that are inherently unpredictable. Lower PLFs in wind power projects resulted in weaker than P90 performance of the overall portfolio by 15% and 6% in fiscals 2021 and 2022, respectively. Delay in improvement in portfolio performance with respect to P90 projections will be a key monitorable.

[1] CRISIL Ratings adjusted Ebitda does not factor in the group’s interest income and extraordinary provisions written back.

[2] For the assets, where CRISIL Ratings does not have visibility of the debt quantum and tenure and other operational details, it has assumed the tenure of the debt based on a tail period of 3 years for the assets and sculpted amortisation as Renew Power group would be able to refinance the debt based on its strong business risk profile. Further, CRISIL Ratings-sensitised projections of cash flows are at a weighted average P90 plant load factor (PLF) for operational wind and solar portfolio.