| Premier Energies Limited | ||||||
| Rating outlook revised to 'Negative'; Ratings 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 revised its outlook on the long-term bank facilities of Premier Energies Limited (PEL) to 'Negative' from 'Positive' while reaffirming the rating at 'CRISIL BBB+'. The short-term rating has been reaffirmed at 'CRISIL A2'. PEL is the operating and holding company of the Premier Energies group, which includes PEL and its subsidiaries.
The revision in outlook factors in lower-than-expected operating performance of the group, with operating margin falling significantly owing to sharp rise in input costs, slower-than-expected ramp-up in operations of its new plant, and supply chain issues. Consolidated revenue grew ~50% in fiscal 2022 to ~Rs 1,052 crore, largely on account of contribution from the newly setup plant. However, the operating margin fell sharply to around 4.2% in fiscal 2022 (from 10.4% in fiscal 2021), due to a jump in input prices, mainly of cell and wafers, and slower than expected ramp-up in operations at the new plant (under Primer Energies Photovoltaic Pvt Ltd [PEPPL], a 100% subsidiary of PEL). Further, the operating performance remained subdued during the first half of current fiscal (H1FY23) with operating margin at around 2%. This was owing due to continued volatility in input prices, supply chain issues emanating from restrictions put in place by China to curb the Covid-19 pandemic, which led to non-availability of wafers and cells (key raw materials for cell and module manufacturing), along with planned curtailment in its cell line operations for upgradation.
Weak operating performance since fiscal 2022 and increase in debt levels for ongoing capacity expansion led to moderation in the financial risk profile. Overall borrowing of the group rose to around Rs 405 crore as on March 31, 2022, compared to Rs 294 crore as on March 31, 2021, as the company incurred capital expenditure (capex) to set up a new plant under PEPPL. This coupled with fall in operating margin, impacted debt protection metrices; interest coverage ratio moderated to 1.88 times in fiscal 2022 from 3.99 times in fiscal 2021 and net cash accrual to total debt ratio to 7.7% from 13%.
The rating reaffirmation factors in the expectation that the issues related to raw material availability have improved, with supply chain normalising, which should support stabilisation of increased capacities going forward. Additionally, healthy demand should support improvement in revenue and operating profitability going forward and thereby aid debt protection metrics. Further, liquidity remains adequate with outstanding cash & cash equivalents of Rs 172 crore (as on November 30, 2022) and unutilised working capital limit (aggregate group level including fund-based and non-fund-based limit) of around Rs 130 crore (as on October 31, 2022) against the scheduled debt repayment of around Rs 25 crore in the second half of fiscal 2023 and around Rs 42 crore in fiscal 2024. Additionally, the company is expected to receive around Rs 55 crore from Azure Power India Pvt Ltd (Azure) in fiscal 2023, as part of an agreement with the latter to set up a 1 gigawatt (GW) module and 1 GW cell line (under a new entity, Premier Energies International Pvt Ltd [PEIPL] which is promoted by PEL with a 74% equity stake, with the rest 26% with Azure), which should further support liquidity; timely receipt of the same will be a key monitorable. Further, the company has unutilised term loan limit of around Rs 330 crore against the remaining capex of around Rs 390 crore (of total capital outlay of Rs 700 crore and as of November 2022) towards capex under PEIPL.
However, any further supply chain issues or delayed ramp-up of operations will materially impact the business and financial risk profiles of the group. Resultantly, material improvement in utilisation and profitability, with sustenance of comfortable liquidity will remain key monitorables going forward.
The ratings continue to reflect the healthy business risk profile of the Premier Energies group, supported by its established market position in the domestic solar module manufacturing industry, the extensive experience of the promoter, and robust demand supported by the government thrust on capacity addition and favourable policies in the form of approved list of module manufacturers (ALMM), basic customs duty (BCD) and production-linked incentive (PLI) scheme.
These strengths are partially offset by exposure to moderate project execution risks for the planned capex, resulting in substantial rise in leverage and exposure to intense competition. |
Analytical Approach CRISIL Ratings has applied its criteria for rating entities in homogenous groups and combined the business and financial risk profiles of PEL and its subsidiaries (including PEPPL). The entities, collectively referred to as the Premier Energies group, are largely in the same line of business with strong business and financial linkages and common promoters. Also, PEL has issued corporate guarantees for the debt facilities of its subsidiaries.
Also, CRISIL Ratings has treated compulsory convertible debentures from the private equity investor, GEF Capital Partners, as quasi-equity instruments as the debentures are subordinate to senior debt and will remain in the business over the medium term against nil coupon outflow.
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:
The promoter's experience of over 25 years in the solar industry and strong relationships with stakeholders across the industry will continue to support the business. The Premier group is one of the largest integrated (solar cell and module) manufacturing facilities (capacity-wise) in India and enjoys a sizeable capacity share in the current installed capacity of 1.25 GW of modules. With another expansion plan in place, the total module manufacturing capacity of the company is expected at 1.75 GW for cell and 2.5 GW of module capacity by end of fiscal 2023.
While the group had a module manufacturing line of 3 megawatt (MW) in 1995, its projects ranged from installing solar lanterns to village electrification and export of solar modules. It entered the solar engineering procurement and construction (EPC) segment in 2011 but is now focused on the module and cell manufacturing business.
Amid growing emphasis for solar power in India, the company is well positioned to absorb the demand arising from the long-term plans of the government to increase generation from renewable sources. Introduction of protectionist measures by the government, such as BCD of 40% and 25% on imported solar modules and solar cells, respectively, from April 2022 and implementation of ALMM along with incentivising domestic players under the PLI scheme increase the cost competitiveness of domestic modules vis-a-vis that of imported ones. In addition, government-approved schemes such as Kisan Urja Suraksha Utthan Mahabhiyan, Central Public Sector Undertaking and rooftop scheme, will push up demand.
The group has a cumulative order book of ~550 MW for modules and ~200 MW for cells (from reputed customers such as Panasonic, Axitec, and Luminous), to be executed over the next few quarters, providing healthy revenue visibility. Revenue at a consolidated level is expected at Rs 1,500-1,700 crore in fiscal 2023, lower than earlier expectation, owing to the impact of the supply chain disruptions and upgradation relation backdown in the new capacity during H1FY23. The group is also likely to add another 250 MW of module capacity (funded through cash accrual and/or through equity infusion by the holding company) in December 2022, taking total capacity of its plant under PEPPL to 1 GW, which should support the order book execution over the medium term.
Weaknesses:
The company is exposed to increasing competition given the large capacity additions planned in the domestic market with various levels of integration. The implementation of BCD will make Indian players more cost-competitive than their Chinese counterparts; however, the risk of significant reduction in prices by Chinese players to lessen the impact of BCD persists. Also, growth is vulnerable to changes in government policies and regulations as it can impact demand.
Silicon wafer, the main input in the manufacture of cells, is primarily imported from China. Prices of key inputs such as polysilicon, aluminum and copper have risen sharply lately. Though the company has price-variation clauses for most raw materials and undertakes order-backed procurement to mitigate this risk, any sharp rise in input cost is likely to impact profitability as seen during H1FY23 and hence needs to be managed effectively. Additionally, significant capacity additions planned by domestic players over the medium term may further intensify competition.
The group is setting up a cell line with capacity of 1 GW and a module line of 1.2 GW under a new entity PEIPL. PEIPL is promoted by PEL, which holds 74% equity while the rest is held by Azure. The total capex towards these plants is Rs 700 crore, of which around Rs 310 crore has been spent as of November 2022. The project is being funded through Rs 45 crore of equity from Azure (already infused), Rs 129.5 crore equity that was infused by GEF Capital Partners (in fiscal 2022) and remaining Rs 525 of term loan from IREDA. The plant is expected to commence operations by end of fiscal 2023. As part of an agreement, Azure will offtake around 30% of PEIPL's module capacity which, along with healthy demand outlook, mitigates offtake risk. Azure is expected to infuse an additional Rs 55 crore as sub-debt in the group in fiscal 2023, which should support overall liquidity.
While this exposes the company to project execution risk, CRISIL Ratings draws comfort from the track record of the company in successfully commissioning sizeable capacities (PEPPL plant). Further, these plants post commissioning will remain exposed to stabilisation-related risks. Resultantly, timely completion of the project and commensurate ramp-up will remain key monitorables.
The capital structure of the group is likely to remain weak as additional debt is expected for planned capacity expansion. While offtake risk for upcoming capacities remains low, ability of the group to scale up operations post commissioning, resulting in healthy cash flow and improvement in debt metrics, will remain a key monitorable.
Gearing and total outside liabilities to tangible networth (TOLTNW) ratio is expected to rise over 3 times and 5 times, respectively, in fiscal 2023, due to debt-funded capex. The group is expected to receive subsidy of Rs ~23 crore in fiscal 2023, which will aid liquidity. As a pure-play module and cell manufacturer, the working capital cycle is expected to remain stable at current levels. |
Liquidity: Adequate Cumulative net cash accrual of over ~Rs 270 crore in fiscals 2024 and 2025 will sufficiently cover debt obligation of ~Rs 130 crore. Bank limit utilisation (fund-based limit) was 50-60% (on average) over the 12 months through October 2022. As on November 30, 2022, cash and equivalents at the group level stood at ~Rs 172 crore which support liquidity. This coupled with undrawn term debt line should suffice to fund incremental capex and working capital requirement. |
Outlook: Negative The Premier Energies group's financial risk profile may weaken in case of any further operational challenges or slower-than-expected ramp-up in existing and new capacities, resulting in weak cash accrual. While demand outlook remains favourable, the company will remain susceptible to risks associated with implementation and stabilisation of new projects. |
Rating Sensitivity factors Upward factors
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About the Company Incorporated in 1995 by Mr Surender Pal Singh, PEL is one of the largest integrated (solar cell and module) manufacturing facilities (capacity wise) in India. PEL has a 500 MW module line with its plant located in Annaram, Telangana. PEPPL, a 100% subsidiary of PEL, has a 750 MW module and 750 MW cell line located in Raviryala, Telangana. PEPPL is further expanding its module capacity to 1 GW by adding additional machinery. PEIPL, a 74% subsidiary of PEL, is setting up a 1.2 GW module and 1 GW cell line in Telangana. PEIPL has entered into an agreement with Azure, to offtake ~30% of overall capacity. Cumulatively by end of fiscal 2023, the group is expected to have a total module capacity of 2.7 GW and 1.75 GW of cell capacity. The group also undertakes solar EPC work, though it is increasingly lowering its focus on this business. |
Key Financial Indicators- PEL - standalone - CRISIL Ratings adjusted numbers
*adjusted for Rs 6.19 crore expenses towards issuance of CCDs |
Status of non cooperation with previous CRA: PEL did not cooperate with Brickwork Ratings India Pvt Ltd (BRICKWORKS), which has classified it as non-cooperative vide release dated Jan 24, 2022. The reason provided by BRICKWORKS is non-furnishing of information for monitoring of ratings. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*interchangeable with SBLC **interchangeable with letter of credit $interchangeable with bank guarantee and SBLC $$interchangeable with working capital demand loan (WCDL) ^ interchangeable with letter of credit and SBLC |
Annexure - List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 13-Dec-22 in line with the lender-wise facility details as on 24-Nov-21 received from the rated entity.
*interchangeable with SBLC
**interchangeable with letter of credit
$interchangeable with bank guarantee and SBLC
$$interchangeable with working capital demand loan (WCDL)
^ interchangeable with letter of credit and SBLC
Criteria Details
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