Rating Rationale
June 07, 2024 | Mumbai
Suzlon Energy Limited
Ratings reaffirmed; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.3050 Crore (Enhanced from Rs.1550 Crore)
Long Term RatingCRISIL A-/Positive (Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
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 reaffirmed its ‘CRISIL A-/Positive/CRISIL A2+’ ratings on the bank facilities of Suzlon Energy Ltd (SEL).

 

CRISIL Ratings had Upgraded its Ratings on the bank facilities of SEL to ‘CRISIL A-/Positive/CRISIL A2+’ from ‘CRISIL BBB+/Positive/CRISIL A2’ on march 26, 2024.

 

The rating reaffirmation factors in higher-than-expected improvement in the margin of the wind turbine generators (WTG) business while maintaining healthy cash flow from the operations and maintenance (O&M) services business and an uptick in the order book providing revenue visibility for future revenues. WTG business (SEL standalone) has been able to achieve earnings before interest, taxes, depreciation and amortisation (Ebitda) of Rs 220 crore (5.7% Ebitda margin) in fiscal 2024 with execution volume of 710 megawatt (MW) (SEL standalone, CRISIL Ratings-adjusted number) against margin of 1.7% and 2.2% in fiscals 2023 and 2022, respectively. Order book of the WTG business increased to 3.88 gigawatt (GW) as on May 29, 2024, compared to 652 MW a year ago.

 

The Positive outlook reflects expectation that the Ebitda margin of the WTG business will continue above current levels, led by cost optimisation and rationalisation efforts taken over the past 2-4 years such as focussing on orders with better margin and pass-through for material cost escalation.

 

SEL continues to hold a cumulative market share of 32% (installed base of 14.7 GW of total wind installed base of 45.9 GW in India). These strengths are partially offset by the relatively high operating leverage in the WTG business, large working capital requirement and financial history of the company.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of SEL and its subsidiaries, including Suzlon Global Services Ltd and Suzlon Gujarat Wind Park Ltd. These entities, collectively referred to as the Suzlon group, sell WTGs and provide related services and components, with significant operational synergies and some common members in the Board.

 

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:

  • Stable cash flow from the O&M services business to support overall debt servicing: The Suzlon group had about 14.7 GW of installed fleet under the O&M business as on March 31, 2024. While the fleet under O&M reduces with decommissioning of WTGs, post completion of the design life, new WTGs delivered and commissioned get added to the fleet every fiscal. Revenue from the O&M services has been steady as this is contractual activity over a fixed timeframe and at contracted price. Also, escalation in revenue is inbuilt into the contracts, ensuring stability of operating margin over a period. The group has demonstrated stability in revenue and profitability of the O&M services business even in stressed times in the past. Stable cash flow with Ebitda above Rs 700 crore per fiscal from the O&M services business is expected going forward.

 

  • Leading market position in the wind turbine segment and healthy order book: The group has a successful track record of project execution with technical expertise, evident from the healthy market share of 30-35% in the WTG business in India over the past many years and also in cumulative installed capacity. The company’s healthy market position should help to obtain orders in the long run. SEL’s order book stood at ~3.88 GW (as on May 29, 2024), to be executed till fiscal 2026. The company has been able to overcome the dependence on customer-backed financing to execute orders, which had constrained growth in the last fiscal.

 

  • Improved financial risk profile: Term debt stood at Rs 1,773 crores as on March 31, 2023, on the back of scheduled repayments of the term loan and additional reduction of ~Rs 900 crore from rights issue in October 2022. Furthermore, the company’s networth turned positive as on March 31, 2023 on the back of refinancing (gain on derecognition of optionally convertible debentures and compulsorily convertible preference shares) and rights issue of Rs 1,200 crore in fiscal 2023.

 

On August 14, 2023, the company approved the allotment of equity shares to qualified institution buyers aggregating to about Rs 2,000 crore. The company subsequently utilised the required amount to repay its entire debt at SEL, significantly improving its financial risk profile. Further, SEL does not have any material debt-funded capital expenditure (capex) over the medium term. SEL has also raised Rs. 2,500 crores of lines from REC Limited to meet its working capital requirements (the facility is in form of Letter of Comfort, on the basis of which LC/BG is issued by fronting banks.)

 

Weaknesses:

  • Operating leverage in the WTG business: High operating leverage exposes the WTG business to losses in the event of curtailed offtake. Sustenance of revenue in the WTG business is extremely critical on account of operating leverage arising from substantial fixed costs. In the past, on account of these fixed costs, the group has suffered substantial operating losses due to slowdown in revenue from this business. CRISIL Ratings understands the group had undertaken cost reduction activities in operations, manpower and other expenses, resulting in reduction of fixed costs to nearly Rs 5 billion per fiscal from about Rs 10 billion in the past. However, any delay in execution of orders will result in fixed cost under recovery adversely impacting cash flow. While the measures undertaken may reduce operating leverage, it is expected to remain high and expose operating profitability to variability in revenue.

 

  • Competitive intensity in wind industry: The business environment for the wind energy sector continues to be challenging. While SEL is one of the prominent domestic players with 32% cumulative market share as on March 31, 2024, it faces intense competition from Envision Energy and other smaller domestic players.

 

  • Weak financial history: SEL has defaulted in the past and underwent restructuring. The last restructuring was in June 2020, post which the company went for refinancing in May 2022. The 16-lender consortium was replaced with two lenders and unsustainable debt was extinguished through conversion to equity. The company also had negative networth due to past losses till fiscal 2022. This has impacted the financial flexibility of the company with certain lenders. Nevertheless, with prepayment of the entire debt, many lenders have reached out to fund the working capital requirement of SEL.

Liquidity: Adequate

The company’s unencumbered cash reserves stood at about Rs 242 crore as on March 31, 2024. The company does not have any debt service obligation, given that the term debt has been fully repaid. Furthermore, its O&M division is expected to generate an Ebitda of around Rs 700 crore every year, thereby supporting the overall cash flow. The company has planned capex of Rs 400-500 crore over fiscal 2025, which it plans to fund through cash accrual.

Outlook: Positive

The Positive outlook on the back of expectation that a healthy order book and delivery volumes will drive profitability of the WTG business.

Rating Sensitivity factors

Upward factors

  • Track record of sustained profitability on the back of a healthy order book and delivery volumes
  • Increase in delivery volumes each quarter, in line to about 1 GW for fiscal 2025

 

Downward factors

  • Order book or execution volumes being lower than 600 MW, resulting in operating losses
  • Overall operating margin being lower than 10-12%

About the Company

Founded in 1995, SEL is one of the leading global renewable energy solutions providers. Over the past 29 years, the group has installed over 20 GW of wind energy in 17 countries across six continents. The group comprises SEL and its various subsidiaries. Its manufacturing footprint is spread across India. It is a vertically integrated WTG manufacturer. It also undertakes installation and O&M of all WTG sales. Operations include design development and manufacturing of all major components, including rotor blades, tubular towers, generators, control equipment, gears and nacelles. Apart from manufacturing, it offers a full gamut of wind project planning and execution services, including wind resource assessment, infrastructure and power evacuation, technical planning and execution of wind power projects. It also offers O&M services in India and overseas.

Key Financial Indicators (CRISIL Rating-adjusted numbers)

As on / for the period ended March 31

Unit

2024*

2023

Revenue

Rs crore

6,529

5,971

Profit after tax (PAT)

Rs crore

660

2,887**

PAT margin

%

10.1

48.4

Adjusted debt/adjusted networth

Times

0.03

1.84

Adjusted Interest coverage

Times

6.50

2.00

*- Notes to accounts not available.;

**- Includes exceptional income of Rs. 2,721 crores;

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity levels Rating  assigned with outlook
NA Bank guarantee^ NA NA NA 100 NA CRISIL A-/Positive
NA Letter of credit^ NA NA NA 200 NA CRISIL A2+
NA Letter of credit NA NA NA 60 NA CRISIL A2+
NA Bank guarantee NA NA NA 1000 NA CRISIL A-/Positive
NA Letter of credit NA NA NA 1500 NA CRISIL A2+
NA Proposed bank guarantee NA NA NA 40 NA CRISIL A-/Positive
NA Proposed fund-based bank limit NA NA NA 50 NA CRISIL A-/Positive
NA Proposed letter of credit NA NA NA 100 NA CRISIL A2+

^ - BG is sub limit of LC

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Suzlon Global Services Ltd

Full consolidation

Subsidiary of SEL and has strong business and financial linkages with the latter.

Suzlon Gujrat Wind Park Ltd

Full consolidation
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 50.0 CRISIL A-/Positive 26-03-24 CRISIL A-/Positive 25-09-23 CRISIL BBB+/Positive 13-04-22 CRISIL BBB-/Stable   -- Withdrawn
      --   -- 22-06-23 CRISIL BBB-/Watch Developing   --   -- --
      --   -- 31-03-23 CRISIL BBB-/Watch Developing   --   -- --
      --   -- 17-02-23 CRISIL BBB-/Stable   --   -- --
Non-Fund Based Facilities LT/ST 3000.0 CRISIL A2+ / CRISIL A-/Positive 26-03-24 CRISIL A2+ / CRISIL A-/Positive 25-09-23 CRISIL BBB+/Positive / CRISIL A2 13-04-22 CRISIL A3   -- Withdrawn
      --   -- 22-06-23 CRISIL A3/Watch Developing   --   -- --
      --   -- 31-03-23 CRISIL A3/Watch Developing   --   -- --
      --   -- 17-02-23 CRISIL A3   --   -- --
Non Convertible Debentures LT   --   --   --   --   -- Withdrawn
Short Term Debt ST   --   --   --   --   -- Withdrawn
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 1000 REC Limited CRISIL A-/Positive
Bank Guarantee^ 100 Barclays Bank Plc. CRISIL A-/Positive
Letter of Credit 1500 REC Limited CRISIL A2+
Letter of Credit^ 200 Barclays Bank Plc. CRISIL A2+
Letter of Credit 60 IndusInd Bank Limited CRISIL A2+
Proposed Bank Guarantee 40 Not Applicable CRISIL A-/Positive
Proposed Fund-Based Bank Limits 50 Not Applicable CRISIL A-/Positive
Proposed Letter of Credit 100 Not Applicable CRISIL A2+
^ - BG is sub limit of LC
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
Criteria for rating wind power projects
CRISILs Criteria for Consolidation

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