Rating Rationale
March 26, 2024 | Mumbai
Suzlon Energy Limited
Ratings upgraded to 'CRISIL A-/Positive/CRISIL A2+'
 
Rating Action
Total Bank Loan Facilities RatedRs.1550 Crore
Long Term RatingCRISIL A-/Positive (Upgraded from 'CRISIL BBB+/Positive')
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2')
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 Suzlon Energy Ltd (SEL) to ‘CRISIL A-/Positive/CRISIL A2+’ from ‘CRISIL BBB+/Positive/CRISIL A2’.

 

The rating upgrade factors in, higher than expected improvement in the margins of WTG business while maintaining healthy cash flow generation from the O&M services business, and an uptick in the order book providing visibility for future revenues. WTG business (SEL standalone) has been able to achieve earnings before interest, depreciation, tax and amortisation (EBIDTA) of Rs 105 crore (4.3% EBITDA margin) in 9M FY2024 with execution volume of 437 MW (SEL standalone, Crisil adjusted number) against margin of 1.4% and 2.2% in FY 2023 and 2022 respectively. Order book of WTG business increased to 3.16 GW (as on Jan 31st 2024) compared to 652 MW as of March 31st, 2023.

 

Positive outlook reflects expectation that EBITDA margins of WTG business will continue to remain above 4.3% (EBITDA % in 9M FY 2024) on back of cost optimisation and rationalisation efforts taken over past 2 to 4 years such as focussing on orders with better margins and pass-through for material cost escalation.

 

Suzlon continues to hold a cumulative market share of 32% (installed base of 14.5 GW of total wind installed base of 44.7 GW in India). These strengths are partially offset by the relatively high operating leverage in the WTG business, its working capital-intensive operations 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 (SGSL) and Suzlon Gujarat Wind Park Ltd (SGWPL). These entities, collectively sells wind turbine generators (WTGs) and provides related services and components, with significant operational synergies and some of the 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 Group has ~14.5 GW of installed fleet under O&M business as on Dec 31, 2023. While the fleet under O&M reduces with decommissioning of WTGs, post completion of the design life, new wind turbine generators delivered and commissioned get added to the fleet every fiscal. Revenue from 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 O&M services business even in stressed times in the past. Stable cash flow with EBIDTA 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 a 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 ~3.16 GW (as on 31st Jan 24), 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: The term debt stood at Rs. 1,773 crores as on March 31, 2023, on the back of scheduled repayments of term loan and additional reduction of ~Rs 900 crores 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 OCDs & CCPS) and rights issue of Rs 1,200 crores in fiscal 2023.

 

On August 14, 2023, the company approved the allotment of equity shares to Qualified Institution buyers aggregating to ~Rs. 2,000 crores. The company subsequently utilized the required amount to repay its entire debt at SEL, significantly improving the financial risk profile of the company. Further, SEL does not have material debt funded capex plans over medium term.

 

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 ~Rs 5.0 billion per fiscal from about Rs 10.0 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 Suzlon is one of the prominent domestic players with 32% cumulative market share as on December 31st 2023, it faces intense competition from Envision Energy and other smaller domestic players.

 

  • Weak Financial history: SEL has defaulted in the past and has undergone restructuring. The last restructuring round was in June 2020, post which the company went for refinancing in May 2022. 16 lender consortium was replaced with 2 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 the prepayment of entire debt, many lenders have reached out to Suzlon to fund its working capital requirements.

Liquidity: Adequate

The company’s unencumbered cash reserves stand at ~Rs. 278 crores as on Dec 31, 2023. The company does not have any debt service obligations given that the term debt has been fully repaid. Furthermore, the company’s O&M division is expected to generate an EBITDA of ~ Rs. 700 crore every year, thereby supporting the overall cash flows. The company has planned capex of about Rs 400-500 crore over fiscal 2025, which it plans to fund through internal accruals.

Outlook: Positive

Positive outlook on the back of expectation that a healthy order book and delivery volumes will drive profitability of 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 QoQ in line to ~1 GW for FY2025.

 

Downward factors:

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

About the Company

Founded in 1995, Suzlon is one of the leading global renewable energy solutions providers. Over the past 26 years, the group has installed over 19.8 GW of wind energy in 17 countries across six continents. The Suzlon Group comprises of Suzlon Energy Limited and its various subsidiaries. The Suzlon Group’s 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 countries.

Key Financial Indicators (Crisil adjusted numbers)

As on / for the period ended March 31

Unit

2023

2022

Revenue

Rs crore

5,971

6,582

PAT

Rs crore

2,887

-177

PAT margin

%

48.4

-2.7

Adjusted debt/adjusted networth

Times

1.84

-1.73

Adjusted Interest coverage

Times

2.00

1.25

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

Proposed Bank Guarantee^

NA

NA

NA

400

NA

CRISIL A-/Positive

NA

Proposed Fund-Based Bank Limits

NA

NA

NA

50

NA

CRISIL A-/Positive

NA

Proposed Letter of Credit^

NA

NA

NA

740

NA

CRISIL A2+

*The LC and BG limits are fungible

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Suzlon Global Services Ltd (SGSL)

Full consolidation

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

Suzlon Gujrat Wind Park Ltd (SGWPL)

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   -- 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 1500.0 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 100 Barclays Bank Plc. CRISIL A-/Positive
Letter of Credit 200 Barclays Bank Plc. CRISIL A2+
Letter of Credit 60 IndusInd Bank Limited CRISIL A2+
Proposed Bank Guarantee^ 400 Not Applicable CRISIL A-/Positive
Proposed Fund-Based Bank Limits 50 Not Applicable CRISIL A-/Positive
Proposed Letter of Credit^ 740 Not Applicable CRISIL A2+
^ - The LC and BG limits are fungible
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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