| Suzlon Energy Limited | ||||||
| Ratings placed on 'Watch Developing' | ||||||
| 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 placed its ratings on the bank facilities of Suzlon Energy Limited (SEL) on ‘Rating Watch with Developing Implications’ as the company is contemplating options for issuance of non-convertible debt instruments at Suzlon Global Services Limited (SGSL, wholly owned subsidiary of SEL, engaged in O&M services business). The proceeds from the said issuance at SGSL are planned to be used to pre-pay the entire term debt at SEL. This on one hand may reduce the financial leverage at SEL while on the other, may make any future debt at SEL, structurally subordinated to the NCD at SGSL. Also, CRISIL Ratings has withdrawn its ratings on bank facilities aggregating to Rs 4,467 crore on receipt of ‘no dues certificates’ of lenders and at the request of the company. The rating action is in line with the CRISIL Ratings policy on withdrawal of ratings.
It is also likely that post consummation of NCD issuance in SGSL, cashflows of SGSL could be ringfenced for servicing NCD holders basis a well-defined waterfall mechanism. Consequently, CRISIL may consider revising its current analytical approach to consolidate SGSL with SEL.
The ratings continue to factor in the company’s established market position in the WTG business as one of the leading wind turbine manufacturers, healthy orderbook and strong base of ~13.5 gigawatt (GW) of operating fleet under operations and maintenance (O&M).
These strengths are partially offset by weak profitability in WTG business in the past and modest financial risk profile.
The company has completed first tranche of rights issue of Rs. 600 crore in Q3FY2023 and utilized majority of the same to prepay its debt obligation. Additionally, out of ~Rs. 510 crores received in March 2023 from the second tranche of rights issue of Rs. 600 crore, company was in process of reducing the debt from REC by a further Rs. 316 crores. Hence, the leverage level at SEL is expected to be below Rs 2000 crore post 31st March 2023.
CRISIL Ratings will continue to engage with the management and monitor the progress on above mentioned developments. CRISIL Ratings will resolve the rating watch and take appropriate rating action, if warranted, once the NCDs are issued and the final terms and transaction documents are executed. |
Analytical Approach At present, 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)# and Suzlon Power Infrastructures Ltd (SPIL)*. All these entities, collectively referred to as the Suzlon The Group (STG), 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:
The Group currently has ~13.5 GW of operating fleet under O&M. While the fleet under O&M reduces with decommissioning of WTGs, post completion of the design life, new 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 earnings before interest, depreciation, tax and amortisation (EBIDTA) above Rs 700 crore per fiscal from the O&M services business is expected to support debt obligation.
SGSL, O&M services business, is in the process of raising NCDs of ~Rs. 2,000 crores, which would be utilized to retire the entire outstanding term loan in SEL. However, post consummation of NCD issuance in SGSL, cashflows of SGSL will be ringfenced for servicing NCD holders basis a well-defined waterfall mechanism.
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 over the past many years. The company’s healthy market position should help to obtain orders in the long run, subject to working capital availability. The order book as on 31st Dec, 2022 was 782 MW.
Weaknesses:
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.
High operating leverage may result in losses in the WTG business in the event of lower-than-expected offtake. The company had order book of ~782 megawatt (MW) as on Dec 31st, 2022, which is likely to be executed over 12-15 months. The company had been dependent on customer-backed financing to execute orders in the last fiscal which had constrained growth. Its near-term plans to avail additional project-specific funding remains a key monitorable.
The WTG business, accounting for over 65% of the overall revenue in FY2022, is highly working capital intensive. Furthermore, recovery of working capital over the next two fiscals is expected, which will support cash flow. In case of delays in recovery or in arranging for working capital requirement, overall liquidity may get constrained, impacting cash flow.
Leverage and debt protection metrics are weak since SEL defaulted in the past and undergone restructuring. The company has refinanced its existing debt in May 2022 replacing 16 lenders with two new lenders. Further, the company has completed first tranche of rights issue of Rs. 600 crore and utilized majority of the same to prepay its debt obligation. The company had negative networth due to past losses which recently turned positive majorly on account of the rights issue and gain on derecognition of OCDs and CCPS. Additionally, the second tranche of Rs. 600 crore has been called by the company, of which Rs 510 crs was received by 23rd March 2023 and the company was in process of further reducing REC loan facility by ~Rs. 316 Crs from the proceeds of second tranche of the rights issue. |
Liquidity: Adequate The company has debt service obligation of more than Rs. 961 crores in fiscal 2024 and fiscal 2025 which it plans to repay from operating cash flows of ~Rs 1,450 crores over the next 2 fiscals. Further the unencumbered cash and equivalent stood around Rs. 125 crores as on March 23rd, 2023. The company has planned capex of about Rs 150 crore per fiscal over fiscal 2024 and 2025, which it plans to fund through internal accrual. The cash reserve is expected to increase over the next few months on the back of 2nd tranche of rights issue. |
Rating Sensitivity factors Upward factors:
Downward factors:
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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 19.7 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
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
& - SBI led consortium; loan has been refinanced ^ - LOC amount is fungible with RTL and can be increased if NBF O/s is higher on settlement date % - SBI led consortium; loan has been refinanced |
Annexure – List of entities consolidated
# The Project execution and Power evacuation businesses have been demerged from SGWPL and transferred & vested into SGSL. *SPIL has been merged into SGSL |
| 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 31-Mar-23 in line with the lender-wise facility details as on 13-Apr-22 received from the rated entity.
& - SBI led consortium; loan has been refinanced
^ - LOC amount is fungible with RTL and can be increased if NBF O/s is higher on settlement date
% - SBI led consortium; loan has been refinanced
Criteria Details
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