| Walwhan Solar MP Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL AA-/Positive' ratings on the long-term bank facilities of Walwhan Solar MP Ltd (WSMPL). CRISIL has withdrawn its rating on term loan of Rs 66.2 crore, following request from the company, and a confirmation from the lenders. The rating withdrawal is in line with CRISIL's policy on withdrawal of bank loan ratings. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of TPREL, WREL, all of their SPVs, renewable assets in The Tata Power Company Limited - TPCL (standalone) and renewable assets in Tata Power Solar Systems Ltd, collectively referred to as the TPREL group. This is in line with CRISIL's criteria for rating entities in homogenous groups. |
| Key Rating Drivers & Detailed Description |
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Strengths * Strategic importance to, and strong financial and managerial support from, the parent The capital employed in the TPREL group is around one-fourth of the overall capital employed of TPCL, indicating increasing importance of the renewable business in parent's overall strategy. Furthermore, TPCL plans to have 50-60% of its total generation capacity from non-fossil fuel assets over the next 7-8 years. Moreover, the renewable portfolio provides strong economic incentive and helps diversify risk at the portfolio level. Over the last two years, operational capacity of the TPREL group has grown to ~ 2.6 GW. The parent has supported the TPREL group by infusing unsecured perpetual securities of Rs 3,904 crore. It had also extended corporate guarantee to a part of the debt contracted by TPREL and WREL to refinance their high-cost debt in past and therefore the parent can also extend further corporate guarantee. Besides, the senior management of Tata Power is present on the board of TPREL and WREL. Given the high strategic importance and strong economic incentive, the TPREL group will remain critical for Tata Power. Moreover, management shall adopt a calibrated expansion approach and is expected to receive need-based support from parent. * Well-diversified portfolio in terms of geography and maturity The TPREL group is one of the largest players in the Indian renewable energy space with around 2.6 GW of installed capacity and 820 MW in under-construction projects. The group has a well-diversified proportion of solar-wind power capacity of 65:35 and geographical spread across 12 states. This helps mitigate risk of resource and location-specific generation variability. The operational portfolio is fairly matured, 68% of which has a track record of above three years, and nearly 85% having maturity of more than a year. The projects primarily have Tier-I vendors ensuring quality equipment to mitigate technology risk. The well-diversified portfolio with pan-India coverage and established operational track record will continue to support credit risk profile. * Healthy revenue visibility and low offtake risk combined with robust DSCR Around 98% of the operational portfolio has PPAs with a 25-year tenure, while the rest have a tenure of 13-15 years. Furthermore, the weighted average tariff of portfolio is over Rs 5.3 per kilowatt-hour (kWh), leading to healthy overall returns. This lends high predictability and stability to revenue with low demand risk. Consolidated average DSCR with weighted average tariff of over Rs 5.3/kWh will remain robust. Weaknesses * Exposure to moderate receivables risk, mitigated by diversity in counterparties Long-term PPAs with distribution companies (discoms) having relatively weaker financial risk profiles and payment track record pose receivables risk. Receivables at TPREL consolidated level stretched in fiscal 2020 to 7 months from about 4 months in fiscal 2019. As on March 31, 2020, receivables from discoms such as Tamil Nadu (13% of capacity), Andhra Pradesh (8%) and Rajasthan (7%) were at above six months. The weak financial health of the state discoms could lead to increased delays in payments, which continues to constrain the standalone credit risk profile of the TPREL group. This risk is mitigated by diversity in counterparties with over 15 discoms and expected liquidity of around six months of debt servicing maintained at the group level. The company is also resorting to bill discounting to faster realise receivables. * Exposure to risks inherent in operating renewable assets Cash flow of wind power projects is sensitive to PLF (plant load factor), which is entirely dependent on wind patterns that are inherently unpredictable. Also, in case of a solar power plant, generation depends on irradiation levels around a plant's location and annual degradation of the solar panels. Degradation of solar panels may increase exponentially in the later part of an asset's life. Though geographical diversity mitigates risk related to generation, exposure to inherent operational risks related to renewable power assets constrains the rating. * Susceptibility to implementation risk owing to growth plans through organic or inorganic route The group remains exposed to project risk with 820 MW of capacity under construction. Nonetheless, CRISIL draws comfort from the group's track record of execution and calibrated expansion strategy with prudent funding mix. The group is expected to commit substantial funds to a renewable project only if there is a strong visibility on evacuation and PPA. |
| Liquidity Strong |
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Cash accrual is expected at over Rs 1,100 crore each in fiscals 2021 and 2022 while cash and cash equivalents stood at Rs 390 crore as on March 31, 2020. TPREL also has access to fund-based limit of 250 crore as on March 31, 2020. Capital expenditure (capex) of around Rs 3,875 crore over the next two fiscals for the 820 MW capacity expected to be commissioned by July 2021 should be funded through a mix of debt and internal accrual. Cash accrual, cash and cash equivalents, and unutilised bank limit should be sufficient to meet debt obligation as well as incremental working capital requirement. The TPREL group's parent, Tata Power, may continue to provide timely, need-based support. |
| Outlook: Positive |
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The outlook is based on CRISIL's rating outlook on Tata Power's debt instruments and bank facilities. Any change in the ratings or rating outlook on Tata Power will lead to a corresponding change in the rating or rating outlook on TPREL. |
| About the Company |
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WSMPL is an SPV and a step-down subsidiary of TPREL held through WREL. |
| Key Financial Indicators - WSMPL | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - List of entities consolidated (Entities which are part of TPREL group) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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