Rating Rationale
July 31, 2020 | Mumbai
Watsun Infrabuild Private Limited
Long-term rating upgraded to 'CRISIL BBB/Positive'; short-term rating withdrawn
 
Rating Action
Total Bank Loan Facilities Rated Rs. 996.44 Crore (Reduced from Rs.1174.44  crore) 
Long Term Rating CRISIL BBB/Positive (Upgraded from 'CRISIL BBB-/Stable')
Short Term Rating CRISIL A1+(CE) (Withdrawn)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its rating on the long term bank facilities of Watsun Infrabuild Private Limited (WIPL) to 'CRISIL BBB/Positive' from 'CRISIL BBB-/Stable'. CRISIL has withdrawn the rating on proposed working capital facility of Rs 70 crore and proposed term loan of Rs 15 crore at the company's request. CRISIL has also withdrawn the rating on letter of credit facility of Rs 90 crore at the company's request, and upon receipt of the no-dues certificates from the lender. The withdrawal is in line with CRISIL's policy on withdrawal of bank loan ratings.
 
The revision in the rating and the outlook reflects the commissioning of the 78.8 MWp (DC) solar power plant in June 2020, which, after completion of group captive (GC) document verification, will lead to better cash flows in the near to medium term. The rating also takes into account the low offtake risk as the entire wind and solar capacity has power purchase agreements (PPAs) with credit-healthy third-party customers in the industrial and commercial segments. The rating further considers the healthy liquidity driven by project cash flows. These strengths are partially offset by, exposure to risks inherent in operating wind energy assets, and exposure to stabilisation risks for the solar power plant where power supply is yet to commence due to pending GC document verification. Timely commencement of power supply from the solar asset and sustained generation at P90 levels (for wind and solar assets) along with a stable payment pattern, will remain key monitorables.
Offtake from industrial customers had fallen in April-May 2020 owing to the lockdown imposed for containing the Covid-19 pandemic. While it has gradually improved, banking levels continue to be high compared to previous year. With restrictions being eased, offtake is likely to improve, leading to consumption of banking units during the financial year. However, continued low offtake could result in lower cash flows and is a key monitorable.

Key Rating Drivers & Detailed Description
Strengths:
* Low offtake risk as entire 226.8 MW capacity has PPAs with credit healthy counterparties
The company has signed PPAs with average tenure of 11 years, with majority group captive and some third-party customers (around 5%) for its entire capacity (wind and solar). More than 75% of total sales are to counterparties with high-to-adequate credit safety, as reflected in the payment cycle of less than a month in fiscal 2020.

The average PLF (plant load factor) in fiscal 2020 was around 28.5% compared to P90 estimates of 31.7%. This underperformance was mainly because a) turbines were operated on at partial load for the period of July-October 2019 as precautionary measure, owing to a suspected technical issue and b) grid backdown primarily due to curtailment instructed by Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO). While CRISIL takes comfort from, a) reliable P90 estimates, based on an independent study, derived from historical wind resource data of up to 9.2 years and, b) higher than P90 PLF performance of Phase I  (54 MW) of the project during FY19 (Phase II also uses the same wind turbines), the improvement in the PLF to P90 levels remains a monitorable.

* Healthy debt service coverage ratio (DSCRs) over loan tenure at a P90 generation
The plant has tied up capacity at a net tariff ranging from Rs 4.1 to Rs 4.7 per unit (average net tariff realisation is Rs. 4.5 per unit for FY20). This, coupled with long tenure of the debt, will lead to a comfortable average DSCR at P90 levels, over the loan tenure. Further, there is a clear ring fencing of the project cash flow and receivables, in a Trust and Retention account (TRA), along with cash sweep option to the lender, as per financing agreements.

Weaknesses:
* Supply of power from solar capacity yet to be commence
While the commissioning of the 78.8 MWp (DC) solar capacity on June 26, 2020 mitigates the project execution risk to a significant extent, the wheeling of power is yet to commence owing to pending GC document verification, which is expected to be received in the near term. Any further delays in commencement of wheeling from the solar project is a monitorable.

* Exposure to risks inherent in operating wind and solar energy assets
Wind power generation is highly vulnerable to seasonality and variance in wind intensity. Further, performance of solar power plants depends on irradiation levels around the plant's location and annual degradation in solar panels. Given that cash flows are highly sensitive to PLF of both solar and wind assets, these risks could severely impair debt-servicing and free cash flows. CRISIL will continue to monitor PLF levels as a key rating sensitivity factor.

Liquidity: Adequate
The company has adequate liquidity driven by expected cash accruals of approximately Rs.70 and Rs. 90 crore per annum in fiscal 2021 and fiscal 2022. It has long-term repayment obligation of around Rs 35 crore in fiscal 2021 and around Rs 50 crore in fiscal 2022, and minimal capital expenditure plans. Currently, WIPL does not have any fund based working capital limits. Debt Service Reserve Account (DSRA) of two quarters is already funded from project proceeds, while funding for the third quarter is expected by December 2020. CRISIL expects internal accruals, cash and cash equivalents, and expected DSRA to be sufficient to meet its repayment obligations as well as incremental working capital requirement.

Unsupported ratings: CRISIL BBB
CRISIL has introduced 'CE' suffix for instruments having explicit Credit Enhancement feature in compliance with SEBI's circular dated June 13, 2019.
Outlook: Positive

CRISIL expects the solar project to commence wheeling by September 2020, thus improving cashflows. Further, WIPL will benefit over the medium term from its limited offtake risk and healthy payment cycle.

About the Company

WIPL, incorporated in 2010, is a 74% subsidiary of Continuum Wind Energy (India) Pvt Ltd, and generates wind and solar power. The company has commissioned wind capacity of 148 MW (in two Phases) and solar capacity of 78.8 MWp (DC) as on date. Both the capacities are located near Periyapatti district, Tamil Nadu. WIPL has PPAs for its entire wind and solar capacity with group captive and third-party customers.

Key Financial Indicators
Particulars Unit 2020 (actual) 2019(actual)
Revenue Rs crore 184 135
Profit after tax (PAT) Rs crore 12 12
PAT margin % 6.5 8.7
Adjusted debt/adjusted networth Times 46.44 87.69
Interest coverage Times 1.63 1.57

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)
ISIN Name of Instrument Date of Allotment Coupon Rate Maturity Date Issue Size (Rs Crore) Complexity level Rating Assigned with Outlook
NA Letter of Credit* NA NA NA 90 NA Withdrawn
NA Proposed Term Loan NA NA NA 15 NA Withdrawn
NA Proposed Working Capital Facility NA NA NA 70 NA Withdrawn
NA Term Loan NA NA Mar-2034 996.44 NA CRISIL BBB/Positive

*Backed by LOC from PFS, which is a sub-limit of the long term loan facility
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  996.44  CRISIL BBB/Positive      07-09-19  CRISIL BBB-/Stable  20-07-18  CRISIL BBB-/Stable    --  -- 
            03-04-19  CRISIL BBB-/Stable  24-05-18  CRISIL BBB-/Stable       
            03-01-19  CRISIL BBB-/Stable           
Non Fund-based Bank Facilities  LT/ST  90.00  Withdrawal      07-09-19  CRISIL A1+(CE)  20-07-18  CRISIL A1+(SO)    --  -- 
All amounts are in Rs.Cr.
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Letter of Credit* 90 Withdrawn Letter of Credit* 90 CRISIL A1+(CE)
Proposed Term Loan 15 Withdrawn Proposed Term Loan 230 CRISIL BBB-/Stable
Proposed Working Capital Facility 70 Withdrawn Proposed Working Capital Facility 70 CRISIL BBB-/Stable
Term Loan 996.44 CRISIL BBB/Positive Term Loan 781.44 CRISIL BBB-/Stable
Total 1171.44 -- Total 1171.44 --
*Backed by LOC from PFS, which is a sub-limit of the long term loan facility
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs criteria for expected loss ratings for infrastructure projects
Criteria for rating instruments backed by guarantees
Criteria for rating wind power projects
CRISILs Bank Loan Ratings
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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