Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A-/Stable’ rating on the long-term bank facility of Egan Solar Power Pvt Ltd (ESPPL).

 

Also, Crisil Ratings has withdrawn its rating on the bank facilities of Rs 0.9 crore following a request from the company and on receipt of independent confirmation on the outstanding balance. The withdrawal is in line with the Crisil Ratings’ policy on withdrawal of ratings.

 

ESPPL, based in Thanakullu, Andhra Pradesh, is part of the Vibrant Energy Holdings Pte Ltd’s (VEHPL: Singapore based entity) group of 6 renewable assets in India. Macquarie Green Investment Group (Macquarie*; through its 100% step-down subsidiary Macquarie Corporate Holdings Pty Ltd) holds around 92% stake in VEHPL while ATN International Inc holds the balance via multiple step-down subsidiaries.

 

The said six assets include Arkha Solar Power Private Limited (ASPPL, rated Crisil A-/Stable), Ethan Energy India Pvt Ltd (EEIPL, rated Crisil A-/Stable), ESPPL, Natems Solar Power Pvt Ltd (NSPPL, rated Crisil A-/Stable), Repal Green Power Pvt Ltd (RGPPL, rated Crisil A-/Stable) and Repal Renewables Pvt Ltd (RRPL, rated Crisil A-/Stable). These 6 assets have a combined total capacity of 65.39 mega-watts (MWp) and are referred to as Vibrant Energy Renewables Group’ (VER Group).

 

The ratings reflect benefits derived from being part of the VER Group having financial flexibility through cash flow fungibility across the six assets, low offtake risk ensured by long-term power purchase agreement (PPA) and healthy operating performance over the past 2-3 years. These strengths are partially offset by moderate project debt service coverage ratio (DSCR), moderately high outstanding debtor days and exposure to inherent risks of variation in solar irradiation.

 

*Crisil Ratings understands that Macquarie entered VEHPL in 2021 and has acquired its stake in tranches, with the most recent stake acquisition being in December 2024.   

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of 6 SPVs of the VER group and has equated the rating of each SPV to that of the group. These SPVs operate as a single unit of solar power asset, with a common management, treasury, and cash flow fungibility. Additionally, these SPVs have legally binding and enforceable documents that make them jointly and severally liable for the debt servicing with presence of cross-default clauses.

 

Treatment of non-convertible debentures (NCDs) and External Commercial Borrowings (ECBs) from the parent, VEHPL: Crisil Ratings has not factored in payment of interest and principal repayment or redemptions in the DSCR calculations, as these are subordinated to bank debt.

 

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:

• Presence of long term PPA providing revenue visibility and low off-take risk: ESPPL’s entire capacity of 11.64 MWp is tied up- 6.3 MWp is tied up with A One Steel Pvt Ltd (AOSPL) through a 25-year PPA (ending in 2048) and 5.3 MWp is tied up with Bharti Airtel Ltd (BAL) through a 20-year PPA (ending in 2043) both at a fixed net tariff. The net tariffs are at a healthy discount of more than Re 1 per unit to the grid tariff. This significantly reduces the offtake risk and lends high predictability and stability to revenue owing to low demand risk. ESPPL commenced operations in November 2016 and has a long track record of operations. Further, payment cycle as per PPA terms is 30 days from billing and ESPPL has been receiving on-time payments from the off-taker post billing. However, any significant delays in payment receipt will be a key monitorable. 

 

• Improving operating performance: The plant load factors (PLFs) for ESPPL and five other assets in VER group was lower than P-90 levels during the initial years (fiscal 2018 – 2022) mainly due to issues related to grid outage issues, teething issues and due to maintenance activities related to efficiency improvement. However, the performance, for the said assets has improved since fiscal 2023 with actual generation nearing P-75 levels. This was on account of operational and maintenance activities undertaken by the group which included the adoption of tracker-based systems and remedial measures for grid outages. Sustenance of improved performance above P-90 levels for six assets in VER group will be a key rating sensitivity factor.

 

• Benefit derived from being part of the VER group: Being a part of the VER Group and given the cash flow fungibility between the entities, all 6 SPVs are likely to receive financial support from each other. ESPPL has created a debt service reserve account (DSRA) of six months of peak debt servicing. The group also has adequate liquidity with DSRA equivalents to 3-6 months of peak debt servicing (asset specific for all the remaining 5 assets of VER group on capacity weighted average basis) as per sanction terms, to meet any exigency across the portfolio. It also benefits from the presence of multiple counterparties across its assets.

 

Weaknesses:

• Moderate project DSCR for ESPPL and VER group: Though project debt is moderate (Rs 2.87 crore per MWp for ESPPL and average of Rs 2.91 crore per MWp for VER group), relatively lower P-90 levels coupled with moderately higher operations and maintenance expenses (mainly towards performance improvement measures) have resulted in moderate DSCRs (at per Crisil Ratings sensitized projections) at ~1.2 times for VER group (including ESPPL). Although, operational performance of the assets has improved in the last fiscal, with PLFs improving to P75, track record is limited. Nonetheless, assets of VER group including ESPPL, have healthy tail period beyond the PPA tenor (capacity weighted average) which further lends comfort. The financial risk profile is also supported by the cash sweep covenant, wherein the lender can exercise the right to sweep a certain amount of surplus cash above the stipulated covenants by the lender.

 

• Delay in average billing cycle, albeit improving, resulting in moderately high debtor days: Most of these assets of the VER group have witnessed outstanding unbilled revenue for the past few fiscals on account of delay in billing the full amount to customers, due to corresponding delay on account of the AP discom, as these assets utilize state transmission services for supplying electricity to counterparties. However, Crisil Ratings understands that once the invoice is raised, payment from the off takers is received well within the due date. Also, the said gap in billing cycle has improved over the past few years, resulting in average debtor days (combined for all 6 assets) reducing from 178 days as on March 31, 2021, to 149 days as on March 31, 2024. Going forward, any increase in the average billing gap and debtor’s days resultantly creating a stress on the overall liquidity position will be a key rating sensitivity factor.

 

• Exposure to inherent risks of variation in solar irradiation: Solar power generation depends on the radiation level in each location. Changes in the average temperature around plant's location or in performance of polycrystalline modules could affect power generation and can cause higher-than-expected degradation in solar panels. Given that cash flow of a solar power project is most sensitive to the PLF, these risks may impair the debt-servicing capability of projects.

Liquidity: Adequate

ESPPL had cash and equivalents (excluding DSRA) of around Rs. 5.8 crore as on December 15, 2024. Furthermore, Crisil Ratings understands that DSRA equivalent to six months of peak debt servicing has been created for the rated term loan.

 

The financial flexibility of ESPPL is strengthened by the fungibility of cash flows between the six entities which had a combined cash and equivalents of around Rs 31.5 crore as on December 15, 2024. For the combined six assets of the VER group, annual cash accrual along with existing cash and equivalents should be sufficient to cover the debt obligations (as per total debt plan) of Rs 8.5 crore and Rs 9.1 crore for fiscal 2025 and fiscal 2026 respectively.

Outlook: Stable

Crisil Ratings believes ESPPL will continue to benefit from its improving operating performance and being a part of the VER group.

Rating sensitivity factors

Upward factors:

• Sustained healthy generation with PLFs over P-50 levels resulting in higher-than-expected cash accrual and liquidity for ESPPL and other 5 assets of VER group.
• Significant improvement in the billing cycle coupled with timely payments by counterparties, resulting in reduction in debtor days.

 

Downward factors:

• Weakening of the operating performance with PLF levels sustaining below degraded P-90 levels impacting the expected average DSCR for ESPPL and other 5 assets of VER group.
• Significant increase in billing cycle or delay in timely payments by counterparties, resulting in an increase in debtor days for ESPPL and other 5 assets of VER group, resulting in weakening of the liquidity position.
• Any change in the philosophy around cash flow fungibility within the VER group

About the Company

Incorporated in 2018, ESPPL is a wholly owned subsidiary of Vibrant Energy Group, which has a solar power plant located in Thanakullu, Andhra Pradesh having a capacity of 11.64 MWp and has a 25-year PPA with AOSPL and 20-year PPA with BAL.

About the Group

• Vibrant Energy was founded in 2015 and is currently headed by Mr. Vinay Pabba who is the CEO of the group. In 2016, ATN International (listed on NASDAQ), a US based telecommunications company, acquired Vibrant Energy through its subsidiary Ahaana Renewables.
• Subsequently, in 2021, Macquarie Green Investment Group acquired a majority stake in the VER Group. Subsequently, it increased its stake in the group and currently holds around 92% in the group through its 100% step-down subsidiary Macquarie Corporate Holdings Pty Ltd.
• The VER group currently has a total capacity of 711 MW, out of which 235 MW is operational and the rest in pipeline. The group exclusively focuses on Commercial and Industrial customers and has inked deals with strong counterparties.

Key Financial Indicators – Crisil Ratings adjusted numbers

As on/for the period ended March 31	Unit	2024	2023
Operating income	Rs.Crore	5	7
Reported profit after tax (PAT)	Rs.Crore	(0)	11
PAT margins	%	(6.8)	151.5
Adjusted debt/adjusted networth#	Times	3.8	NA
DSCR@	Times	1.31	NA

#The NCDs and OCDs are being treated as neither debt nor equity

@Without considering the interest servicing on promoter debt.

Any other information: Not Applicable