| Energy Efficiency Services Limited | ||||||
| Ratings downgraded to ‘CRISIL A-/Stable/CRISIL A2'; NCD Withdrawn | ||||||
| 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 downgraded its ratings on the bank facilities of Energy Efficiency Services Limited (EESL) to ‘CRISIL A-/Stable/CRISIL A2’ from ‘CRISIL A/Negative/CRISIL A2+
CRISIL Ratings has withdrawn its rating on Rs 250 crore of non-convertible debentures of EESL at the company’s request and on receipt of independent confirmation of redemption from the trustee. This is in line with the CRISIL Ratings policy on withdrawal.
The rating downgrade factors in the continued elevated receivables position resulting in a stretched working capital cycle impacting financial flexibility of the company. This, along with the ongoing capital expenditure (capex), mainly funded through debt, has resulted in a weak financial risk profile.
The revision in outlook to ‘Stable’ factors the expected incremental equity infusion of Rs 300 crore by sponsors NTPC Ltd (NTPC; ‘CRISIL AAA/Stable/CRISIL A1+') and Power Grid Corporation of India Ltd (PGCIL; 'CRISIL AAA/Stable/CRISIL A1+'), along with expectation of collection of a significant portion of receivables during last quarter of fiscal 2024, based on commitments and confirmations received from multiple States, including Andhra Pradesh, Maharashtra, and Bihar. This is expected to improve the debt protection metrics and ease the working capital pressure. That said, any delay in collection of current and previous receivables beyond the expected timelines will remain a key rating sensitivity factor.
On a standalone basis, receivables remained higher than expected at Rs 3,659 crore (839 days) as on September 30, 2023, compared with Rs 3,778 crore (861 days) as on March 31, 2023; Rs 3,482 crore (850 days) as on March 31, 2022; Rs.3,165 crore (760 days) as on March 31, 2021, and Rs. 2,811 crore (580 days) as on March 31, 2020. EESL has taken various initiatives to collect the receivables and prevent further build-up. These measures include creating centralized payment security mechanisms for new projects and seeking intervention of the Ministry of Power for expediting payments from various counterparties, such as distribution companies (discoms) and urban local bodies (ULBs). Despite these efforts and improved collection efficiency over the past year, receivables remained stretched due to significant previous dues (~62% of the receivables as of September 2023 were of more than 365 days), partly because of the weak financial health of the counterparties.
On a consolidated basis, the gearing remained high at ~18 times as on March 31, 2023 (~10 times a year earlier) and adjusted interest coverage ratio was 1.7 times during fiscal 2023 (2.1 times in the previous fiscal). The capital structure and debt protection metrics remained weak during the first half of fiscal 2024 despite equity infusion of Rs 497 crore in the first quarter. Financial flexibility remains low, with bank line utilisation increasing to ~90% during the two quarters ended September 30, 2023, from ~75% in the corresponding period of the previous year. EESL’s ability to raise short-term loans from domestic lenders remains a key monitorable.
The ratings reflect the strong parentage of the company, as it is a joint venture (JV) between four central public sector entities (CPSEs) owned by the Government of India, and its strategic role in the implementation of energy-efficiency programmes of the government. These strengths are partially offset by exposure to risks related to aggressive growth plans in annuity-based projects and weak counterparties, leading to stretched receivables. |
Analytical Approach CRISIL Ratings continues to apply its criteria for notching up ratings for government support. The ratings factor in EESL being a JV of four government-owned CPSEs and the strategic role it plays in implementing the government’s energy-efficiency programmes. EESL operates under the administrative control of the Ministry of Power. An officer at the Joint Secretary level of the ministry is on its board. The government support is underscored by the presence of large government-guaranteed long-term loans from multilateral agencies. The company is also subject to audit by the Comptroller and Auditor General of India.
CRISIL Ratings has combined the business and financial risk profiles of EESL and its subsidiaries and JVs considering the operational, managerial and financial linkages among the entities.
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 promoters had infused equity of Rs 1,887 crore as of September 2023 into EESL (standalone; up from Rs 1,390 crore as of March 2023) and are expected to infuse more if required. Government support is underscored by the presence of large government-guaranteed long-term loans (around 65% of the total long-term debt as on September 30, 2023) and availability of undrawn lines of nearly Rs 1,600 crore from multilateral agencies. Timely equity infusion by the promoters for capex and the extent of government support will remain key rating sensitivity factors.
Weaknesses:
The capex intensity remained low at Rs 694 crore in fiscal 2023 against Rs 662 crore in the previous fiscal, largely on account of large old receivables. However, the company planned capex of ~Rs 1,000 crore in fiscal 2024, expected to be funded through infusion from the shareholders and debt through government-guaranteed loans from multilateral agencies (around Rs 1,600 crore of undrawn lines are available) and domestic lenders.
As the projects are capital-intensive, the capital structure remains stretched. Gearing and debt to earnings before interest, taxes, depreciation and amortisation ratio are expected to remain high, over 7 times each respectively, as on March 31, 2024 (18.3 times and 8.9 times, respectively, as on March 31, 2023), despite equity infusion. The business model ensures full recovery of costs over 4-7 years, including the cost of debt and equity. However, the company remains exposed to refinancing risks on account of large repayment over the next two fiscals. Hence, timely collection of billings/previous dues and regular equity infusion remain critical. Moreover, the ability to successfully execute large new projects (supported by timely equity infusion from the promoters) and scale up operations on time will be key rating sensitivity factors.
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Liquidity: Adequate While the standalone liquidity though unencumbered cash and equivalent and unutilised bank lines is low, it is supported by the ability to raise short-term funds on the strength of strong sponsors (PGCIL, NTPC, PFC, REC) and government support. While the total cash and equivalent (standalone) was substantial, around Rs 735 crore as on September 30, 2023, large cash balance is encumbered toward capex. The average bank limit utilisation for the two-quarters through September 2023 was high at ~90%. The company raises short-term loans/working capital demand loans for funding working capital requirement. It has strong promoter support, reflected in equity infusion of Rs 497 crore as of September 2023 . Equity funding from the promoters and the presence of government-guaranteed, long-term lines of around Rs 1,600 crore from multilateral agencies is expected to be adequate for funding most of the upcoming capex. Internal accrual, unencumbered cash and equivalent, and the ability to raise funds should adequately cover the debt obligation and incremental working capital requirement over the medium term. |
Outlook: Stable The business risk profile of EESL is expected to sustain because of expected timely collections of current billings and strong linkages with the government. However, the company will continue to implement the energy efficiency programs and will remain susceptible to risks associated with the implementation of large projects. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company EESL was incorporated in fiscal 2010 under the administrative control of the Ministry of Power of the Government of India. It is a JV of four CPSUs: NTPC, PGCIL, REC and PFC. It implements several energy-efficiency initiatives of the government and leads the market-related activities of NMEEE, one of the eight national missions under the Prime Minister’s National Action Plan on Climate Change. The flagship programmes of EESL include UJALA and SLNP. Under UJALA, over 36 crore LED bulbs, 72 lakh LED tube lights and 23 lakh energy-efficient fans have been distributed, while under SLNP, over 1 crore conventional streetlights have been replaced with energy-efficient ones. Other major ongoing programmes include the smart metering programme, energy-efficient buildings, super-efficient air-conditioning programmes, solar programmes and e-vehicles. |
Key Financial Indicators* (Consolidated)
*As per analytical adjustments made by CRISIL Ratings #as per reported figures of the company |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
Annexure - Details of Rating Withdrawn
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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