Key Rating Drivers & Detailed Description

Strengths:

Strong managerial and financial support from the Hero group

The holding companies of the Hero Future Energies platform (HFEPL, HREPL, HWEPL and HSEPL) are majorly owned, directly or indirectly, by the promoters of the Hero group, BCIPL and BMOP. These entities draw strength from their 20.00% and 13.99% stakes, respectively, in Hero MotoCorp (‘CRISIL AAA/FAAA/Stable/CRISIL A1+’). Both BCIPL and BMOP have funded the initial equity requirement for the platform. Furthermore, presence of the Munjal family members on the board of group companies substantiates the importance of the venture to the Hero group and the Munjal family.

Market cover for the consolidated debt (as per the analytical approach described above) stood at 3.8 times as of March 23, 2022.

CRISIL Ratings centrally factors in the expectation of continued financial and managerial support that Hero Future Energies platform receives from the Hero promoter group entities. Any change in this understanding shall be a rating sensitivity factor.

Diverse operational portfolio

The SPVs in the HFE Global group benefit from being a part of a diverse portfolio. The operational portfolio comprised wind capacity of over 580 MW across Rajasthan, Maharashtra, Tamil Nadu, Karnataka, Madhya Pradesh, and Andhra Pradesh; and solar capacity of over 950 MW across Madhya Pradesh, Telangana, Andhra Pradesh, Karnataka, and Rajasthan as on Dec 31, 2021.

The operational portfolio has long-term power purchase agreements with the distribution companies of Rajasthan, Karnataka, Madhya Pradesh, Andhra Pradesh, Maharashtra, several private industrial and commercial customers and Solar Energy Corporation of India (SECI). Diversification of assets in terms of location and presence of strong counterparties reduces associated credit risks.

With increase in scale in fiscals 2019 and 2020, the counterparty profile has improved: the share (by capacity) of the key counterparty, SECI (has better payment track record), in the operational portfolio rose to 38% in September 2020 from 23% in March 2019.

Weaknesses

Exposure to inherent risks associated with renewable energy generation assets

The plant load factor (PLF) for wind and solar power projects is vulnerable to variability in climatic conditions, and equipment- and evacuation-related risks. Given that the sensitivity of cash flow of a wind or solar power project is the highest for the PLF, these risks could severely impair debt servicing and free cash flow. Hence, PLF, adequacy of cash accrual and the dividend-paying capability of the SPVs will be continuously monitored.

Market cover of BCIPL and BMOP below the required level

Market cover of HFE holding companies declined from 5.2 in September 2021 to 3.8 as on March 23, 2022, primarily on account of fall in market capitalisation of Hero MotoCorp. The planned equity infusion in HFE by its shareholders, will be primarily utilised for reducing the debt at the holding companies by September 2022. The cover is expected to improve over medium term towards previous levels primarily on back of this debt reduction and stabilization of market capitalisation of Hero MotoCorp. The market cover will remain a key monitorable.

Moderate financial risk profile of the HFE Global group

HFE Global group contracts short-term debt on holding companies to meet expenses of under-construction projects and provide need-based support to renewable special-purpose vehicles (SPVs). This short-term debt is deleveraged through regular equity raises and internal accrual. The entities have a policy of not leveraging beyond a total debt-equity ratio of 0.7-0.8 time on a combined basis (excluding the SPVs). Although, the group is expected to refinance or roll over the upcoming debt, keeping the leverage within 0.7 time with current holding company debt of around Rs 1,525 crore as on Dec 31st, 2021, it remains exposed to a risk of refinancing. The risk is partially offset by the planned equity infusion by BCIPL and/or BMOP and subsequent material reduction in the debt of the holding companies by September 2022.

Annexure – List of entities consolidated

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