| Hero Future Energies Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL A+ / Stable / CRISIL A1 '; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities and commercial paper of Hero Future Energies Private Limited (HFEPL; a part of the HFE Global group) at ‘CRISIL A+/Stable/CRISIL A1’.
CRISIL Ratings has noted that the Hero Future Energies group is raising funds through international bond sale of about US $363 million, the proceeds of which will primarily be used to refinance the existing external debts of a restricted group (RG) of companies and to repay or extend inter corporate loans to the parent as well as for general corporate purposes. Although the transaction will not allow any generated cash surplus from the RG companies to be upstreamed, it is not expected to impact the overall credit profile, given that proceeds of issuance will be utilized to reduce/ prepay debt at the holding companies. |
Analytical Approach To arrive at its ratings, CRISIL Ratings has combined the business and financial risk profiles of HFEPL and its wholly owned subsidiaries, Hero Wind Energy Pvt Ltd (HWEPL) and Hero Solar Energy Pvt Ltd (HSEPL), the wind and solar holding companies, respectively, of the Hero Future Energies renewable platform.
CRISIL Ratings has used its parent notch-up framework to factor in the support to the group from the Hero promoter group entities, BCIPL and BMOP. These two companies indirectly hold the entire Hero group’s stake in HFEPL.
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 holding companies of the Hero Future Energies platform (HFEPL, 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, the presence of Munjal family members on the board of group companies substantiates the importance of the venture to the Hero group and Munjal family.
In the assessment of BCIPL and BMOP, apart from the borrowings at BCIPL and BMOP, CRISIL Ratings has consolidated a portion of debt of Hero Future Energies platform and HFE renewable portfolio to calculate the market cover. This debt consolidated is expected to remain supported by BCIPL and BMOP. Market cover for the consolidated debt stood at 5.5 times as of March 12, 2021.
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.
HFEPL, HWEPL and HSEPL contract 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. The group was able to successfully refinance its debt obligation due in the second and third quarters of fiscal 2021. Furthermore, the group is expected to refinance or roll over the upcoming debt, keeping the leverage of 0.7 time (current) within range with current holding company debt of about Rs 2,000 crore.
The assets in the Hero Future Energies renewable portfolio benefit from being a part of a large and diverse portfolio. The operational portfolio includes wind capacity of over 580 megawatt (MW) in Rajasthan, Maharashtra, Tamil Nadu, Karnataka, Madhya Pradesh, and Andhra Pradesh; and solar capacity of over 950 MW in Madhya Pradesh, Telangana, Andhra Pradesh, Karnataka, and Rajasthan as on December 31, 2020.
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 stronger counterparties reduce associated credit risks. With increase in scale in fiscals 2019 and 2020, 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:
The plant load factor (PLF) for wind and solar power projects is exposed 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 continuously be monitored.
The renewable energy platform had about 500 MW of wind and solar power projects under various stages of implementation as of March 2021, out of a total portfolio of more than 2 gigawatt. CRISIL Ratings will continue to monitor the under-implementation projects that may be exposed to risks such as delays in land acquisition, financial closure and clearances, and power evacuation risks. |
Liquidity: Adequate The HFE Global group is expected to have cash flow for debt servicing of over Rs 1,300 crore in fiscal 2022 which adequately covers its long-term debt obligation of around Rs 1,200 crore. In addition, group has cash and cash equivalent of more than Rs 800 crore on consolidated basis as on March 15, 2021 (including around Rs 340 crore unencumbered cash).
Liquidity at renewable holding companies is driven by estimated cash accrual of more than Rs 110 crore in fiscal 2022 against debt obligations of around Rs 868 crore in the same period. The holding companies have unencumbered cash of around Rs 80 crore as on March 15, 2021. Also, the holding companies have around Rs 118 crore cash earmarked for servicing part of the above Rs 780 crore debt servicing in fiscal 2022. HFEPL's holding companies are expected to be able to meet refinancing obligations over medium term given their financial flexibilities including established relationships in capital markets and support from parent entities (BCIPL and BMOP), if required. |
Outlook: Stable The ratings will continue to benefit from the parent support and the healthy financial flexibility driven by the Hero brand. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company HFEPL is the green energy venture of the Hero group. The company, a jointly and indirectly majority-owned subsidiary of BCIPL and BMOP, was incorporated on October 18, 2012, as a renewable energy developer managing wind, solar, and small hydro plants. HFEPL holds 100% stake in two vertical holding companies for wind and solar energy. It is managed by experienced professionals led by Mr Rahul Munjal and Mr. Srivatsan Iyer. HFEPL has already commissioned wind capacity of over 580 MW in Rajasthan, Maharashtra, Tamil Nadu, Karnataka, Madhya Pradesh, and Andhra Pradesh; and solar capacity of over 950 MW in Madhya Pradesh, Telangana, Andhra Pradesh, Karnataka and Rajasthan.
HFEPL has also implemented a 10-MW solar power project in Karnataka. The project began commercial operations in August 2015. It has signed a long-term PPA for supplying its entire capacity to Hubli Electricity Supply Co Ltd. |
Key Financial Indicators - HFEPL (consolidated; CRISIL Ratings-adjusted numbers)
*Adjusted for (FY20: Rs 150 crore; FY19: Rs 124 crore) non-cash finance expenses on compulsorily convertible preference shares |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
&Interchangeable with fund-based limits |
Annexure – List of entities consolidated
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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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