| Hero Future Energies Private Limited | ||||||
| 'CRISIL A/Stable' assigned to NCD; Long-term rating downgraded to 'CRISIL A/Stable'; Short-term rating reaffirmed | ||||||
| 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 assigned its 'CRISIL A/Stable' rating to Rs 300 crore non-convertible debenture of Hero Future Energies Private Limited (HFEPL; part of the Hero Future Energies (HFE) Global group). CRISIL Ratings has also downgraded its rating on the long-term bank facilities of HFEPL's to 'CRISIL A/Stable' from 'CRISIL A+/Negative' and reaffirmed its 'CRISIL A1' rating on the short-term bank facilities and commercial paper programme of HFEPL.
CRISIL Ratings has also withdrawn its rating on bank loan facilities of Rs 440 crore at the company's request and based on latest sanctioned limits with the lender. The withdrawal is in-line with CRISIL Ratings' policy on withdrawal of bank loan ratings.
The rating action is on account of sustained weakness in the market cover calculated after considering certain portion of debt of the HFE Global group and HFE's renewable SPVs, which are expected to derive support from Bahadur Chand Investments Pvt Ltd (BCIPL) and Brij Mohan Lal Om Prakash (BMOP), to the consolidated borrowings at BCIPL and BMOP, hereafter referred to a Group. The market cover is currently at 3.6 times as against an expected level of 5.5 times as per CRISIL's ratings methodology (highlighted in the previous rating rationale dated April 6, 2022).
The rating action also considers the recent announcement of equity infusion into the HFE Global group along with improving receivables position and operational performance of the renewable portfolio of the group. Equity infusion of USD 450 million was announced by Kohlberg Kravis Roberts (KKR) and the Hero family group in September 2022. CRISIL Ratings understands that up to ~USD 150 million will be used for deleveraging at the holding companies of HFE Global group over the medium term. Furthermore, it is expected that improvement in market cover of the Hero promoter group will be supported by improvement in market capitalization of its primary investment - Hero MotoCorp Ltd ('CRISIL AAA/Stable/CRISIL A1+') and/ or proposed deleveraging at the HFE Global group.
The ratings continue to factor in the resourcefulness and likely financial and managerial support of the Hero group, HFEPL's diversified operational renewable project portfolio and financial flexibility to successfully address refinancing requirements at renewable holding company levels. These strengths are partially offset by the modest financial profile of HFEPL holding companies and risks inherent in operating renewable energy assets. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of HFEPL and its wholly owned subsidiaries, Hero Wind Energy Pvt Ltd (HWEPL), Hero Solar Energy Pvt Ltd (HSEPL) and Hero Rooftop Energy Pvt Ltd (HREPL). CRISIL Ratings has also moderately consolidated the risk profiles of all special purpose vehicles (SPVs) established as subsidiaries of HWEPL, HREPL and HSEPL for undertaking wind and solar energy projects. The consolidated entity is referred to as the HFE Global group. (Refer annexure for the list of entities consolidated and the analytical treatment for consolidation).
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.
In the assessment of BCIPL and BMOP, apart from the borrowings at both entities, CRISIL Ratings has consolidated a portion of debt of the HFE Global group and HFE's renewable special purpose vehicles (SPVs) to calculate the market cover. This consolidated debt is expected to remain supported by BCIPL and BMOP.
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, 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. Both BCIPL and BMOP have funded the initial equity requirement for the platform. Furthermore, the 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. The management has confirmed that after completion of recent equity infusion announced by KKR and Hero Family, the Munjal family will continue to operate and be a majority shareholder in Hero Future Energies platform.
Market cover for the consolidated debt (as per the analytical approach described above) stood at 3.6 times as on November 11, 2022.
CRISIL Ratings centrally factors in the expectation of continued financial and managerial support that the Hero Future Energies platform receives from the Hero promoter group entities. Any change in this understanding shall be a rating sensitivity factor.
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 megawatts (MW) across Rajasthan, Maharashtra, Tamil Nadu, Karnataka, Madhya Pradesh, and Andhra Pradesh; solar capacity of over 923 MW across Madhya Pradesh, Telangana, Andhra Pradesh, Karnataka and Rajasthan; and hybrid capacity of 29 MW in Karnataka as on September 30, 2022.
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. Share of the central counterparty in the operational portfolio rose to 38% in September 2020 from 23% in March 2019
Weaknesses:
The operational performance at the group level has remained weak and was lower by ~5% compared to revised P90 plant load factor (PLF) in fiscal 2022. The wind and solar power project PLFs have been lower mainly due to variability in climatic conditions leading to resource issues, along with equipment and evacuation-related risks. That said, generations have been sufficient to cover debt servicing requirements for project portfolio.
Market cover at group level of 3.6 times as on November 11, 2022, continues to remain below required level of 5.5 times (as highlighted in the previous rating rationale dated April 6, 2022). The cover has remained low on account of high leverage at the group level and slower than expected correction in market capitalization of Hero MotoCorp. It is expected that improvement in the market cover of the Hero promoter group will be mainly driven by improvement in market capitalisation of its primary investment - Hero MotoCorp which has a leadership position in the two-wheeler segment along with proposed deleveraging at the HFE Global group.
The HFE Global group contracts short- and medium-term debt on holding companies to meet the expenses of under-construction projects and provide need-based support to renewable SPVs. This short-term debt is deleveraged through regular equity raises and internal accrual. Current holding company debt is around Rs 2,200 crore as on September 30, 2022. It is expected that a portion of announced equity raise and release in stuck receivable cash flow would be used for deleveraging. The holding company debt of the HFE Global group is expected to come below Rs 1,400 crore in fiscal 2023. |
Liquidity: Adequate The HFE Global group is expected to have cash flow for debt servicing of over Rs 1,200 crore in fiscal 2023, which will adequately cover its long-term debt obligation of around Rs 1,126 crore. In addition, the group had cash and cash equivalent of more than Rs 700 crore on consolidated basis as on September 30, 2022 (including around Rs 424 crore of unencumbered cash).
The holding companies had unencumbered cash of around Rs 200 crore as on September 30, 2022. HFEPL's holding companies are expected to be able to meet refinancing obligation over the 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 rating outlook reflects expectation of improvement in operational performance and decline in receivables for the renewable portfolio of the HFE Global group and deleveraging in debt at the holding companies of the group. |
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 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.
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 Company Ltd. |
Key Financial Indicators (Consolidated; CRISIL Ratings-adjusted numbers)
*Adjusted for (FY22: Rs 207 crore; FY21: Rs 190 crore) non-cash finance expenses accrued on compulsorily convertible preference shares |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued ^non-fund based Main Limit of Rs 60 Crs of DSRA BG & Rs 150 crore of Capex LC. Only Rs 150 crore of Capex LC can be interchanged with upto Rs 150 crore Foreign Standby LC or Rs 150 crore BG. In addition, only one way interchangeability is permitted from BG to DSRA BG to the extent of Rs 30 crore. One way interchangeability permitted between fund based LOCSTL and OD limits of Rs 150 crore to Capex LC limits and its sublimit. Hence maximum utilization of the capex LC limit can be till Rs 300 crore |
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 Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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