| Hero Solar Energy Private Limited | ||||||
| Long-term rating upgraded to 'CRISIL A+/CRISIL PPMLD 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 upgraded its rating on the long-term bank facilities and debt instruments of Hero Solar Energy Private Limited (HSEPL) to ‘CRISIL A+/CRISIL PPMLD A+/Stable’ from ‘CRISIL A/CRISIL PPMLD A/Stable'. The short term rating has been reaffirmed at ‘CRISIL A1’.
CRISIL Ratings has withdrawn its rating on non-convertible debentures (NCDs) aggregating Rs 25 crore on receipt of independent confirmation of their redemption. Further, CRISIL Ratings has also withdrawn its rating on Rupee Term Loan of Rs 12.50 crore basis no dues from the lender and request from the company. The withdrawal is in-line with CRISIL Ratings' policy on withdrawal of instruments and bank facilities (See annexure 'Details of Rating Withdrawn' for details).
The rating upgrade factors an improvement in generation performance of the renewable portfolio, which was around 3% higher in fiscal 2023, and trailing 12 months ending December 31, 2023, when compared to fiscal 2022. Receivables declined to Rs 602 crore as of December 2023 (including not due amount) from Rs 903 crore as of March 2022. Further, the management has undertaken several initiatives to reduce operational and interest expenses. Hence, cash accrual is expected to improve and lead to a comfortable cushion for debt servicing over the balance debt tenor. In addition to this, the upgrade also factors in improvement in market cover of Hero promoter group entities and performance of operating assets. Market cover of Hero promoter group entities improved to nearly 7 times in February 2024 from around 4.3 times as of August 2023, backed by increase in the market capitalization of Hero MotoCorp Ltd (rated CRISIL AAA/Stable/CRISIL A1+) and deleveraging of holding companies of HFE global group.
The ratings continue to factor in 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 exposure to 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 support to the group from the Hero promoter group entities, Bahadur Chand Investments Private Limited (BCIPL) and (Brij Mohan Lal Om Prakash) BMOP. These two companies indirectly hold the entire stake of the Hero group in HFEPL.
For the assessment of BCIPL and BMOP, apart from borrowings at both entities, CRISIL Ratings has consolidated a portion of debt of the HFE Global group and renewable special purpose vehicles (SPVs) of HFE 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: Strong managerial and financial support from the Hero group The holding companies of the HFE platform (HFEPL, HREPL, HWEPL and HSEPL) are majorly owned, directly or indirectly, by 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 for the platform and have further infused equity in fiscal 2023. 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. CRISIL Ratings also understands 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 the HFE platform.
Market cover for the consolidated debt (as per the analytical approach described above) was around 7 times as of February 2024. To assess BCIPL and BMOP, apart from their borrowings, CRISIL Ratings has consolidated a portion of debt of HFE platform and HFE renewable portfolio to calculate the market cover.
CRISIL Ratings centrally factors in 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.
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 megawatts (MW) across Rajasthan, Maharashtra, Tamil Nadu (TN), Karnataka, Madhya Pradesh (MP), and Andhra Pradesh (AP); solar capacity of over 923 MW across MP, Telangana, AP, Karnataka and Rajasthan; and hybrid capacity of 29 MW in Karnataka.
The operational portfolio has long-term power purchase agreements with distribution companies in Rajasthan, Karnataka, MP, AP, 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 the associated credit risk.
Improved operational track record, reduction in operating costs and interest rates. HFE’s portfolio has shown sustained improvement in operational performance in the trailing 12 months ending December 31, 2023 and March 31, 2023, driven by several performance improvement initiatives. As a result, generation for the group improved to 23.3% over the same periods. This performance was better than the generation seen in fiscal 2022 and the P90 estimates. In addition, interest rates and operating expenses for substantial portion of the operational capacities have been brought down.
Weaknesses: Moderate financial risk profile of the HFE Global group The HFE Global group contracts debt on holding companies to meet expenses of under-construction projects and provide need-based support to renewable SPVs. This debt is deleveraged through regular equity raises and internal accrual. Debt levels at holding companies came down to Rs 1,042 crore in February end from Rs 1,325 crore as on June 30, 2023. Furthermore, debt levels are expected to be at similar levels in the medium term.
Susceptibility to implementation risk for under-construction projects The group remains faces implementation risk related to its under-construction project pipeline of 390 MW as of February 2024. Nonetheless, CRISIL Ratings draws comfort from the group’s track record of execution and its calibrated expansion strategy with a prudent funding mix. Timely commissioning of such capacities and subsequent stabilisation will remain key monitorables.
Exposure to inherent risks associated with renewable energy generation assets. The wind and solar power project plant load factors (PLFs) are exposed to variability in climatic conditions, leading to resource issues, along with equipment and evacuation-related risk. Operational performance at the group level has improved during fiscal 2023. Overall PLF for wind and solar assets was satisfactory when compared to revised P90 PLF in fiscal 2023 and the trailing 12 months ending December 31, 2023. |
Liquidity: Adequate The group held cash and cash equivalents of around Rs 1,060 crore on consolidated basis as on February 11, 2024 (including unencumbered cash of around Rs 756 crore). Out of this, holding companies held unencumbered cash of around Rs 202 crore as on February 11, 2024.
The group also has unutilised working capital lines of Rs 176 crore (sanctioned limits of Rs 215 crore). The holding companies of HFEPL should be able to meet refinancing obligations 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 the operational performance, decline in receivables for the renewable portfolio of the HFE Global group and deleveraging in debt at holding companies of the group. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company HSEPL, a wholly owned subsidiary of HSEPL (the green energy venture of the Hero group) is the solar project holding company of the group in India. HWEPL has commissioned/implemented wind capacity of over 900 MW in Rajasthan, Maharashtra, Tamil Nadu, Karnataka, Madhya Pradesh, Telangana, and Andhra Pradesh. |
Key Financial Indicators (Consolidated; CRISIL Ratings-adjusted numbers)
*Adjusted for (FY23: Rs. 209 crore 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
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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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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