Detailed Rationale

Crisil Ratings has revised its outlook on the long-term bank facilities of Inox Green Energy Services Limited (IGESL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘Crisil A’. The rating on the short-term bank facilities has been reaffirmed at ‘Crisil A1’. Also, Crisil Ratings has withdrawn its rating on Rs 75 crore long-term principal-protected market-linked debentures (PPMLDs) of the company on receipt of independent confirmation that these instruments have been fully redeemed. The withdrawal is in line with the Crisil Ratings policy on withdrawal of ratings.

 

IGESL handles the operations and maintenance (O&M) projects of the parent, Inox Wind Ltd (IWL; ‘Crisil A/Positive/Crisil A1’), post commissioning and is strategically important to IWL. IGESL has a healthy portfolio of ~3.3 GW, along with machine availability of ~96% for the nine months through December 2024. Revenue visibility is supported by the healthy order book of IWL and inorganic acquisitions in the O&M space. The company achieved revenue of Rs 167 crore with operating earnings before interest, tax, depreciation and amortisation (Ebitda) of Rs 51 crore in the nine months ended December 31, 2024, compared with Rs 164 crore and Rs 55 crore, respectively, in the corresponding period of the previous fiscal. The operating margin is expected to remain strong over the medium term given the stable annuity-based business.

 

Crisil Ratings notes the approved fund raise of ~Rs 1,050 crore by both promoters and non-promoter shareholders, of which ~Rs 590 crore has been received till December 2024. This was used to pare down debt and will be used for inorganic acquisitions. Thus, net cash position for IGESL was strong as on December 31, 2024.

 

The revision in outlook reflects a similar rating action in IWL. This is due to improvement in the business risk profile of IWL, driven by better operating performance expected in fiscal 2025. It also reflects the company’s deleveraging efforts by raising equity of around Rs 1,800 crore in fiscal 2025 till date, resulting in significant improvement in the financial risk profile. Additionally, deleveraging efforts by the management should result in stronger debt protection metrics.

 

The company reported consolidated revenue of Rs 2,282 crore and operating profit of Rs 516 crore (operating margin of 22.6%) for the nine months through December 2024, as against Rs 1,215 crore and Rs 166 crore (~13.7%), respectively, in the corresponding period of the previous fiscal. This was driven by significant ramp up in order execution, leading to better fixed cost absorption. Order execution is expected to cross 750 MW in fiscal 2025, compared with 376 MW in fiscal 2024.

 

IWL had healthy net order book of around 3.2 GW as on December 31, 2024, which provides revenue visibility for the next two years, supported by policy tailwinds in the wind sector. Operating profitability is likely to sustain above 16% over the medium term backed by strong execution of the order book, mostly comprising the higher-margin 3.3-MW turbines as well as backward integration measures, such as crane services, planned in the engineering, procurement and construction (EPC) segment. Ability to maintain profitability with increase in scale of operations will be monitorable.

 

Despite increase in scale, gross external debt reduced to ~Rs 700 crore as on December 31, 2024, from ~Rs 1,224 crore as on March 31, 2024, and Rs 1,765 crore as on March 31, 2023, respectively. The group had negligible net debt as on December 31, 2024. This was aided by capital infusion of ~Rs 900 crore in IWL from promoters via stake dilution, fund raising of ~Rs 350 crore under Resco Global Wind Services Pvt Ltd (Resco) via stake dilution and ~Rs 1,050 crore in IGESL (of which ~Rs 590 crore has been received) for paring down debt, working capital requirement and investing in common infrastructure. Hence, Crisil Ratings does not expect any significant debt-funded acquisitions going forward.

 

With turnaround in operating profitability and reduction in debt, interest coverage ratio has improved sharply to over 4.5 times in the nine months through December 2024 and is expected to remain healthy at over 5 times going forward.

 

Crisil Ratings also notes the proposed demerger of the substations business from IGESL into Resco. This will result in an asset-light balance sheet for IGESL and streamline the business activities.

 

The ratings continue to reflect the strong linkages between IGESL and IWL, the healthy portfolio of the company and the extensive experience of its promoters in the wind energy business. These strengths are partially offset by exposure to intense competition.

Analytical Approach

Crisil Ratings has applied its parent notch-up framework to factor in the support to IGESL from IWL.

Key Rating Drivers & Detailed Description

Strengths:

• Linkages with IWL: IGESL undertakes O&M activities for the projects of IWL post commissioning. The companies have strong operational linkages as the projects often have all three components: material supply, EPC and O&M. IGESL has significantly contributed to the operating profitability of IWL. The company has received strong financial support through intercorporate deposits and optionally convertible debentures from IWL in the past. Moreover, the entities have a common treasury. The strong linkages and importance of IGESL to IWL will likely continue.

 

• Strong support from the INOX-GFL group: The promoter group holds ~48% stake in IWL post dilution, with the INOX-GFL group maintaining complete control over operations. In turn, IWL holds ~56% stake in IGESL. The INOX-GFL group has extended support to IWL and IGESL through Inox Wind energy Ltd. and Gujarat Fluorochemicals Ltd. by enabling them to raise funds through non-convertible debentures, term debt and working capital facilities. Moreover, group entities have provided support through capital advances and intercorporate deposits. Given the improvement in cash accrual and recent deleveraging, Crisil Ratings believes IWL and IGESL will service debt obligation from own cash accrual. Moreover, entry into the solar business will benefit IWL and its entities.

 

• Healthy portfolio and experienced promoters of IGESL: IGESL had ~3.3 GW of O&M portfolio, which is expected to grow significantly driven by inorganic expansion and order execution at IWL. Given the recent fund raise, any acquisition is expected to be funded through own accrual. Backed by the extensive experience of the promoters and tailwinds in the wind sector, the operating performance will be healthy in the near term.

 

• Stable and strong profitability: Owing to the annuity-based business, IGESL enjoys healthy and stable cash flow, built into the O&M contracts for a specified period. This is supported by healthy machine availability, which was above 96% in fiscal 2024. Hence, the operating margin is maintained above 30% and is expected to remain healthy over the medium term.

 

Weakness:

• Exposure to intense competition: The business environment for the wind energy sector continues to be challenging. While IGESL is one of the prominent domestic players, it remains exposed to intense competition from other domestic players and foreign players.

Liquidity: Strong

Unencumbered cash and equivalent was around Rs 450 crore as on September 31, 2024. Minimal term debt obligation against healthy internal accrual will support cash flow.

 

The company derives financial flexibility from being part of the INOX-GFL group. The group companies have provided direct funds in the form of intercorporate deposits and advances for supplies and have helped IWL avail funds from banks, supported by guarantees, letters of comfort or by pledging their own funds.

Outlook: Positive

Crisil Ratings believes IGESL will continue to benefit from its strong linkages with IWL. The business risk profile will be driven by its healthy order book and growing O&M portfolio. The financial risk profile will continue to be supported by the INOX-GFL group.

Rating sensitivity factors

Upward factors

• Upgrade in the rating of IWL by one or more notch
• Significant increase in the portfolio of IGESL and sustenance of healthy operating margin

 

Downward factors

• Change in the shareholding of, or support from, the INOX-GFL group
• Downgrade in the rating of IWL by one or more notch

About the Company

IGESL was incorporated as a wholly owned subsidiary of IWL in May 2012. The company offers O&M and common infrastructure facility services for wind turbine generators manufactured and supplied by IWL. It manages around 3,000 MW of wind turbine generators pan-India.

About IWL

IWL was incorporated in April 2009 under the INOX-GFL group. It manufactures nacelles, hubs, rotor blades and towers, which are used to make wind turbines. It also provides associated services such as O&M of wind turbines, project execution and infrastructure development for wind farms. The company has four units: one each at Una in Himachal Pradesh for nacelles and hubs, Rohika in Gujarat for blades and towers, Barwani in Madhya Pradesh for nacelles, hubs, blades and towers, and a newly tied-up nacelle manufacturing facility at Bhuj in Gujarat.

 

As on December 31, 2024, the company's profit after tax (PAT) was Rs 15 crore and operating income was Rs 167 crore, as against Rs 7 crore and Rs 164 crore, respectively, a year earlier.

 

About GFL

GFL, which houses the chemicals business of the INOX-GFL group, has a diverse product portfolio, including caustic soda, chloromethanes, polytetrafluoroethylene (PTFE), hydrochlorofluorocarbons (HCFCs) and value-added products. The company is one of the largest chemical players in India, with installed capacity of 65,000 tonne per annum (TPA) of HCFC, 16,200 TPA of PTFE, 134,750 TPA of caustic soda and 108,500 TPA of chloromethane.

Any other information: Not Applicable