Detailed Rationale

CRISIL Ratings has converted its provisional rating on the Rs 75 crore long-term principal protected market-linked debentures (PPMLD) to a final rating of ‘CRISIL PPMLD AA r (CE) /Stable’ and reaffirmed its 'CRISIL AA(CE)/Stable/CRISIL A1+(CE)’ rating on the guaranteed non-convertible debentures (NCDs) and bank facilities of Inox Green Energy Services Limited (IGESL, formerly Inox Wind Infrastructure Services Ltd). These instruments are backed by guarantees from Gujarat Fluorochemicals Ltd (GFL; ‘CRISIL AA/Stable/CRISIL A1+’), a flagship company of the Inox-GFL group.

 

CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable’ rating on the long-term bank facility of IGESL. This rating continues to centrally factor in strong linkages with the parent, Inox Wind Ltd (IWL; ‘CRISIL BBB/CRISIL AA(CE)/Stable/CRISIL A3+’). IGESL, which is a wholly-owned subsidiary of IWL, offers operations and maintenance (O&M) and common infrastructure facility services for wind turbine generators manufactured and supplied by IWL.

 

Operating performance of IWL remained weak on account of continued lower execution. The industry is estimated to have added 1.1 GW of wind capacity in fiscal 2022, as against 3-5 GW capacity added in the feed-in-tariff regime till fiscal 2017. Also, operating margin was impacted as IWL sold its stuck inventory at lower rates. Consequently, the company reported operating loss of Rs 69 crore and Rs 62 crore, respectively, in fiscals 2022 and 2021, against operating profit of Rs 67 crore in fiscal 2020. For the quarter ended June 2022, operating loss of Rs 27 crore was reported against operating profit of Rs 1 crore for the corresponding period of the previous fiscal.

 

Performance should improve over the medium term, driven by better execution and launch of 3.3 MW turbines in fiscal 2023. The company has received an order for turbines of 350 MW (150 MW + 200 MW) from NTPC Renewable Energy Ltd. Timely execution of orders, leading to a healthy build-up of revenue and profit, will be a rating sensitivity factor.

 

Financial risk profile was average in fiscal 2022, with total debt at Rs 1,500 crore as on March 31, 2022, as against Rs 1,121 crore, a year earlier. Debt protection metrics were subdued because of operating losses in fiscals 2022 and 2021. The capital structure, however, was supported by guarantees, liquidity aid and capital advances from GFL.

 

The rating on the PPMLDs centrally factors in the unconditional and irrevocable corporate guarantee extended by GFL. The payment mechanism is administered by the debenture trustee to ensure timely payment. IGESL will deposit funds into the escrow account at least seven business days prior to any coupon payment or redemption date. If IGESL fails to do so, the guarantors will make the requisite payment four business days prior to the final date of payment.

 

The rating on the NCDs centrally factors in the unconditional and irrevocable corporate guarantee from GFL. The ratings on other NCDs and guaranteed long-term and short-term facilities factor in the unconditional and irrevocable corporate guarantee provided by GFL and an additional undertaking provided by it.

 

The guarantee and the undertaking together cover the principal, interest and other monies payable on these facilities. For the NCDs, the debenture trustee will administer the payment mechanism to ensure timely payment. For the guaranteed bank facilities, as per the undertaking provided, if IGESL fails to make payment on the due date, the guarantor will make the requisite payment on invocation of corporate guarantee by the lender, or within 15 working days (for cash credit and non-fund-based facilities), 7 working days (for Rs 125 crore term loan) or 7 calendar days (for Rs 50 crore term loan) from the final date of payment, whichever is earlier. Adverse movement in the credit risk profile of the guarantor and non-adherence to the payment mechanism will be key rating sensitivity factors.

Analytical Approach

To arrive at the ratings on guaranteed bank facilities, PPMLD and NCDs, CRISIL Ratings has applied its criteria on rating instruments backed by guarantees.

 

To arrive at the rating on the other long-term bank facility, CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support available to IGESL from IWL.

Key Rating Drivers & Detailed Description

Strengths:

• Structured payment mechanism: As per the undertaking for the guaranteed bank facilities, if IGESL fails to make payment on the due date, the guarantor will make the requisite payment either on invocation of the corporate guarantee by the lender or within 15 working days (for cash credit and non-fund-based facilities), 7 working days (for Rs 125 crore term loans) or 7 calendar days (for Rs 50 crore term loan) from the final date of payment, whichever is earlier.

 

For the NCDs, IGESL will deposit funds into the escrow account at least 7 business days prior to any coupon payment or redemption date. If IGESL fails to do so, the guarantors will make the requisite payment 3 business days prior to the final date of payment.

 

For the PPMLDs, IGESL will deposit funds into the escrow account at least 7 business days prior to any coupon payment or redemption date. If IGESL fails to do so, the guarantors will make the requisite payment 4 business days prior to the final date of payment.

 

The payment structure is designed so as to ensure full and timely payment to the lender. The guarantee will remain unaffected even if IGESL faces a bankruptcy; in case of dissolution, insolvency or liquidation; or on winding up proceedings initiated by, or against, the issuer.

 

• Strong support from the Inox-GFL group: IWEL holds 55.37% equity in IWL, while the promoters hold 18.02%, giving the group complete control over the operations. The Inox-GFL group has extended support to IWL and IGESL through GFL, by enabling them to raise funds through NCDs, term debt and working capital facilities, as and when required. Group entities have also provided large capital advances and intercorporate deposits. The promoters maintain their stance of providing financial and managerial support to the company, given its strategic importance to the group.

 

The Inox-GFL group is the largest polytetrafluoroethylene (PTFE) manufacturer in India and among the top four globally. It is also among the leading manufacturers of hydrochlorofluorocarbon (HCFC), which is used in refrigeration and air conditioning, among other applications. It is among the leading wind turbine manufacturers in India. The group’s leading market position, along with its diversified revenue stream, will continue to support the business.

• Strong linkages with IWL: IGESL is the O&M arm of IWL and undertakes O&M of projects post commissioning. It has strong operational linkages with IWL as often, the projects have all three components: material supply, engineering, procurement and construction (EPC) and O&M. The company receives strong financial support from IWL via intercorporate deposits and optionally convertible debentures. Moreover, the entities have a common treasury.

 

IWL is a leading wind-turbine manufacturer in India. Its revenue has grown at a compound annual rate of around 40% over fiscals 2015 to 2017, garnering a market share of 15%. Driven by strong experience of the promoter and the healthy order book, IWL should witness a turnaround in its operations from fiscal 2023. This remains a key rating sensitivity factor.

 

Strong linkages between IGESL and IWL should continue to support the rating on the long-term bank facility of IGESL.

 

Weaknesses:

• Large working capital requirement: Working capital cycle of IWL was stretched, reflected in receivables (net of provisions) of over Rs 1,100 crore as on March 31, 2022. Working capital requirement was sizeable under the feed-in-tariff regime, because of delays in commissioning or signing of power purchase agreements (PPAs). The situation was compounded by an abrupt halt in signing of PPAs by distribution companies, after the advent of wind auctions in February 2017. While the company has taken steps to reduce receivables by allocating some of the machinery against new orders under the auction regime, receivables  will remain high because of deferral in commissioning, subsequent to delay in receipt of evacuation infrastructure.

 

Large working capital requirement and slow order execution exert pressure on liquidity. CRISIL Ratings will continue to monitor the ability of IWL to execute orders and realise payments in a timely manner.

 

• Subdued operating performance: Performance was weak in fiscal 2022, primarily due to continued impact of Covid-19 induced disruptions. Operating margin fell significantly during fiscals 2022 and 2021, as the company disposed off inventory at lower prices. As a result, debt protection metrics were modest.

 

The company is executing projects that were auctioned by the Solar Energy Corporation of India (SECI) during the second tranche, through its special-purpose vehicle, Nani Virani. Proposed launch of 3.3 MW turbines should further support project execution in fiscal 2023. Revival in project execution, ensuring healthy revenue growth and better operating margin, remains a key rating sensitivity factor.

 

• Weak debt protection metrics: Debt protection metrics remained constrained by operating loss in IWL over fiscals 2021 and 2022. The metrics may improve over the medium term, driven by improved operating performance.

Liquidity: Adequate

Liquidity of IGESL is in line with that of IWL. Capital expenditure is likely to be modest as common infrastructure has been completed. However, liquidity is constrained by the large working capital requirement. Improvement in working capital cycle, following the successful execution of orders, will be a key monitorable. Nevertheless, liquidity is strengthened by financial flexibility derived from being a part of the Inox-GFL group.

Outlook for guaranteed bank facilities and NCDs: Stable

The outlook on guaranteed bank facilities, PPMLD and NCDs of IGESL reflects the outlook of CRISIL Ratings on the credit quality of GFL. The ratings will remain sensitive to any change in the credit view of CRISIL Ratings on GFL.

 

Outlook for other bank facilities: Stable

CRISIL Ratings believes the credit risk profile of IGESL will continue to benefit from the strong linkages with IWL. Further, credit risk profile of IWL will remain supported by the Inox-GFL group.

Rating Sensitivity factors

Upward/downward factors for guaranteed bank facilities, PPMLD and NCDs

• Change in credit risk profiles of IWL and GFL leading to revision in ratings by one or more notch

 

Upward/downward factors for other bank facility

• Change in the credit risk profile of IWL, leading to revision in rating by one or more notch

Adequacy of credit enhancement structure

GFL has provided an unconditional and irrevocable guarantee for the rated facilities and instruments, ensuring timely payment of interest and principal obligations.

Unsupported ratings CRISIL BBB

CRISIL Ratings has introduced the suffix ‘CE’ for instruments with an explicit credit enhancement feature, in compliance with the Securities and Exchange Board of India circular dated June 13, 2019.

Key drivers for unsupported ratings

For arriving at the unsupported rating, CRISIL Ratings has applied its parent notch-up framework for support available to IGESL from IWL.

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 currently manages around 3,000 MW of wind turbine generators on a pan-India basis.

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 for nacelles and hubs in Una (Himachal Pradesh); one for blades and towers in Rohika (Gujarat); one for nacelles, hubs, blades and towers in Barwani (Madhya Pradesh) and a leased nacelle facility in Bhuj.

 

For the quarter ended June 30, 2022, IWL reported a negative profit after tax (PAT) of -Rs 130 crore on operating income of Rs 211 crore, as against -Rs 52 crore and Rs 169 crore, respectively, during the corresponding period of the previous fiscal.

 

About GFL

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

Key financial indicators for Inox Wind (consolidated)

As on / for the period ended March 31	Unit	2022	2021
Revenue	Rs crore	624	718
Profit after tax (PAT)	Rs crore	-429	-307
PAT margin	%	NM	NM
Adjusted debt / adjusted networth	Times	0.94	1.21
Interest coverage	Times	-0.95	-0.24

 

List of covenants

* The guarantor irrevocably and unconditionally guarantees the debenture trustee, due and punctual payment of the entire obligation and the performance and discharge of all obligations by the issuer, in accordance with terms of the transaction documents.

* During the subsistence of the deed, the guarantor shall have no right to terminate its obligation under the deed, and any such right is excluded.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity level	Rating assigned with outlook
NA	Bank Guarantee	NA	NA	NA	200	NA	CRISIL A1+ (CE)
NA	Term Loan	NA	NA	30-Sep-22	25	NA	CRISIL AA (CE) /Stable
NA	Term Loan	NA	NA	28-Feb-26	24	NA	CRISIL BBB/Stable
NA	Cash Credit*	NA	NA	NA	50	NA	CRISIL AA (CE) /Stable
NA	Term Loan	NA	NA	15-Jan-25	100	NA	CRISIL AA (CE) /Stable
INE510W07060	Non Convertible Debentures	28-Sep-20	9.5%	28-Sep-23	120	Complex	CRISIL AA (CE) /Stable
NA	Long Term Principal Protected Market Linked Debentures**	NA	NA	NA	75	Highly Complex	CRISIL PPMLD AA r (CE) /Stable
NA	Term Loan	NA	NA	28-Mar-24	50	NA	CRISIL AA (CE) /Stable

*Interchangeable with non-fund-based facilities

**yet to be issued