Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable/CRISIL A2+’ ratings on the bank facilities of Rs 1,010 crore of Inox Wind Ltd (IWL). CRISIL Ratings has migrated its ratings on the bank facilities of Rs 240 crore of IWL to ‘CRISIL AA+ (CE)/Stable/CRISIL A1+ (CE)’ from ‘CRISIL A-/Stable/CRISIL A2+’. Also, CRISIL Ratings has reaffirmed its ‘CRISIL PPMLD AA+ (CE)/CRISIL AA+ (CE)/Stable' ratings on long term principal-protected market-linked debentures (PPMLD) worth Rs 75 crore and non convertible debentures (NCDs) worth Rs 99 crore. These facilities are backed by a corporate guarantee from Gujarat Fluorochemicals Ltd (GFL; ‘CRISIL AA+/Stable/CRISIL A1+’). CRISIL Ratings has also withdrawn its rating on Rs 50 crore of NCDs (see annexure: details of rating withdrawn) given that these have been fully redeemed and on receipt of confirmation from the debenture trustee. This rating action is in line with the withdrawal policy of CRISIL Ratings.

 

The company reported revenue growth of 124% in the first half of fiscal 2024 and operating profit of Rs 73 crore, against operating loss of Rs 52 crore for the corresponding period in the previous fiscal. This improvement in operating performance is led by higher order execution and softening commodity prices. The company executed ~143 megawatt (MW) in the first half of fiscal 2024 against execution of ~103 MW in fiscal 2023; it is expected to further execute ~250 MW in the second half of fiscal 2024.

 

IWL had a healthy net order book of ~1,276 MW as on September 30, 2023 (including letter of intent from Adani for 501 MW), which provides revenue visibility in the near term. Operating profitability is expected to improve in the second half of fiscal 2024, with ramp up in execution of orders, especially for the relatively higher-margin 3.3-MW turbine, inorganic acquisitions in the operations and maintenance (O&M) business, supported by tailwinds in the wind sector.

 

The ability to scale up profitability with ramp-up in order execution and commercialisation of the 3.3-MW turbine, to manage increased scale of operations with no major reliance on working capital borrowing and to reduce debt will be key monitorables.

 

Furthermore, deleveraging efforts via raising equity worth ~Rs 1,300 crore in two tranches (~Rs 500 crore in August 2023 and ~Rs 800 crore in October 2023) by dilution of promoter stakes has significantly improved the financial risk profile.

 

CRISIL Ratings also notes the planned merger of IWL and Inox Wind Energy Ltd (IWEL), which remains credit neutral and will simplify the group holding structure. The company has also sold its stake in its SPV Nani Virani due to which it is classified as assets held for sale, further reducing debt.

 

The ratings continue to reflect the strong support IWL receives from the INOXGFL group and the extensive experience of its promoters in the wind turbine business. These strengths are partially offset by subdued-albeit-improving operating performance and large working capital requirement.

The ratings on the PPMLD, NCDs and Rs 240 crore bank facilities centrally factor in the unconditional and irrevocable corporate guarantee by GFL. The payment mechanism for the PPMLD and NCDs is administered by the debenture trustee to ensure timely payment. The guarantee covers the principal, interest and other monies payable on these facilities.

 

Adverse movement in the credit risk profile of the guarantor and non-adherence to the payment mechanism are key rating sensitivity factors. 

Analytical Approach

For arriving at the ratings on the NCDs, PPMLD and the Rs 240 crore bank facilities backed by the corporate guarantee of GFL, CRISIL Ratings has applied its criteria for rating instruments backed by guarantees.

 

For arriving at the ratings of non-guaranteed instruments, CRISIL Ratings has combined the business and financial risk profiles of IWL and its subsidiaries, Inox Green Energy Services Ltd (IGESL; ‘CRISIL A-/Stable/CRISIL AA+ (CE)/Stable/CRISIL A2+’) and Resco Global Wind Services Pvt Ltd (Resco; ‘CRISIL A-/Stable/ CRISIL AA+ (CE)/Stable’). These entities, collectively referred to as IWL, are in related businesses and have common promoters.

 

CRISIL Ratings has applied its group notch-up framework to factor in the strong strategic and financial support provided by the INOXGFL group, which includes IWEL, IWL, GFL and their subsidiaries.

 

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:

Structured payment mechanism

For NCDs worth Rs 99 crore, IWL will deposit funds in the escrow account at least five business days before any coupon payment or redemption date (that is, T-5). If it fails to do so, the guarantors will make the requisite payment three business days before the due date (T-3). Or else, there will be an invocation by the debenture trustee on T-3 and payment will be received by T-1.

 

For PPMLD, the company will deposit funds into the escrow account at least seven business days before any coupon payment or redemption date. If it fails to do so, the guarantors will make the requisite payment four business days prior to the final date of payment. Or else, there will be an invocation by the debenture trustee on T-3 and payment will be received by T-1.

 

As per the undertaking for the guaranteed bank facilities, if IWL defaults on any payment, there will an invocation from the bank by T+1 and payment will be received by T+3.

 

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

 

Strong support from the INOXGFL group

The promoter group holds ~53% stake in IWL post the recent dilution with the INOXGFL group, maintaining complete control over operations. The INOXGFL group has extended support to IWL and IGESL through IWEL and GFL by enabling them to raise need-based funds through NCDs, term debt and working capital facilities. Moreover, group entities have provided support through capital advances and intercorporate deposits in the past. Given the weak cash accrual, timely support from the group, along with refinancing, to aid debt servicing is likely in the near term. Expected improvement in operating performance in the near term, leading to reduction in requirement of support, will remain a key monitorable.

 

Established track record

The promoter group has a track record of over a decade in the wind turbine manufacturing business. IWL is a leading wind turbine manufacturer in India. Backed by the extensive experience of the promoters, revival in the wind sector and healthy order book of over ~1,276 MW and commercialisation of the 3.3-MW turbine in the second half of fiscal 2024, IWL should witness a turnaround in operations in the near term; this will be a key monitorable.

 

Weaknesses:

Subdued, albeit improving, operating performance

Performance has significantly improved in the first half of fiscal 2024, though it remains subdued. The company is executing projects from NTPC Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), which should further help in improving the operating performance over the medium term. Furthermore, IWL is expected to begin commercial production of its 3.3-MW turbine in the second half of fiscal 2024 and support profitability in the near term. Ramp up in project execution leading to healthy revenue growth and improvement in the operating margin remain key rating sensitivity factors.

 

Large working capital requirement

Operations are working capital intensive, as reflected in receivables (net of provisions) of over Rs 1,000 crore as on September 30, 2023. Working capital requirement was large under the feed-in tariff regime as there were 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 IWL has taken steps to reduce receivables by allocating some of the stuck machinery against new orders under the auction regime, the receivables remain sizeable because of deferral in commissioning owing to delay in receipt of evacuation infrastructure.

 

Large working capital requirement and slow order execution have led to pressure on cash flow. CRISIL Ratings will continue to monitor the ability of IWL to execute orders and ensure timely realisation of payments, thereby improving cash flow.

Liquidity: Strong

Unencumbered cash and equivalents stood ~Rs 66 crore as on September 31, 2023. Liquidity is constrained by large working capital requirement. Debt obligation of about Rs 270 crore is likely to be repaid in fiscal 2024, through a mix of internal cash accrual and recent funds raised in IWEL.

 

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

 

Liquidity for NCDs, PPMLD and guaranteed bank facilities: Strong

Liquidity for the rated NCDs, PPMLD and guaranteed bank facilities is supported by the guaranteed structure (unconditional and irrevocable guarantee from GFL), which should ensure timely servicing of debt. The guarantee will remain unaffected even if IWL faces bankruptcy; or in case of dissolution, insolvency or liquidation; or on winding up of proceedings initiated by or against the issuer.

Outlook: Stable

The business risk profile of IWL will be driven by its healthy order book and growing O&M portfolio. The financial risk profile will continue to be supported by the INOXGFL group.

Rating Sensitivity Factors

Upward Factors

• Significant improvement in execution, leading to growth in revenue while maintaining operating margin above 12%
• Significant improvement in the working capital cycle or equity infusion

 

Downward Factors

• Substantial change in the shareholding of, or support from, the INOXGFL group
• Lower-than-expected revenue leading to operating margin below 6 - 8% for IWL

 

Outlook for NCDs, PPMLD and guaranteed bank facilities: Stable

The outlook reflects the outlook of CRISIL Ratings on the credit quality of GFL.

 

Rating Sensitivity Factors

Upward Factors

• Upgrade in the credit rating of GFL

 

Downward Factors

• Downgrade in the credit rating of GFL
• Nonadherence to the payment structure

Adequacy of credit enhancement structure

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

Unsupported ratings: ‘CRISIL A-’

CRISIL Ratings has introduced the 'CE' suffix 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

CRISIL Ratings has combined the business and financial risk profiles of IWL and its subsidiaries, IGESL and RESCO, as they are in related businesses and have common promoters. Also, CRISIL Ratings has applied its group notch-up framework to factor in the strong strategic and financial support received from the INOXGFL group.

About the Company

Incorporated in April 2009, IWL is a part of the INOXGFL group. The company manufactures nacelles, hubs, rotor blades and towers 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. IWL has a technical tie-up with AMSC Windtech, which provides control systems and vets suppliers for other parts from across the world.

 

In the first six months of fiscal 2024, profit after tax (PAT) was a negative Rs 89 crore and operating income was Rs 712 crore, against negative Rs 271 crore and Rs 318 crore, respectively, in the corresponding period of the previous fiscal.

List of covenants

• The guarantor irrevocably and unconditionally guarantees to the debenture trustee due and punctual payment of the entire obligation and the performance and/or discharge of all obligations by the issuer, in accordance with the terms of the transaction documents.
• During the subsistence of the deed, the guarantor shall have no right to terminate its obligations under the deed, and any such right is excluded.

Any other information: Not Applicable