| Inox Wind Limited | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL's rating on the bank facilities and commercial paper of Inox Wind Limited (IWL) continues to reflect its established market position as one of the leading wind turbine manufacturers, along with strong managerial, operational and financial support from promoters of the Inox group [includes Gujarat Fluorochemicals Ltd , IWL, Inox Leisure Ltd (ILL, rated 'CRISIL AA-/Stable/CRISIL A1+'), Inox Renewables Ltd, Inox India Pvt Ltd (rated 'CRISIL A/Stable/CRISIL A1'), Inox Air Products Pvt Ltd (rated 'CRISIL AA/Positive/CRISIL A1+') and their subsidiaries]. These strengths are constrained by the large working capital requirement and margin pressure under the new regulatory regime. |
| Analytical Approach |
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For arriving at the ratings, CRISIL has combined the business and financial risk profiles of IWL, and its subsidiary, Inox Wind Infrastructure Services Ltd (IWISL). That is because both companies, collectively referred to as IWL, are in related businesses and have common promoters. CRISIL has applied its parent notch-up framework to factor in the strong strategic and financial support from GFL. CRISIL will assess IWL's ratings basis the group notch-up framework to factor in support from the Inox group, once the demerger is complete. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established market position IWL is a leading wind turbine manufacturer in India. It has been able to maintain a strong market position by directly winning orders of 890 megawatt (MW) in the four central and two state auctions till date. The company has also received supply orders and letter of intent for another 624.7 MW of turbines. Moreover, unexecuted orders of 1250.7 MW on March 31, 2019 provides revenue and cash flow visibility for fiscals 2020 and 2021. Introduction of the new 3.3MW machines during fiscal 2020 along with availability of 600MW of common evacuation infrastructure should further support company's market position. Completion of auction based orders and the ability to receive timely payments will remain a key monitorable. IWL has a technological collaboration with AMSC Windtech (wholly-owned subsidiary of American Superconductor Corporation), which enables it access to latest turbine technologies. However, in case of technological advancements, company's ability to license it from AMSC or other global companies will remain a key monitorable. * Strong support from the Inox group GFL holds 56.98% equity in IWL, while the promoter family holds 18.02%, thus giving the group complete control over operations. The Inox group has extended support to IWL and IWISL through GFL by enabling them to raise funds through non-convertible debentures (NCDs), term debt and working capital facilities as and when required. The promoters have maintained their stance of continued financial and managerial support to IWL, given its strategic importance to the group. Weaknesses * Large working capital requirement IWL's operations remain working capital intensive with receivables (net of customer advances) of Rs 1261 crore as on March 31, 2019. Working capital intensity was high under the feed-in-tariff regime (FIT) as there were delays in commissioning or signing of power-purchase agreements (PPAs). The situation was compounded by an abrupt halt on signing PPAs by distribution companies, after the advent of wind auctions in February 2017. Though company has been able to realise significant receivables since March 2017, around 60% of the receivables in March 2019 still pertain to orders executed prior to March 2017. Moreover, due to delay in receipt of the evacuation infrastructure, there has been a deferral in commissioning of the auction-based orders. As a result, there has also been a build-up in receivables pertaining to execution of the auction based orders. CRISIL will continue to monitor IWL's ability to execute current orders and realise payments along with movement in receivables pertaining to orders executed under the FIT regime. * Margin reduction under the new regulatory regime The wind energy sector has undergone a regulatory transition from a FIT regime to a competitive bid auction-based regime. The transition continued to affect operating performance in fiscal 2019. Under competitive bidding, market participants may witness margin pressure as the tariff is now at Rs 2.7-2.9 per unit as against Rs 4.0-5.0 per unit under the FIT regime. Though a part of the tariff rationalisation can be attributed to the use of more efficient machines, connectivity to high wind sites and PPA risks being eliminated as these are signed upfront, however stakeholders will also garner lower margins under the new regime. Moreover, impact of the easing competition among the wind turbine manufacturers on company's order-book and operating margins will remain a key monitorable. |
| Liquidity |
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Liquidity is moderate, with cash & its equivalents of Rs 161 crore at March 31, 2019. The net cash accruals for the fiscal 2019 was Rs 26 crores while the same is expected to improve with the execution of SECI orders during fiscal 2020. The capex plans should remain moderate, since the common infrastructure has already been completed. The liquidity profile is constrained by the large working capital requirement. Any improvement in working capital post the successful execution of orders remains a key monitorable. |
| Outlook: Stable |
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CRISIL believes IWL's business risk profile will remain supported by a healthy build-up in order-pipeline while timely execution of the same will remain a monitorable. The financial risk profile will remain underpinned by strong financial support from the Inox Group. |
| About the Company |
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IWL was set up in April 2009, under the Inox group. The company manufactures nacelles, hubs, rotor blades, and towers that are used to make and assemble wind turbines. It also provides associated services such as operations and maintenance of wind turbines, project execution, and infrastructure development for wind farms. The company has three units: one at Una in Himachal Pradesh for nacelles and hubs; one at Rohika in Gujarat for blades and towers; and a recently opened unit at Barwani in Madhya Pradesh for nacelles, hubs, blades, and towers. |
| Key Financial Indicators | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
***Rs.100 Crore is interchangeable with Letter of credit/bank guarantee ***Rs.50 Crore is interchangeable with Letter of credit/bank guarantee #Rs.20 Crore is interchangeable with Letter of credit/bank guarantee ##Rs.75 Crore is interchangeable with Letter of credit/bank guarantee ###Rs.15 Crore is interchangeable with Letter of credit | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
*Rs.38.70 Crore is interchangeable with Letter of credit **Rs.100 Crore is interchangeable with Letter of credit/bank guarantee ***Rs.50 Crore is interchangeable with Letter of credit/bank guarantee #Rs.20 Crore is interchangeable with Letter of credit/bank guarantee ##Rs.75 Crore is interchangeable with Letter of credit/bank guarantee ###Rs.15 Crore is interchangeable with Letter of credit | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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