Rating Rationale
September 24, 2024 | Mumbai
Karnataka Renewable Energy Development Limited
'CRISIL A/Stable' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.50 Crore
Long Term RatingCRISIL A/Stable (Assigned)
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 assigned its ‘CRISIL A/Stable’ rating to the long term bank loan facilities of Karnataka Renewable Energy Development Limited (KREDL).

 

The rating reflects the KREDL's longstanding presence & strong regional position as the sole nodal agencies for renewable energy in Karnataka, healthy operating efficiencies, and a strong financial risk profile. These strengths are partially offset by its geographical concentration driven by the regulatory nature of business constraining its scale and project risk associated with the planned medium term capital expenditure.

Key Rating Drivers & Detailed Description

Strengths:

  • Longstanding presence and strong regional position: KREDL was established in 1996 as a State Nodal Agency for the Government of Karnataka to identify, promote and develop Renewable Energy projects in the state. The company coordinates with all the relevant agencies, both state and central government and support, monitor and regulate independent power producers (IPPs) in the state as per the extant policies and regulations. Revenue streams are largely out of fees and charges paid by the IPPs for scruitinising, processing and coordination with relevant agencies for approval and allocation of capacities. Given the strong demand for capacities in the state; revenue has seen significant growth with compounded annual growth rate of 21.68% in the past three years. Given the established position as the sole nodal agency and track record of efficient allocation of capacities in the past; revenue streams are likely to further grow over the medium term.

 

  • Strong operating efficiencies: Operating margin has remained above 75% for the three fiscals through 2024 on account of strong revenue growth and sustained cost structure. For the past 3 decades, KREDL has commissioned projects in solar, wind, Bio Mass, roof top projects in the state of Karnataka and also has revenues from wind of 15.6mw and solar energy of 50MW. In the absence of any change in cost structure, the operations margins are likely to sustain at 70-75% over the medium term. Return on capital employed stood at 27% in fiscal 2024.

 

  • Strong financial risk profile: It has a strong financial profile marked by a strong networth of Rs 572 crore as on March 31, 2024, and absence of external debt has led to comfortable total outside liabilities to adjusted networth ratio of 1.04 times as on March 31, 2023. This, along with high profitability, led to robust debt protection metrics. Despite large capex being planned over medium term, the financial risk profile is expected to remain stable over the medium term, driven by steady accretion to reserves, low leverage and strong profitability.

 

Weaknesses:

  • Geographical concentration driven by regulatory nature of business constraining its scale: KREDL was set as a State Nodal Agency for the Government of Karnataka to identify, promote and develop renewable energy projects in the state which restricts the operations of the company within the State of Karnataka. Its operations are regulated by various policies & state legislations. Thus, any slowdown in these economies or any revision in State Government policy may adversely affect financial and business performance.

 

  • Project risk associated with setting up 100 MW solar plant: KREDL plans to set up 100 mw solar power plant along with 130MWh Battery Energy Storage System at Kalburgi Karnataka. The project cost is estimated at Rs 563 crore. The project risk associated with the large capex along with implementation risk and any stretch in cost overrun/ time overrun will remain a key monitorable over the medium term

Liquidity: Strong

Cash accruals are expected to be over Rs 120-130 crore which are sufficient against term debt obligation of Rs 19-78 crore over the medium term. Current ratio are healthy at 2.52 times on March 31, 2024. Healthy cash and bank balance of around Rs. 580 crore as on March 31, 2024, low gearing and strong net worth support it’s financial flexibility, and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Outlook: Stable

CRISIL Ratings believe the group will continue to benefit from its longstanding presence, strong regional position and established relationships with clients.

Rating sensitivity factors

Upward factors:

  • Sustained improvement in scale over Rs 400 crore backed by strong growth in projects implementation and expansion in owned power portfolio
  • Timely implementation of the proposed capex with out any material cost overruns or delays and sustained financial risk profile and liquidity  

 

Downward factors:

  • Sustained material decline in revenue or operating margins falling to below 50% on a consistent basis due to significantly lower than expected implementations or any regulatory changes impacting the business profile.
  • Any material cost overruns or lower than anticipated efficiency levels in the proposed capital expenditures impacting the business or financial risk profile
  • Materially larger than expected debt funded capex or dividends.

About the Company

KREDL was incorporated in 1996 as State Nodal Agency for the Government of Karnataka to identify, promote and develop renewable energy projects in the state. KREDL provides infrastructure consultancy services mainly concentrating on the development of renewable energy sources such as small hydro, wind, biomass, cogeneration in sugar factories and solar and helping the private entrepreneurs in development of these sources. Also, it operates two wind power projects located at Mavinhunda (Belgavi district) and Sogi (Bellary district) of Karnataka.

Key Financial Indicators

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

209.38

170.45

Reported profit after tax

Rs crore

136.22

95.36

PAT margins

%

65.06

55.95

Adjusted Debt/Adjusted Networth

Times

-

-

Interest coverage

Times

27.36

22.78

 

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA  Proposed Long Term Bank Loan Facility  NA  NA  NA  50 NA  CRISIL A/Stable 
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 50.0 CRISIL A/Stable   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Proposed Long Term Bank Loan Facility 50 Not Applicable CRISIL A/Stable
Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Financial Ratios

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