Detailed Rationale

Crisil Ratings has assigned its ‘Crisil A-/Stable’ rating to the long-term bank facilities of Parola Renewables Pvt Ltd (PRPL; part of Radiance group).

 

Radiance Renewables Pvt Ltd (RRPL, the group’s Indian parent company) has 74% shareholding in PRPL, while the remaining is held by group captive counterparty, Automotive Axles Ltd.

 

The rating reflects healthy revenue visibility, with 100% capacity (7.5 megawatt-peak [MWp]) tied up with a strong commercial and industrial (C&I) counterparty through a long-term power purchase agreements (PPAs) at pre-determined tariff; which leads to low offtake and counterparty credit risks. The rating also factors in the comfortable financial risk profile, supported by sufficient debt service coverage ratio (DSCR) over the loan tenure; and healthy liquidity with stipulated debt service reserve account (DSRA) balance equivalent to six months of debt obligation. Out of the total DSRA requirement, one quarter of DSRA has already been created and the remaining will be done before 8th March 2025 (i.e. 12 months from 1st disbursement), as per the sanction terms. Crisil Ratings also takes note of the likely support available to PRPL from its parent, RRPL. Being a 100% subsidiary of Green Growth Energy Fund (GGEF)*, RRPL also enjoys robust financial flexibility, along with demonstrated ability to raise funds for various special-purpose vehicles (SPVs). 

 

These strengths are partially offset by exposure to risks inherent in operating solar energy assets. Sustenance of healthy plant load factor (PLFs) will be monitorable.

 

*GGEF is a Securities and Exchange Board of India (SEBI) registered category II alternate investment fund (AIF), with anchor investments from National Investment and Infrastructure Fund (NIIF, set up by the government of India) and Foreign, Commonwealth & Development Office (FCDO), Government of UK, and is managed by EverSource Capital. EverSource Capital is a joint venture between Everstone Capital and Lightsource BP.

Analytical Approach

Crisil Ratings has applied its parent notch-up framework to factor in the financial, operational and managerial support available to PRPL from RRPL.

Key Rating Drivers & Detailed Description

Strengths:

• Strong revenue visibility, low offtake and counterparty risk: The company has entered a 25-year long-term PPA (lock-in period of 15 years) with a C&I customer (Automotive Axles Ltd) in the automotive parts and equipment industry for 7.5 MWp. Tariff is Rs 3.5 per unit, which provides a healthy discount of Rs 2-3 per unit to grid tariff for the counterparty. This significantly reduces offtake risk and lends high predictability and stability to revenue owing to low demand risk. As per the PPA, payment cycle is 15 days, which is expected to remain stable; with payment likely within 30 days. However, any significant build-up of receivables will remain monitorable. 

 

• Adequate financial risk profile: Financial risk profile is expected to be supported by strong liquidity, with six months of stipulated DSRA. Out of the total requirement, three months of DSRA has already been created and the remaining will be done before 8th March 2025 (i.e. 12 months from 1st disbursement), as per the sanction terms. Furthermore, DSCRs through the loan tenure (at Crisil Ratings-sensitised projections), though moderate, is partially offset by a tail period of 5 years that provides cushion.

 

• Strong managerial and financial support expected from the parent, and healthy financial flexibility due to the presence of strong sponsor: RRPL has significant control over the management, finance, and operations of the SPVs. The parent has infused upfront the entire equity for PRPL, thus providing funding and liquidity comfort. Furthermore, as per the management, RRPL remains committed to offering need-based support to all its SPVs.

 

Projects under RRPL have comfortable average DSCR; are well-diversified geographically across Karnataka, Maharashtra, Uttar Pradesh, and Tamil Nadu (among others); and have tie-ups with multiple counterparties spread across steel, information technology, automobile, FMCG (fast-moving consumer goods), chemicals, public sector undertakings and the Railways. Also, bulk of the assets under RRPL or its subsidiaries have built, or need to build, a DSRA balance of six months of debt servicing for which adequate cash balance is available at the SPV or RRPL level; thus, providing liquidity cushion.

 

Crisil Ratings factors in the management philosophy of raising funds upfront to meet equity requirement of projects. The surplus funds, after meeting debt obligations of the SPVs, are also expected to be upstreamed to RRPL for use across its portfolio. Given the presence of a strong sponsor, GGEF, RRPL enjoys significant financial flexibility to raise timely funds for capacity expansion, as reflected in the past 2-3 fiscals. Crisil Ratings also takes note of the expected liquidity cushion available to RRPL from GGEF (apart from around Rs 1,200 crore already invested) in case of any distress. Any deviation from the above-mentioned understanding will be a key rating sensitivity factor.

 

Weaknesses:

• Exposure to project execution and stabilisation risks for recently commissioned capacities at RRPL level: RRPL has a current operational portfolio of ~520 MWp, which it plans to grow to 1.5-2.0 gigawatt-peak by fiscal 2026; this exposes it to project execution risks. Crisil Ratings understands that while the parent will continue to expand its portfolio, the equity required will be raised upfront and a prudent debt-equity mix will be maintained for all upcoming projects. Any deviation in this understanding, resulting in larger-than-expected debt and stretched liquidity at the consolidated level, will be monitorable.

 

Furthermore, with nearly 753 MWp of capacity to be commissioned or under implementation, the Radiance group (under RRPL) remains exposed to project and stabilisation risks.

 

• Susceptibility to inherent risks in solar irradiation: Solar power plants remain vulnerable to technology-related risks. Power generation depends on irradiation levels around a plant’s location and annual degradation in solar panels. Given that cash flow is sensitive to PLFs, the inherent risk could impair the debt-servicing ability of the projects.

Liquidity: Strong

Cash available for debt servicing (including interest) for PRPL is expected at around Rs 3.4 crore in fiscal 2025 against debt obligation of around Rs 2.63 crore. The project is currently financed through 70% debt and 30% equity, with a debt tenure of 18 years. Furthermore, in addition to the outstanding DSRA of one quarter, cash and equivalent for PRPL (excluding DSRA) stood at Rs 1.34 lakh as on March 31, 2024. The free cash, along with future cash flows, will be used to create DSRA for an additional one quarter before 8th March 2025. RRPL is also expected to provide timely, need-based support to PRPL.

Outlook: Stable

PRPL is likely to generate stable cash accrual, backed by the long-term PPA and expected performance of the project at, or above, P-90 PLFs. Furthermore, the asset will remain strategically important to RRPL and hence continue to receive operational, managerial and need-based support.

Rating sensitivity factors

Upward factors:

• Sustained healthy generation with PLFs higher than P-75 levels across projects resulting in higher-than-expected cash accrual and liquidity
• Faster than expected deleveraging leading to better than expected average DSCR

 

Downward factors:

• Generation at lower than P-90 levels on a sustained basis or downward revision in tariffs resulting in significantly low DSCRs and pressure on liquidity
• Build-up of receivables impacting the overall levels
• Change in financial flexibility at the group level resulting in moderation of liquidity cushion

About the Company

Incorporated on 28th December 2021, Parola Renewables Private Ltd (PRPL) is currently held by Radiance Renewables Private Ltd (RRPL) – 74% and Automotive Axles Ltd – 26%. Located in a solar park in Karnataka, the SPV has capacity of 7.5 MWp, for which it has entered into a 25 year PPA with Automotive Axles Ltd.

About the parent

RRPL was incorporated in 2018 as a 100% subsidiary of GGEF, a SEBI registered category 2 Alternate Investment Fund (AIF) managed by EverSource Capital (a joint venture between Lightsource BP and Everstone Group). The fund has invested Rs 1,200 crore in RRPL.

 

RRPL acts as a holding company for all the SPVs under the Radiance group. The group develops, owns and operates renewable energy generation projects (rooftop, ground-mounted, behind the meter, and open access) to supply power to C&I customers. At present, RRPL has an operational portfolio of ~520 MWp and under-construction portfolio of 240 MWp, with another 513 MWp is under development/acquisition stage. The group aims to achieve a total installed capacity of 1.5 - 2.0 gigawatt-peak by fiscal 2026.

Any other information: Not Applicable