Detailed Rationale

Crisil Ratings has assigned its ‘Crisil A-/Positive/Crisil A2+’ ratings to the bank loan facilities of Premier Energies Ltd (PEL, part of the Premier Energies group). The Premier Energies group includes PEL and its subsidiaries.

 

The ratings reflect the group’s strong business risk profile, as demonstrated by its increasing scale of operations; healthy utilisation rates and operating profitability; and strong financial risk profile that improved materially due to increased operating cash accrual and significant fund-raising through the initial public offer (IPO) in September 2024. The IPO resulted in fresh issuance with net proceeds of Rs 1,239 crore, which will support the ongoing capital expenditure (capex), and capital structure of the group.

 

The group’s utilisation rates in both the cells and modules segments have ramped up significantly since last fiscal, with effective average utilisation rates of 81% for cells and 60% for modules in fiscal 2024 (41% and 43%, respectively, in fiscal 2023). The effective utilisation rates have remained at similar levels in the first half of fiscal 2025, indicating healthy operational efficiency. The increase in utilisation rates was driven by strong domestic as well as export demand for cells and modules, along with stabilisation of new capacities added by the group over the past 1-2 years. Implementation of the approved list of module manufacturers (ALMM) scheme in April 2024 and increasing share of projects with domestic content requirement (DCR) are leading to healthy demand for domestic modules and cells and should support healthy utilisation rates over the medium term as well. Consolidated operating income was Rs 3,159 crore and earnings before interest, taxes, depreciation, and amortisation (Ebitda) was Rs 493 crore during fiscal 2024 (15.6% Ebitda margin); against Rs 1,442 crore and Rs 92 crore, respectively, during fiscal 2023 (6.4% Ebitda margin). The consolidated operating income and Ebitda were Rs 3,185 crore and Rs 739 crore, respectively, in the first half of this fiscal (23% EBITDA margin). Also, healthy consolidated order book of Rs 5,474 crore as on September 30, 2024, provides strong revenue visibility for the current and next fiscals.

 

Crisil Ratings has also taken note of the ongoing capex plans of ~Rs 4,000 crore by the group, wherein the  group plans to add 1 gigawatt (GW) of TopCon cell in Premier Energies Photovoltaic Private Limited (PEPPL) and 4 GW Module line and 4 GW TopCon cell line in Premier Energies Global Environment Private Limited (PEGEPL) over the next two fiscals, for which land and enabling infrastructure are understood to be in place. Furthermore, IPO proceeds as well as operating cash accrual are expected to support a sizeable part of the ongoing capex, although the group has tied up adequate term loans for this. While the planned capex will enable further increase in scale of operations with higher cell level integration, timely completion and stabilisation of the planned capacity expansion without any time and cost overruns will be monitorable.

 

The ratings are also supported by the group’s strong financial risk profile, which is likely to remain healthy despite the sizeable capex over the medium term, supported by increasing operating cash accrual, healthy networth and reduced leverage. As of March 2024, the company’s net leverage (ratio of net debt to Ebitda) and interest coverage ratio stood at 2.0 times and 4.2 times, respectively; improving from 5.4 times and 1.6 times, respectively, previous fiscal. The ratios are expected to remain healthy over the medium term. The positive outlook reflects the Crisil Ratings expectation that the group will witness continued ramp up in operations with high utilisation rates, timely commissioning and ramp-up of capacities, along with sustenance of healthy financial risk profile and liquidity at or above current levels, which can result in a rating upgrade.

 

The ratings reflect the group’s established market position in the domestic solar module manufacturing industry, extensive experience of the promoter, and robust demand supported by government thrust on capacity addition and favourable policies in the form of ALMM, basic customs duty (BCD) and a proposed approved list of cell manufacturers (ALCM) similar to ALMM, which is likely to boost demand for domestic cells. However, susceptibility to intense competition, regulatory changes, volatility in raw material prices and timely stabilisation of new capacities will remain monitorable over the medium term.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of PEL and its subsidiaries and associates.

 

Also, Crisil Ratings has treated compulsory convertible debentures from the private equity investor, GEF Capital Partners, as quasi-equity instruments as the debentures are subordinate to senior debt and will remain in the business over the medium term against nil coupon outflow.

 

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:

• Established market presence and longstanding experience of the promoter in the solar industry: The promoter’s experience of over 25 years in the solar industry and strong relationships with stakeholders will continue to support the business. The group has one of the largest integrated (solar cell and module) manufacturing facilities (capacity-wise) in India and enjoys a sizeable share in the total domestic installed capacity with its current installed capacity of 2 GW of cells and 4.1 GW of modules.

 

While the group had a module manufacturing line of 3 MW in 1995, its projects ranged from installing solar lanterns to village electrification and export of solar modules. It entered the solar EPC (engineering procurement and construction) segment in 2011 but is now focused on the module and cell manufacturing business.

 

• Favourable domestic demand outlook for the solar industry: Amid growing emphasis for solar power in India, the group is well-positioned to absorb the demand arising from the long-term plans of the government to increase generation from renewable sources. Introduction of protectionist measures by the government, such as BCD of 40% and 25% on imported solar modules and solar cells, respectively, from April 2022; and implementation of ALMM, along with incentivising domestic players under the PLI scheme, increase the cost competitiveness of domestic modules vis-à-vis that of imported ones. Government-approved schemes such as Kisan Urja Suraksha Utthan Mahabhiyan, Central Public Sector Undertaking and rooftop scheme are also pushing up demand. Furthermore, as per the Ministry of New and Renewable Energy (MNRE) order dated December 9, 2024, the approved list of models and manufacturers for solar PV cells (ALCM) is to be implemented from June 1, 2026. Under ALCM, all modules approved under ALMM are required to use cells from ALCM list. Furthermore, all projects where ALMM is applicable also need to use cells from the ALCM list. This will support the demand for domestic cells.

 

• Healthy order book providing revenue visibility: The group has a cumulative order book of ~1,545 MW for modules and ~2,797 MW for cells (from reputed customers such as NTPC Limited, IRCON International Limited, and Shakti Pumps worth ~Rs 5,474 crore, to be executed over the next 3-4 quarters. This translated into an order book to sales ratio of 1.7 (vis-à-vis fiscal 2024 operating income). The order book is expected to be delivered over the next 3-4 quarters, thereby providing ample revenue visibility and indicating a continued increase in scale of operations.

 

• Increased scale of operations with rising operating margin: The group’s scale increased to 2 GW cell line and 3.4 GW module line in March 2024 (4.1 GW installed module capacity currently). Driven by higher capacities and better utilisation rates, revenue increased from Rs 1,442 crore in fiscal 2023 to Rs 3,159 crore in fiscal 2024. Additionally, operating margin also improved from ~6.4% in fiscal 2023 to ~15.6% during fiscal 2024 and further improved to 23.2% in the first half of fiscal 2025. Stabilisation of operational capacities and improved supply chain dynamics have supported operating performance with higher capacity utilisation. Furthermore, higher share of exports boosted margin in fiscal 2024. However, sustainability of the margin in the near term will remain monitorable.

 

• Improved financial risk profile with increasing scale and recent fund raise through IPO: The financial risk profile significantly improved in fiscal 2024 with its net leverage and interest coverage ratios improving to 2.0 times and 4.2 times, respectively, from 5.4 times and 1.6 times, respectively, in fiscal 2023. The financial risk profile is likely to improve further in fiscal 2025 on account of healthy operational performance and the successful IPO funding. The group’s gearing is expected to improve substantially from 4.4 times as on March 31, 2024, to 2.3 times as on March 31, 2025. The net leverage is expected to remain below 2.0 times while its interest coverage ratio is likely to remain healthy at 3.5-4.0 times.

 

Weaknesses:

• Susceptibility to intense competition, regulatory changes, and volatility in raw material prices: The group is exposed to increasing competition from domestic as well as imported modules. This is on account of large capacity additions planned in the domestic market to meet increasing demand. Furthermore, Indian manufacturers face competition from Chinese imports, which have witnessed significant reduction in module and cell prices due to supply glut in China amid restrictions imposed by the US on Chinese imports. However, increasing integration of operations with new cell capacities and implementation of BCD and ALMM provide the required support to the group to be cost-competitive against Chinese imports. However, the risk of further material reduction in the prices of imports impacting the group’s competitiveness will remain monitorable.

 

Though the group has price-variation clauses for most raw materials and undertakes order-backed procurement to mitigate this risk, any sharp rise in input cost may impact the demand levels in the domestic industry. Currently, the group has the second-largest cell manufacturing capacity in India, which helps operating margin and enables it to cater to DCR module tenders. The capacity additions planned by other domestic players over the medium term and further intensification of competition will need to be monitored .

 

• Exposure to stabilisation and project execution risks: The group is undertaking sizeable capacity expansion with addition of 1 GW of TopCon cell in PEPPL and 4 GW Module line + 4 GW TopCon cell line in PEGEPL. This will enable it to become an almost fully-integrated player, leading to economies of scale.

 

This poses stabilisation-related risks. Resultantly, timely completion of the project and commensurate ramp-up will remain key monitorable. The stabilisation of these capacities needs to be tracked as there was a delay in the past albeit due to other reasons. The company has learned from its past experience of stabilising plants and has taken the necessary steps to avoid occurrence of the same concerns for the PEIPL line. Crisil Ratings draws comfort from the group’s track record of executing projects in both the modules and cells segments.

Liquidity: Adequate

Consolidated annual net cash accrual was Rs 327 crore in fiscal 2024 and is expected to be ~Rs 571 crore in fiscal 2025, which should sufficiently cover debt and interest obligation of ~Rs 250-300 crore in fiscal 2025. This, coupled with undrawn term debt, should suffice to fund incremental capex and working capital requirement.

Outlook: Positive

The group is expected to sustain the growth momentum in its operating performance amid healthy demand scenario, favourable government policies and increasing operational capacities. This is likely to result in an expansion in its scale of operations and support strong financial risk profile and liquidity.

Rating sensitivity factors

Upward factors:

• Healthy utilisation rates and increasing sales volume, coupled with consolidated operating margin sustaining at or above 13-15% at group level, resulting in significant improvement in operating cash accrual
• Improvement in debt coverage indicators backed by increased accrual or faster-than-expected debt reduction, leading to significant improvement in capital structure and debt coverage ratios

Downward factors:

• Slower-than-expected ramp-up in operating rates or substantially lower than expected realisations resulting in consolidated operating margin sustaining below 12-14%, thereby leading to lower-than-expected cash accrual
• Substantial delays in project execution resulting in material time and cost overruns, leading to higher than expected debt funded capex and weakening of the capital structure
• Stretched working capital cycle leading to higher reliance on borrowing and moderation in liquidity from current levels

About the Group

Incorporated in 1995 by Mr Surender Pal Singh, PEL is one of the largest integrated (solar cell and module) manufacturing facilities (capacity-wise) in India. It has a 300 MW operating module line at its plant in Annaram, Telangana. PEPPL, a 100% subsidiary of PEL, has a 1,400 MW module and 750 MW cell line located in Raviryal, Telangana. PEIPL, a 74% subsidiary of PEL, has set up a 1.6 GW module and 1.25 GW cell line in Telangana. PEGEPL, a 100% subsidiary of PEL, also has 1.1 GW module manufacturing capacity. Cumulatively, as of June 2024, the group had total module capacity of 4.1 GW and cell capacity of 2 GW. The group derives a small portion of revenue from the solar EPC business.

Any other information: Not Applicable