Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Favorable demand outlook for the solar industry: Amid growing emphasis for solar power in India, with the long-term plans of the government to increase generation from renewable sources. Introduction of protectionist measures by the government, such as basic customs duty (BCD) of 40% and 25% on imported solar modules and solar cells, respectively, from April 2022; and implementation of Approved List of Models and Manufacturers (ALMM) along with incentivising domestic players under the production linked incentive (PLI) scheme increases the cost competitiveness of domestic modules compared to imported ones. Government-approved schemes such as Kisan Urja Suraksha Utthan Mahabhiyan, Central Public Sector Undertaking, PM Surya Ghar Muft Bijli Yojana and rooftop scheme are also expected to push up demand.

Experience of promoters and their funding support: Benefits from the decade-long experience of the promoter, Mr Pragnesh Raiyani (a first-generation entrepreneur), his keen grasp over local market dynamics, and strong dealer network in Gujarat, Maharashtra, Karnataka, Uttrakhand and Himachal Pradesh should continue to support the business. Currently, the company has significant solar photovoltaic (PV) module manufacturing capacity of 370 megawatt (MW).

The company sustained its growth momentum in fiscal 2025 as well on the back of healthy capacity utilization, benefits availed from enhanced capacities as well as the robust demand scenario with an estimated revenue of Rs 313 crore in the first nine months of fiscal 2025 and an expectation to close fiscal 2025 at a revenue level of Rs 420-430 crore. Revenue growth over the medium term will be driven by strong domestic demand.

Also, the promoter has been supporting the business with timely, need-based funds; he extended unsecured loans outstanding at Rs 12.74 crore as on March 31, 2024.

Weaknesses:

Susceptibility to increasing competition and volatility in raw material prices and regulatory changes: Operating margin remains vulnerable to sharp fluctuations in raw material prices (raw material cost accounts for ~86-88% of the operating income). While the prices of key inputs such as solar cells have seen significant dip in fiscal 2024 and in the first half of fiscal 2025, it remains volatile and dependent on external factors. Moreover, the company is exposed to increasing competition from domestic as well as imported modules. This is on account of large capacity additions being undertaken (and planned) in the domestic market with various degrees of integration.

Furthermore, Indian manufacturers face competition from Chinese imports, which have witnessed significant reduction in module and cell prices during last and current fiscal due to supply glut in China amid restrictions imposed by US on Chinese imports. However, increasing integration of operations with enhancement of module capacities and implementation of basic customs duty (BCD) provides the required support for the company to be cost-competitive against Chinese imports. Furthermore, while the implementation of safeguard basic customs duty (BCD) (40% and 25% BCD on imported solar modules and solar cells, respectively, from April 2022) makes Indian players cost-competitive against their Chinese counterparts, the risk of significant price reduction by Chinese players to lessen the impact of BCD persists. However, the risk of further material reduction in prices of imports impacting competitiveness of the company will remain a key monitorable. Additionally, the implementation of Approved List of Models and Manufacturers (ALMM) which is expected to boost demand for domestic modules will also remain a key monitorable as it can provide boost to company’s growth plans.

Though the company 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 company has an established market presence in the module business which helps its operating margins and supports it to cater to DCR (Domestic Content requirement) module tenders. The capacity additions planned by other domestic players over the medium term and further intensification of competition will need to be monitored going forward.

Operating margin remains sustained at an improved level of around 10.23% in the first nine months of fiscal 2025 from 4.6% in fiscal 2024 after a subdued level of profitability in fiscal 2023 and 2022 aided by sharp fall in raw material prices primarily solar cell prices which registered a fall in tandem with silicone wafers as well as polysilicon amidst overcapacities in China. Moreover, better economies of scale on the back of healthy volumetric growth supported improvement in margins.

Growth also remains vulnerable to changes in government policies. However, the central government's focus on achieving a steep target of ~280 GW from solar power by 2030 is expected to support in the long run.

Average financial risk profile: Gearing is at 2.57 times as on March 31, 2024, due to gradual repayment of term loan and moderate accretion to reserve, owing to the debt-funded capital expenditure. Total outside liabilities to tangible networth ratio (4.17 times as on March 31, 2024) may remain stable over the medium term. Networth is at Rs 14.03 crore as on March 31, 2024.