Rating Rationale

[1] as measured through gross debt/earnings before interest, depreciation, and amortisation (Ebitda) ratio

Key Rating Drivers & Detailed Description

Strengths:

Benefits derived from being part of the Renew Power group

All the SPVs are likely to receive strong managerial and financial support from the Renew Power group. The management extends support towards project debt in the initial stages of implementation and stabilisation, and provides financial support in case of any cash flow mismatches after commissioning of the project. The group is expected to maintain adequate liquidity to meet any exigency across the portfolio. Any change in the support philosophy will be a key rating sensitivity factor.

As a majority shareholder with board representation, CPPIB participates in discussions on business strategy, key operational matters, senior management, board evaluation and overall funding plans.

Strong market position of the group driven by diversity in asset portfolio and revenue visibility

The robust market position is driven by size, diversity, vintage, and healthy revenue visibility of the asset portfolio. The Renew Power group is one of the largest renewable energy players in India, with a portfolio of 13.7 GW (including capacity under construction and under development), with a commissioned capacity of around 8.0 GW as of March 2023 comprising 50% wind, 49% solar and 1% hydro projects. The group portfolio is also diversified in terms of location and counterparty, with assets in Gujarat, Rajasthan, Madhya Pradesh, Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana, Uttar Pradesh, Uttarakhand, and Karnataka. The assets have strong revenue visibility, with most of the portfolio tied up in PPAs of 25 years at pre-determined tariffs with over 15 state and central counterparties.

Healthy financial flexibility through support from strong investors and liquidity

The group has an established track record of raising funds in the debt and capital markets, both in India and abroad. In the past, the group raised equity funds from marquee investors, including Goldman Sachs and CPPIB, Abu Dhabi Investment Authority, and JERA Power, many of whom have infused capital in progressive rounds too. Furthermore, the group got listed on the NASDAQ in August 2021, which enhanced access to international debt and equity capital markets to fund growth plans.

Financial flexibility is supported further with CPPIB becoming the major shareholder and investor of Renew Energy Global PLC. The group is expected to benefit from strategic oversight from the long-term investment horizon of CPPIB.

The group has healthy liquidity through fund-based working capital limit of more than Rs 2,000 crore as of March 2023, which can be used across portfolio. It also has a track record of maintaining free cash balance. Additionally, the group is expected to maintain a liquidity buffer (unencumbered across the group) of over Rs 2,000 crore, apart from project level debt service reserve accounts (DSRAs).

Weakness:

Average financial risk profile due to high capex intensity and weak operational performance

Gross debt to Ebitda [3] ratio was 7.7 times as on March 31, 2023, against 8.0 times previous fiscal due to improvement in receivables cycle. Overall, expected reduction in leverage has been delayed on account of higher-than-expected capex and weak operational performance (especially in the wind portfolio). However, the debt coverage of project-level borrowings has remained in line with the CRISIL Ratings expectations, with blended average debt service coverage ratio of around 1.29 times [4].

Moreover, there may be a delay in leverage correction in the next fiscal due to high capex planned. However, sustained increase in leverage will be a rating sensitivity factor.

Susceptibility to implementation risk for under-construction projects

The group remains exposed to implementation risks for its under-construction project pipeline of 5.3 GW as of June 2023. The group is also diversifying into the solar cell and module manufacturing and transmission business, although the quantum of capex towards such diversification is only about 10% of the overall capex planned currently. Timely commissioning of such capacities and subsequent stabilisation will remain key monitorables.

Exposure to risks inherent in operating renewable assets

Cash flows of renewable power projects are sensitive to plant load factor (PLF), which depends entirely on the wind and solar patterns that are inherently unpredictable. While the combined portfolio (solar and wind) continues to underperform in comparison to P90 levels due to underperformance in wind projects (industry-wide phenomenon), the delta is decreasing year-on-year. Delay in improvement in portfolio performance with respect to P90 projections will be a key monitorable.

[1] CRISIL Ratings-adjusted Ebitda does not factor in the group’s interest income and extraordinary provisions written back.

[2] For assets where CRISIL Ratings does not have visibility of the debt quantum and tenure and other operational details, it has assumed the tenure of the debt based on a tail period of 2 years for the assets and sculpted amortisation as the Renew Power group would be able to refinance the debt based on its strong business risk profile. Furthermore, the CRISIL Ratings-sensitised projections of cash flows are at a weighted average P90 plant load factor (PLF) for operational wind and solar portfolios.