Rating Rationale

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 cash flow mismatch following commissioning of the project. The group will maintain adequate liquidity to meet any exigency across the portfolio. Change in the support philosophy or credit risk profile of the group will be a key rating sensitivity factor.

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

The market position is supported by size, diversity, vintage, and healthy revenue visibility of the asset portfolio. The Renew Power group had a portfolio of 13.7 GW (including capacity under construction and under development) with commissioned capacity of around 8 GW as of March 2023, comprising 50% wind, 49% solar and 1% hydro projects. The commissioned projects had a weighted average operational track record of five years as of March 2023. Also, the portfolio is 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 predetermined tariff with over 15 state and central counterparties.

Healthy financial flexibility 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 has raised equity funds from marquee investors, including Goldman Sachs and CPPIB, Abu Dhabi Investment Authority, JERA Power; many of them have infused capital in progressive rounds as well. Furthermore, the group got listed on the NASDAQ in August 2021. Enhanced access to international debt and equity capital markets will help the group raise equity for its growth. Moreover, there has been a change in the shareholding structure at the group level with CPPIB now having majority shareholding.

The group has healthy liquidity supported by fund-based working capital lines and free cash balance. Fund-based working capital lines were sizeable at more than Rs 2,000 crore as on March 31, 2022, which can be used across the portfolio. Additionally, the group is expected to maintain liquid buffer (unencumbered across the group) of over Rs 2,000 crore, which can also be used across the group, apart from project-level debt service reserve accounts (DSRAs).

Weaknesses

Average financial risk profile

The gross debt to Ebitda [1] ratio stood at 8 times as on March 31, 2022, as against 8.7 times a year earlier. Expected reduction in leverage was delayed on account of larger-than-expected capex, increase in receivables from state distribution companies (discoms) and weak operational performance (especially in the wind portfolio) in fiscal 2022. The debt coverage of project-level borrowings remained in line with CRISIL Ratings’ expectations, with the blended average debt service coverage ratio (DSCR) at 1.29 times [2]. Additionally, the group had an under-construction project pipeline of 5.7 GW as of March 2023. Because of large capex and weak operational performance, despite correction, leverage is expected above 6.5 times (7.6 times of gross debt to Ebitda ratio) over the medium term.

CRISIL Ratings is currently evaluating the impact of developments (if any) and fiscal 2023 financials on overall credit profile of the group. Any sustained increase in leverage through delayed reduction in receivables and/ or operational underperformance will be a rating sensitivity factor.

Receivables [3] improved to 128 days as on March 31, 2023, from 235 days a year earlier on account of positive developments in terms of receipt of payments from Andhra Pradesh, Telangana, and Madhya Pradesh discoms as these have joined the late payment surcharge (LPS) scheme by the government, in which the discoms need to clear all outstanding dues within 12-48 months. Payment cycles of buyers will continue to be a key rating sensitivity factor.

Implementation risk for under-construction projects

The group remains exposed to implementation risks for its under-construction project pipeline of 5.7 GW. It is diversifying into solar cell and module manufacturing and transmission businesses, although capex towards such diversification is about 10% of the overall capex planned. Timely commissioning of capacities and subsequent stabilisation will remain key monitorables.

Susceptibility 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 inherently unpredictable wind and solar patterns. Lower PLF in wind power projects resulted in weaker than P90 performance of the overall portfolio by 15% and 6% in fiscals 2021 and 2022, respectively. 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 the 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 three 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, CRISIL Ratings-sensitised projections of cash flow are at a weighted average P90 plant load factor (PLF) for operational wind and solar portfolio.