Rating Rationale

Strengths
* Benefits derived from being part of the Renew Power group
All the SPVs of the group are likely to receive strong managerial and financial support from the Renew Power group. The management extends support on case to case basis on project debt of SPVs in the initial stage and providing financial support to all if there are any cash flow mismatches after commissioning the projects. Renew Power is likely to maintain adequate liquidity to meet any exigency. Any change in the group's support philosophy is a key rating sensitivity factor.

* Strong market position of the group
The strong market position is driven by size, diversity, vintage, and healthy revenue visibility of the asset portfolio. The group is the largest renewable energy player in India with a portfolio of around 10.16 GW gigawatt (GW; including capacity under construction and under development), with a mix of 5.5 GW of solar projects and 4 GW of wind projects as of September 2020.

The group had a commissioned capacity of around 5.43 GW as of September 20. Commissioned projects of around 4.2 GW had more than one year of operational track record as of Sept 20. The group portfolio has diversified projects in terms of location and counterparty. The assets are present in eight states: Gujarat, Rajasthan, Madhya Pradesh, Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana, Uttar Pradesh and Karnataka. These assets have strong revenue visibility, with around 80% of the portfolio having power purchase agreements (PPAs) of long tenure of 25 years at pre-determined tariffs with over 15 state and central counterparties.

* Benefits from the group's healthy financial flexibility and track record of equity raising
The group has a sound track record of raising funds in Indian and overseas debt and capital markets. Additionally, it maintains adequate liquidity as indicated by an unencumbered cash balance of over Rs 2100 crore on a consolidated basis as of Sept 20. Additionally, the company has fund based working capital lines of above Rs 2000 crores as of November 2020 crores at Renew group level. The group also has a stated policy of keeping liquidity buffer of at least Rs 1,500 crore, apart from project level debt service reserve accounts (DSRAs), on an overall portfolio basis.

The group has a range of marquee investors including Goldman Sachs and Canadian Pension Plan Investment Board, many of which have infused capital in progressive rounds. Growth has been supported by fund infusion of over Rs 10,000 crore since 2012, including equity infusion of USD 300 million (around Rs 2100 crore) in the first half of fiscal 2020. This demonstrates the capability to raise adequate capital ahead of planned investments. Adequate funds through further equity raises are expected to be available support future growth plans.

Weaknesses
* Cash flows exposed to volatility in payment from weak counterparties
The counterparties are state distribution companies (DISCOMs), several of which have weak credit risk profiles. Although the receivable days shot up to 195 days as of March 2020, on account of increase in payment delays by some state DISCOMs including those in Andhra Pradesh, Rajasthan and Maharashtra, these have started to improve, but still high at ~170 days as of September 2020 (based on CRISIL revenue expectation in fiscal 2021). These are further expected to correct to ~150 days by March 2022 against 160 days expected in March 2021 but delays in correction of the payment cycle from these state DISCOMs would put stress on overall cash flows and expected group liquidity and thus will be a rating sensitive factor.

* Average financial risk profile
The consolidated debt as on March 31, 2020, was ~Rs 32,300 crore (Total debt adjusted for hedged assets of Rs ~925 crore). The debt coverage ratio of project-level debt has remained at similar levels as previous expectation, with the blended average DSCR to around 1.25 times¹as on March 31, 2021.

The pace of correction in leverage measured through total debt/EBITDA ratio may be slower than earlier expected in fiscal 2021 if the payment delays by counterparties do not improve. CRISIL believes that the receivable days should improve by March 2021 to ~160 days on account of no further stretch expected from DISCOMs. Delays in this correction by March 2021 will be a rating sensitive factor.

* Implementation risk for under-construction projects
The group had about 4.73 GW of under-construction projects as of September 20, which face implementation risk. However, the risk is mitigated by the quality of suppliers and the group's demonstrated track record of project execution.

* Exposure to risks inherent in operating renewable assets
Cash flows of renewable power projects are sensitive to PLF, which depend entirely on wind and solar patterns that are inherently unpredictable. This was evident through weaker than P90 performance of solar portfolio in fiscal 2020, with 80% of portfolio (around 1.4 GW having achieved operations before March 2019) performing below P90 PLF expectations, performance of wind portfolio in April to September 2020. Improvement in performance of portfolio with respect to P90 projections going forward shall be a monitorable.