Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB+/Stable’ rating on the Rs 235 crore term loan and ‘Provisional CRISIL AA+ (CE)/Stable’ rating to the Rs 100 crore non-convertible debentures (NCDs) of Resco Global Wind Services Pvt Ltd (Resco). The NCDs are backed by guarantees from Gujarat Fluorochemicals Ltd (GFL; ‘CRISIL AA+/Stable/CRISIL A1+’), the flagship company of the INOXGFL group. CRISIL Ratings has reaffirmed its 'CRISIL AA+ (CE)/Stable’ rating on the Rs 450 crore guaranteed NCDs of Resco.

 

CRISIL Ratings notes that the promoters have raised Rs 500 crore in August 2023 through dilution of their stake in IWL to institutional investors and infused the funds into the company. These proceeds will be used primarily to reduce the high external debt in IWL by ~Rs 400 crore over August and September 2023. This is in line with the management’s intent to reduce external term debt in fiscal 2024 with plans to raise further equity through a rights issue. The company had sizeable debt of ~Rs 1,960 crore as on July 31, 2023, compared with Rs 1,765 crore as on March 31, 2023. Debt protection metrics will remain modest until expected turnaround in operations in the second half of fiscal 2024.

 

The rating on the NCDs centrally factors in the unconditional and irrevocable corporate guarantee by GFL, which covers the principal, interest and other monies payable on these facilities. The debenture trustee administers the payment mechanism for NCDs to ensure timely realisations. Any weakening in the credit risk profile of the guarantor and non-adherence to the payment mechanism are key rating sensitivity factors.

 

Resco is a wholly owned subsidiary of IWL and the engineering, procurement and construction (EPC) arm of the wind business of IWL and its subsidiaries. Hence, Resco is strategically important to IWL and shares strong operational, financial and managerial linkages with the parent. The contracts that IWL enters into with customers are comprehensive and combine supply as well commissioning of the wind turbine generators.

Analytical Approach

To arrive at its rating on the NCDs backed by the corporate guarantee from GFL, CRISIL Ratings has applied its criteria for rating instruments backed by guarantees.

 

CRISIL Ratings has included the debt of the INOXGFL group companies, which has been guaranteed by GFL, to arrive at the adjusted debt of GFL.

Key Rating Drivers & Detailed Description

Strengths:

• Structured payment mechanism

For the Rs 200-crore NCDs, Resco will deposit funds in the account of debenture holders at least seven business days (before 1:30 pm) prior to coupon payment or redemption date (that is, T-7). If it fails to do so, the guarantors will make the requisite payment four business days prior to the due date (T-4). Otherwise, the debenture trustee will invoke the guarantee on T-3 and payment will be received on T-1.

 

For the Rs 200-crore NCDs, Resco will deposit funds in the account of debenture holders at least seven business days (before 3:30 pm) prior to coupon payment or redemption date (T-7). If it fails to do so, the guarantors will make the requisite payment five business days (before 3:30 pm) prior to the due date (T-5). Otherwise, the debenture trustee will invoke the guarantee on T-5 and payment will be received on T-2 before 3:30 pm.

 

For the Rs 50-crore NCDs, Resco will deposit funds in the account of debenture holders at least two business days (before 12 pm) prior to coupon payment or redemption date (T-2). If it fails to do so, the guarantors will make the requisite payment one business day (before 12 pm) prior to the due date (T-1). Otherwise, the debenture trustee will invoke the guarantee on T-1 and payment will be received on T before 12 pm.

 

For the Rs 100-crore NCDs, Resco will deposit funds in the account of debenture holders at least seven business days (before 2 pm) prior to coupon payment or redemption date (T-7). If it fails to do so, the guarantors will make the requisite payment four business days prior to the due date (T-4). Otherwise, the debenture trustee will invoke the guarantee on T-3 and payment will be received on T-1 before 2 pm.

 

The payment structure is designed to ensure full and timely payment to the lender. The guarantee will remain unaffected even if the company faces bankruptcy; or in case of dissolution, insolvency or liquidation; or on winding up of proceedings initiated by or against the issuer.

 

• Strong support from the INOXGFL group: The promoter group holds 64.6% stake in IWL post the recent dilution (the promoter family effectively holds ~49.3% stake), with the INOXGFL group maintaining complete control over operations. The INOXGFL group has extended support to IWL and IGESL through IWEL and GFL by enabling them to raise funds through NCDs, term debt and working capital facilities as and when required. Moreover, group entities have provided support through capital advances and intercorporate deposits in the past. Given the weak accrual, CRSIL Ratings expects timely support from the group, along with refinancing, to aid debt servicing in the near term. Expected improvement in operating performance over the near term, leading to reduction in requirement of support, will remain a key monitorable. The extensive experience of the promoters and healthy order book should help IWL and Resco turnaround operations in the near term. This remains a key rating sensitivity factor.

 

• Strong linkages with IWL: Resco is the EPC arm of IWL and provides end-to-end infrastructure services leading up to installation of turbines. The company has strong operational linkages with IWL as the projects often involve all three components: material supply, EPC, and operations and maintenance (O&M). The company receives strong financial support from IWL through ICDs and equity infusion. Moreover, the entities have a common treasury.

 

Weaknesses

• Subdued operating performance of IWL: Subdued operating performance: Performance remained weak in fiscal 2023 amid lower-than-expected execution because of the continued impact of Covid-19 induced disruptions and supply chain issues in China. Operating margin was negative for the past three fiscals. As a result, debt protection metrics were below average.

 

The company is executing projects from NTPC Ltd (NTPC; ‘CRISIL AAA/Stable/CRISIL A1+’), which should help turnaround the operating performance over the medium term. Furthermore, IWL has received Type C approval for production of its higher margin 3.3-MW turbines, which is expected to begin commercial production in the second half of fiscal 2024 (subject to timely receipt of approval for commissioning) and support profitability in the near term. Revival in project execution leading to healthy revenue growth and improvement in the operating margin remain key rating sensitivity factors.

 

• Large working capital requirement: Operations are working capital intensive, as reflected in receivables (net of provisions) of over Rs 1,000 crore as on March 31, 2023. Working capital requirement was large under the feed-in tariff (FiT) regime as there were delays in commissioning or signing of power-purchase agreements (PPAs). The situation was compounded by an abrupt halt in signing of PPAs by distribution companies after the advent of wind auctions in February 2017. While IWL has taken steps to reduce receivables by allocating some of the stuck machinery against new orders under the auction regime, the receivables remain sizeable because of deferral in commissioning on account of delay in receipt of evacuation infrastructure.

 

Large working capital requirement and slow order execution have led to pressure on cash flow. CRISIL Ratings will continue to monitor the ability of IWL to execute orders and ensure timely realisation of payments, leading to improvement in cash flow.

Liquidity: Adequate

Liquidity of Resco is in line with that of IWL and remains constrained by large working capital requirement. Efficient working capital management, with successful execution of orders and timely receipt of payments, will remain a key monitorable.

 

Liquidity is strengthened by financial flexibility derived by IWL as part of the INOXGFL group. The group companies have provided direct funds via ICDs and advances for supplies and have helped avail funds from banks, supported by guarantees, letters of comfort or pledging of their own funds to provide liquidity support.

 

Liquidity for guaranteed NCDs: Strong

Liquidity for rated NCDs is supported by the guaranteed structure (unconditional and irrevocable guarantee from GFL), which should ensure timely debt servicing. The guarantee will remain unaffected even if the company faces bankruptcy; in case of dissolution, insolvency or liquidation; or on winding up of proceedings initiated by or against the issuer.

Outlook for NCDs backed by guarantee: Stable

• The outlook reflects the outlook of CRISIL Ratings on the credit quality of GFL.

 

Rating sensitivity factors for NCDs backed by guarantee

Upward factors

• Change in the credit risk profile of GFL leading to revision in ratings

 

Downward factors

• Change in the credit risk profile of GFL leading to revision in ratings
• Non-adherence to payment structure

Adequacy of credit enhancement structure

GFL has provided an unconditional and irrevocable guarantee for the rated instruments, thereby ensuring timely payment of interest and principal obligations. CRISIL Ratings has included the debt of INOXGFL group companies, which has been guaranteed by GFL, to arrive at the adjusted debt of GFL. CRISIL Ratings believes that in a stress-case scenario, where the INOXGFL group companies are not able to service their guaranteed obligations, GFL should be able to service obligations in a timely manner, given its strong credit risk profile.

Unsupported ratings  CRISIL BBB+

CRISIL Ratings has introduced the 'CE' suffix for instruments with an explicit credit enhancement feature, in compliance with the Securities and Exchange Board of India circular dated June 13, 2019.

Key drivers for unsupported ratings

CRISIL Ratings has applied its parent notch-up framework for support available to Resco from IWL.

 

The unsupported ratings also factor in the expectation of support from the INOXGFL group.

Additional disclosures for the provisional rating

The provisional rating is contingent on occurrence of the following:

• Debenture trustee deed and signed term sheet in line with the terms assessed are executed.
• The provisional rating shall be converted into a final rating after receipt of duly executed transaction documents and on confirmation of completion of the pending steps within 90 days from the date of issuance of the proposed NCDs.

 

The final rating assigned after conversion shall be consistent with the available documents and completed steps. In case of non-completion of steps or non-receipt of the duly executed transaction documents within the specified timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days, in line with its policy on provisional ratings.

Rating that would have been assigned in the absence of the pending documentation

In the absence of pending steps/documentation considered while assigning the provisional rating as mentioned above, CRISIL Ratings would have assigned its ‘CRISIL BBB+/Stable’ rating.

 

Key drivers for rating in the absence of pending documentation

CRISIL Ratings has combined the business and financial risk profiles of IWL and its subsidiaries —IGESL and Resco. All the companies, collectively referred to herein as IWL, are in related businesses and have common promoters. CRISIL Ratings has applied its group notch-up framework to factor in the strong strategic and financial support from the Inox group.

Risks associated with the provisional rating:

The 'Provisional' prefix indicates that the rating is contingent on occurrence of certain steps or execution of certain documents by the issuer, as applicable. If the documents received and/or completion of steps deviate significantly from the expectations, CRISIL Ratings may take an appropriate action, including placing the rating on watch or changing the rating/outlook, depending on the status of progress on a case to case basis. In the absence of the pending steps / documentation, the rating on the instrument would not have been assigned ab initio.

About the Company

Incorporated on January 21, 2020, under the provisions of the Companies Act, 2013, Resco is a wholly owned subsidiary of IWL. The company is engaged in EPC of wind turbine generators supplied by the parent.

About IWL

Incorporated in April 2009, IWL is a part of the INOXGFL group. The company manufactures nacelles, hubs, rotor blades and towers used to make wind turbines. It also provides associated services, such as O&M of wind turbines, project execution and infrastructure development for wind farms. The company has four units: one each at Una in Himachal Pradesh for nacelles and hubs, Rohika in Gujarat for blades and towers, Barwani in Madhya Pradesh for nacelles, hubs, blades and towers, and a newly tied-up nacelle manufacturing facility at Bhuj in Gujarat. IWL has a technical tie-up with AMSC Windtech, which provides control systems and vets suppliers for other parts from across the world.

 

In the first quarter of fiscal 2024, the company's profit after tax (PAT) was negative Rs 64 crore and operating income was Rs 349 crore, against negative Rs 130 crore and Rs 211 crore, respectively, in the corresponding period of the previous fiscal.

 

About GFL

GFL is a leading Indian company in fluoropolymers, fluorospecialities and chemicals. It is the only polytetrafluoroethylene (PTFE)/fluoropolymer manufacturer in India. The company is also developing products catering to new age businesses — electric vehicles-batteries, solar panels and hydrogen fuel cells. It has a diverse product portfolio, comprising caustic soda, chloromethanes, PTFE, hydrochlorofluorocarbons (HCFC), and value-added products. The company is one of the largest chemical players in India, with combined installed capacity of 65,000 tonne per annum (TPA) of HCFC, 16,200 TPA of PTFE, 134,750 TPA of caustic soda and 108,500 TPA of chloromethane.

List of covenants

• The guarantor irrevocably and unconditionally guarantees to the debenture trustee due and punctual payment of the entire obligation and the performance and/or discharge of all obligations by the issuer, in accordance with the terms of the transaction documents.
• During the subsistence of the deed, the guarantor shall have no right to terminate its obligations under the deed, and any such right is excluded.

Any other information: Not applicable