Rating Rationale
November 30, 2020 | Mumbai
Sandhya Hydro Power Projects Balargha Private Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.83.09 Crore
Long Term RatingCRISIL BBB/Stable (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB/Stable' rating on the long-term bank facility of Sandhya Hydro Power Projects Balargha Private Limited (SHPPBPL).
 
The rating continues to reflect the stable track record of operations (of more than two years) and expectations of sustenance of the plant load factor (PLF) near 87% (calculated on plant capacity of 9 megawatts [MW]) over the medium term. PLF improved to 87.3% in fiscal 2020 from 84.7% in fiscal 2019 (which saw operational issues with the failure of stator and evacuation infrastructure). Further, in the year-to-date (YTD) fiscal 2021 (till October 2020) PLF stood at 87.3%. The rating also, factors in healthy liquidity with two quarters of debt service reserve account (DSRA) and additional cash cumulatively covering nearly 8 months of debt obligations. Moreover, comfortable potential for generation indicated by long-term historical water flow data and healthy debt service metrics over the tenure of the loan lend support.
 
These strengths are partially offset by the increase in tariff risk arising from the forced shift from group captive (GC) sales to third-party open access sales in fiscal 2021, given the uncertainties due to lower offtake from some customers as their businesses have been impacted due to Covid-19. The shift has resulted in the reduction in the gross tariff realised from Rs 5.2/unit in fiscal 2020 to ~Rs 3.25/unit realised during the first five months of fiscal 2021 (till August 2020). While the company is taking steps to tie-up the untied capacity and revert to GC sales in fiscal 2022, failure to do so in a timely manner and at a remunerative tariff will result in further stress on liquidity and thus remain a key monitorable.
Key Rating Drivers & Detailed Description
Strengths:
* Steady track record of operations and healthy generation potential
PLF has improved to 87.3% in fiscal 2020 and YTD fiscal 2021, from 84.7% in fiscal 2019, with no operational issues. Fiscal 2019 saw operational issues with the failure of stator in one of its generator and evacuation infrastructure, which has since normalised. Further, despite being run-of-the-river, the project has limited dependence on monsoon as it is located on the perennial River Parbati in Himachal Pradesh. Data over 30 years indicates adequate water flow, supporting the project's healthy generation potential even during the lowest water flow observed over this period. Resultantly, CRISIL expects PLF's to sustain near 87% over the medium term.
 
* Healthy debt protection metrics
Based on expectation of sustained operating performance over the next few years, cash accrual is expected to remain healthy. This coupled with longer tenure of its term loans, is expected to result in comfortable debt service coverage ratio (DSCR).
 
* Connectivity to 132KV evacuation system to support liquidity
Company is currently using Himachal Pradesh State Electricity Board's (HPSEB) 33KV system. This is resulting in transmission losses of nearly 8.5% in addition to lower plant availability and penal charges for frequent failures in HPSEB grid. It has signed a connectivity agreement with the Himachal Pradesh Power Transmission Corporation Ltd (HPPTCL), to connect to its upcoming 132 KV transmission line, which would provide permanent evacuation infrastructure to the project. Shift to this new line will result in reduction in transmission losses, lower charges and higher plant availability given the stability of the high voltage line. The new line is expected to be operational by June 2021 and commissioning of the same will remain a monitorable.
 
Weaknesses:
* Tariff risk and shift to GC status in fiscal 2022
Till fiscal 2020, the company was selling power to its GC customers with whom it had signed long-term power purchase agreements (PPAs) of 10-12 years at an average tariff of ~Rs 5.6/unit. Its consumer mix primarily included hospital and hotels, with the ratio of hotels being ~53% of total capacity tied-up. In fiscal 2021, however, owing to the Covid-19 pandemic and ensuing restriction and fall in demand for travel, consumption from its hotel consumers has dropped significantly. Resultantly, it had suspended GC sales for the year and subsequently, started selling power to third parties with short-term PPAs and on exchange for fiscal 2021. This has resulted in tariff falling to Rs 3.25/unit (till August 2020). While short-term PPAs have been tied up for the rest of the fiscal (starting October 2020) at a tariff of Rs 4.2/unit, average tariff for the full year is expected to be significantly lower, resulting in reduced cash accrual.
 
Further, the company terminated PPA with one of its major hotel customers over non-payment of dues. Given the expected weak demand for hotel services, the company as a strategy is planning to add hospitals going forward.  It is currently in the process of signing new customers for the capacity vacated and of achieving GC status for fiscal 2022. While CRISIL takes comfort from promoter's extensive experience and savings likely to accrue to consumers in GC mode, failure to achieve GC status or to add new customers will result in lower tariffs (similar to fiscal 2021) leading to significant stress on liquidity, and thus are key monitorables.
 
* Susceptibility of water flow to hydrology risk and upstream projects
Water level in River Parbati peaks during summer and monsoon months (April to September). The more the even inflow into the river, the longer the peak power generation period and vice versa. Hence, power generation will depend on the availability of adequate water flow. NHPC Ltd is developing Parbati-II, an 800-megawatt (MW) hydropower project about 5 km upstream of SHPPBPL. Once this project is operational, the water flow available to SHPPBPL may reduce, diminishing its PLF. While CRISIL has factored in this reduction in its base assessment, any material deviation will remain a key rating sensitivity.
Liquidity Adequate

Liquidity is adequate with two quarters of DSRA already funded (Rs 9.02 crore as on November 17, 2020) and additional free cash of Rs 2.12 crore. The company had availed both the moratoriums, with the tenure of the loan extended by two quarters, and interest accrued converted to a term loan. This has provided significant support to liquidity in fiscal 2021, given the fall in cash accrual owing to lower tariffs. Currently, SHPPBPL does not have any fund based working capital limits. The company has long term repayment obligations of Rs 15.8 crore over fiscals 2021 and 2022, and capital expenditure (capex) of around Rs 4 crore (towards connectivity to the upcoming 132 KV line). Internal accrual, moratorium availed, cash and equivalents including DSRA are likely to be sufficient to meet the repayment obligations as well as incremental working capital requirements. Capex is expected to be funded either from incentives due from the state government (expected in fiscal 2021) or support from the promoters in case of any delays in receiving the incentives.
 
Outlook: Stable

CRISIL expects sustenance of healthy operational performance of the asset and the company to add new consumers, to replace capacity vacated due to termination of a PPA, and revert to GC status by fiscal 2022.

Rating sensitivity factors:
Upward factors
* Sustained PLF generation at more than 85%
* Sustained improvement in liquidity levels led by strong operating cash flows
 
Downward factors
* Significant delay in signing new counterparty PPAs and reverting to GC structure by April 1, 2021
* Delay in counterparty payments, weakening DSCR and liquidity
* Significant change in tariff structure or any other regulatory measure weakening overall revenue profile
About the Company

SHPPBPL was incorporated as a special purpose vehicle to implement a run-of-the-river 9 MW (with 10% continuous overload capability) small hydropower project in Kullu, Himachal Pradesh. The project is situated on the perennial Parbati River, one of the main tributaries of Beas. The project was commissioned in January 2018, and commenced sales to GC customers in April that year. It has 12-year PPAs with hospitals and hotels based in New Delhi, under the GC structure. SHPPBPL is a subsidiary of Skyzen Infrabuild Pvt Ltd, which is a subsidiary of Continuum Energy Pte Ltd (Singapore).
Key Financial Indicators
As on/for the period ended March 31 Unit 2020 2019
Revenue Rs crore 31.7 29.3
Profit after tax (PAT) Rs crore 4.4 -1.0
PAT margin % 14.0 NM
Interest coverage Times 2.27 2.02
Adjusted debt*/adjusted networth Times 6.16 6.83

NM: not meaningful, * includes promoter loans

Status of non cooperation with previous CRA:
SHPPBPL has not cooperated with Acuite Ratings and Research Limited which has published its ratings as an issuer not co-operating vide release dated 06-Dec-2019. The reason provided by Acuite Ratings and Research Limited was non-furnishing of information for monitoring of ratings.

Any other information: Not applicable
Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon
Rate (%)		 Maturity date Issue size
(Rs crore)		 Complexity level Rating assigned with outlook
NA Long Term Bank Facility NA NA Sep-35 83.09 NA CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  83.09  CRISIL BBB/Stable      08-08-19  CRISIL BBB/Stable  10-10-18  CRISIL BBB-/Positive    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Long Term Bank Facility 83.09 CRISIL BBB/Stable Long Term Bank Facility 83.09 CRISIL BBB/Stable
-- 0 -- Proposed Long Term Bank Loan Facility 16.91 Withdrawn
Total 83.09 -- Total 100 --
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating Criteria for Power Generation Utilities
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings

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