| Suzlon Energy Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL BBB-/Stable/CRISIL A3' ratings on the bank facilities of Suzlon Energy Ltd (SEL).
The rating factors in the company’s established market position as a leading wind turbine manufacturer, healthy orderbook and strong base of ~13 gigawatt (GW) of capacities under operations and maintenance (O&M). These strengths are partially offset by weak operating efficiency in the past and modest financial risk profile and liquidity position.
The company has refinanced its existing debt in May 2022 replacing 16 lenders with two new lenders. The facilities rated have been used to refinance the debt facility from SBI led consortium of lenders with significant decrease in leverage levels. Further, the company has completed first tranche of rights issue of Rs. 600 crore and utilized majority of the same to prepay its debt obligation. Additionally, the second tranche of ~Rs. 600 Cr is yet to be called and half of the proceeds are also proposed to be utilized to prepay debt.
Mr. Tulsi Tanti, Founder & CMD, passed away on October 01, 2022. Mr. Vinod Tanti has taken over as the new Chairman & MD and Mr. Girish Tanti as Vice Chairman. Both of them are the younger brothers of Late Mr. Tulsi Tanti and have been associated with the Group since inception. Further, both of them are supported by the experienced Board of the company consisting of the independent directors including one nominee director from the Lender, as well as Mr. Pranav T. Tanti, son of Late Mr. Tulsi Tanti, who has also joined the Board as non-executive director. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of SEL and its subsidiaries, including Suzlon Global Services Ltd (SGSL) and Suzlon Gujrat Wind Park Ltd (SGWPL)# and Suzlon Power Infrastructures Ltd (SPIL)*. Suzlon Power Infrastructures Ltd (SPIL) has now been merged into the SGSL..All these entities, collectively referred to as the Suzlon The Group (STG), sells wind turbine generators (WTGs) and provides related services and components, with significant operational synergies and some of the common members in the Board.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Stable cash flow from the O&M services business to support overall debt servicing The group currently has 13+ GW of assets under maintenance. While the fleet under maintenance reduces with decommissioning of WTGs, post completion of the design life, new generators delivered and commissioned get added to the fleet every fiscal. Revenue from O&M services has been steady as this is contractual activity over a fixed timeframe and at contracted price. Also, escalation in revenue is inbuilt into the contracts, ensuring stability of operating margin over a period. The group has demonstrated stability in revenue and profitability of O&M services business even in stressed times in the past. Stable cash flow with earnings before interest, depreciation, tax and amortisation (EBIDTA) above Rs 700 crore per fiscal from the O&M services business is expected to support debt obligation.
Strong market position in the wind turbine segment supports the business risk profile The Group has a successful track record of project execution with technical expertise, evident from the healthy market share of 30-35% in the WTG business over the past many years. The company’s healthy market position should help to obtain orders in the long run, subject to working capital availability.
Operating leverage in the WTG business Healthy sustenance of revenue in the WTG business is extremely critical on account of operating leverage arising from substantial fixed costs. In the past, on account of these fixed costs, the group has suffered substantial operating losses due to slowdown in revenue from this business. CRISIL Ratings understands the group had undertaken cost reduction activities in operations, manpower and other expenses, resulting in reduction of fixed costs to Rs 5.0 billion per fiscal from about Rs 10.0 billion in the past. However, any delay in execution of orders will result in fixed cost under recovery adversely impacting cash flow. While the measures undertaken may reduce operating leverage, it is expected to remain high and expose operating profitability to variability in revenue.
High operating leverage may result in losses in the WTG business in the event of lower-than-expected offtake. The company has current order book of ~800megawatt (MW), which is likely to be executed over the next 12-15 months. Almost fully utilised bank lines had constrained growth and the company had been dependent on customer-backed financing to execute orders in the last fiscal. Its near-term plans to avail additional project-specific funding remains a key monitorable.
Weaknesses: Working capital-intensive operationsThe WTG business, accounting for over 70% of the overall revenue, is highly working capital intensive. Furthermore, recovery of working capital over the next two fiscals is expected, which will support cash flow. In case of delays in recovery or in arranging for working capital requirement, overall liquidity may get constrained, impacting cash flow.
Modest financial risk profileLeverage and debt protection metrics are weak since SEL defaulted in the past. The company has refinanced its existing debt in May 2022 replacing 16 lenders with two new lenders. Further, the company has completed first tranche of rights issue of Rs. 600 crore and utilized majority of the same to prepay its debt obligation. The company had negative networth due to past losses which recently turned positive post the rights issue. Additionally, the second tranche of ~Rs. 600 Cr is proposed to be called, half of which would be utilized to prepay debt. |
Liquidity: Adequate Unencumbered cash and equivalent stood at more than ~Rs 216Cras on Dec, 2022. Liquidity is constrained by large working capital requirement. The company has debt repayment obligation of 710 Crs till FY24 crore which it plans to repay from business cash flowand proceeds from Rights Issue. The company has planned capex of about Rs 150 crore each fiscal, which it plans to fund through internal accrual. |
Outlook: Stable CRISIL Ratings believes DSCR will be healthy at 1.5 times over the loan tenure, driven by stable cash flow from the O&M business and ramp-up of the WTG business. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Founded in 1995, Suzlon is one of the leading global renewable energy solutions providers. Over the past 26 years, the group has installed over 19.1 GW of wind energy in 17 countries across six continents. The Suzlon Group comprises of Suzlon Energy Limited and its various subsidiaries. The Suzlon Group’s manufacturing footprint is spread across India. It is a vertically integrated WTG manufacturer. It also undertakes installation and O&M of all WTG sales. Operations include design development and manufacturing of all major components, including rotor blades, tubular towers, generators, control equipment, gears and nacelles. Apart from manufacturing, it offers a full gamut of wind project planning and execution services, including wind resource assessment, infrastructure and power evacuation, technical planning and execution of wind power projects. It also offers O&M services in India and overseas countries. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*SBI led consortium; loan has been refinanced #LOC amount is fungible with RTL and can be increased if NBF O/s is higher on settlement date |
Annexure - List of Entities Consolidated
#The Project execution and Power evacuation businesses have been demerged from SGWPL and transferred & vested into SGSL. *SPIL has been merged into SGSL |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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*SBI led consortium; loan has been refinanced
#LOC amount is fungible with RTL and can be increased if NBF O/s is higher on settlement date
Criteria Details
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