Rating Rationale
December 19, 2023 | Mumbai
Swelect Energy Systems Limited
Ratings upgraded to 'CRISIL A-/Stable/CRISIL A2+'; 'CRISIL A-/Stable' assigned to Non Convertible Debentures
 
Rating Action
Total Bank Loan Facilities RatedRs.345 Crore
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Stable')
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2')
 
Rs.100 Crore Non Convertible DebenturesCRISIL A-/Stable (Assigned)
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 assigned its CRISIL A-/Stable’ rating to the Non Convertible Debentures Rs.100 crore of Swelect Energy Systems Limited (SESPL; part of Swelect group). Also, CRISIL Ratings has upgraded its ratings to the bank facilities of SESPL to ‘CRISIL A-/Stable/CRISIL A2+ from 'CRISIL BBB+/Stable/CRISIL A2'.

 

The rating upgrade reflects CRISIL’s belief that the Swelect group’s credit risk profile will continue to strengthen over the medium term, supported by an improvement in performance in its independent power producer (IPP) segment. The renewable capacities under this segment more than doubled to 118 MW in last two fiscals resulting in higher revenue contribution from this segment. This coupled with a steady plant load factor (PLF) of ~17% would result in enhanced cash flows from this segment. The IPP business also has a strong payment track record of less than 15 days on average from billing. This segment is expected to report an average debt service coverage (DSCR) ratio of over 1.5 times over the tenure of the debt; a substantial improvement from the earlier DSCR levels. The group’s vision to consistently add solar capacities would continue to strengthen the business profile of the group.

 

The upgrade also factors in the expected improvement in the other business segments that include panel manufacturing and solar EPC supported by the enhanced capacities and operational efficiencies. Moreover, the operating profitability of the group would benefit from the closure of a loss-making unit in Bangalore. Despite the group’s plan to divest its foundry division by the end of fiscal 2024, no major impact on the performance is expected as the group derives less than 10% of the group EBITDA from this segment and this would be more than compensated by other segments’ growth.

 

Besides, the group is expected to contract debt of Rs.250 crores in order to replace corresponding quantum of short-term working capital borrowings in the non-IPP business segments. The group intends to maintain ample liquidity including a reserve amounting to 4 quarters of debt servicing. Moreover, the surplus cash flows from the IPP business would be used for the debt servicing on a need basis. The timeliness of the liquidity build up and continued cash flow fungibility amongst all the business segments would remain key monitorables.

 

The ratings reflect the Swelect group’s established and diverse presence in the solar industry, extensive experience of its promoters, low offtake or counter party credit risks and healthy capital structure. These strengths are partially offset by its exposure to regulatory risks, climatic conditions and presence in a highly fragmented industry.

Analytical Approach

CRISIL Ratings has combined the financial and business risk profiles of SESPL and its subsidiaries, collectively known as the Swelect group, as the entities have financial and operational fungibility.

 

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:

  • Healthy diversity in business verticals supports its sustainability, and extensive experience of its promoters: The promoters have total industry experience of over three decades and have been in the solar PV module manufacturing business since 2012.  SESL was incorporated in 1984 by Mr. Chellapan, a first-generation technocrat. It was used to manufacture uninterruptible power systems (UPS) under the 'Numeric' brand. With sale of its UPS business in May 2012, the company changed its name to SESL.  It is currently engaged in the sale of solar & wind power, manufacture of photovoltaic inverters, solar charge controllers and solar junction boxes. SESL also undertakes rooftop installation and EPC contracts for solar power projects.  The group’s product basket is diversified, mitigating the risk of obsolescence in case of any new technology coming into the market.

 

  • Low offtake and counter party credit risks: The company has entered into power-purchase agreements (PPAs) with tenure of 10-25 years at competitive tariff, thus mitigating demand risk significantly. The group has an installed capacity of ~118 MW of solar & wind power assets that supply power to various counterparties such as Solar Energy Corporation of India (SECI), TANGEDCO, Chamundeshwari Electricity Supply Corporation (CESC), Airports Authority of India (AAI), Hatsun Agro among others.

 

  • Healthy capital structure: The group’s capital structure has been at healthy level due to lower reliance on external funds yielding low total outside liabilities to adj tangible networth (TOL/ANW) of less than 1 time for last three year ending on 31st March 2023.

 

Weakness:

  • Exposure to regulatory risks and climatic conditions: Although the entity reported a healthy average PLF since inception, maintenance of the PLF will be a challenge.  Further, though it has entered into long-term PPA agreements for sale of power at fixed tariff, it remains exposed to regulatory risks such as change in tariff. Wind & Solar power generation are highly vulnerable to seasonality and variance in climatic conditions, which could reduce the operating PLF, thus impairing the project's debt-servicing ability.

 

  • Presence in a highly fragmented industry: The industry is highly fragmented and competitive, which limits the pricing flexibility and bargaining power of the players. Fragmentation and competition in the solar power EPC segment restrains any pass-through mechanism, leading to volatile operating margin.

Liquidity: Strong

Bank limit utilisation is moderate at around 78 percent for the twelve months ended November 2023. Cash flows will be sufficient to meet repayment obligations. Besides, the group is expected to contract debt of Rs.250 crores in order to replace corresponding quantum of short-term working capital borrowings in the non-IPP business segments. The group intends to maintain ample liquidity including a reserve amounting to 4 quarters of debt servicing. Moreover, the surplus cash flows from the IPP business would be used for the debt servicing on a need basis. The timeliness of the liquidity build up and continued cash flow fungibility amongst all the business segments would remain key monitorables.

Outlook: Stable

CRISIL Ratings believes the group will maintain its stable debt servicing coverage ratio (DSCR) over the medium term, backed by steady cash inflows.

Rating Sensitivity factors

Upward factors

  • Substantial improvement in revenue and operating margin at over 20% with sustained PLF.
  • Improvement in financial risk profile.

 

Downward factors

  • Weaker than expected revenue growth of decline in profitability (EBITDA) to less than 17%.
  • Worsening of payment cycle or lower-than-expected PLF or major capex plans or acquisition impacting the financial risk profile or liquidity.

About the Group

Incorporated in 1994, SESPL is the flagship company of the Swelect group. Swelect Energy Systems Limited (SESL; part of SESL group), (erstwhile Numeric Power Systems Limited), is engaged in the sale of solar power, manufacture of photovoltaic inverters, solar charge controllers and solar junction boxes. SESL also undertakes rooftop installation and EPC contracts for solar power project. The registered office of the group is located at Chennai. Mr R. Chellappan, manage the daily operations of the group and are supported by a professional team. The group is in the process of selling of their foundry business.

Key Financial Indicators (Consolidated)

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

361.30

368.06

Reported profit after tax

Rs crore

6.42

32.42

PAT margins

%

1.78

8.81

Adjusted Debt/Adjusted Net worth

Times

0.69

0.59

Interest coverage

Times

2.12

1.91

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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.Cr)

Complexity

Levels

Rating assigned with outlook

NA

Fund-Based Facilities

NA

NA

NA

15

NA

CRISIL A-/Stable

NA

Fund-Based Facilities

NA

NA

NA

17

NA

CRISIL A-/Stable

NA

Fund-Based Facilities

NA

NA

NA

15

NA

CRISIL A-/Stable

NA

Fund-Based Facilities

NA

NA

NA

44

NA

CRISIL A-/Stable

NA

Fund-Based Facilities

NA

NA

NA

80

NA

CRISIL A-/Stable

NA

Overdraft Facility

NA

NA

NA

36

NA

CRISIL A2+

NA

Overdraft Facility

NA

NA

NA

20

NA

CRISIL A2+

NA

Proposed Term Loan

NA

NA

NA

30

NA

CRISIL A-/Stable

NA

Term Loan

NA

NA

March 2026

80

NA

CRISIL A-/Stable

NA

Term Loan

NA

NA

March 2026

8

NA

CRISIL A-/Stable

NA

Non-Convertible Debentures*

NA

NA

NA

100

Simple

CRISIL A-/Stable

*Yet to be issued

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Swelect Energy Systems Pte. Limited., Singapore 

100

100 % subsidiary and have common management and is engaged into similar line of business

SWELECT Inc. USA

100

100 % subsidiary and have common management and is engaged into similar line of business

Swelect Solar Energy Private Limited

100

100 % subsidiary and have common management and is engaged into similar line of business

Noel Media & Advertising Private Limited

100

100% step down subsidiary and have common management and is engaged into similar line of business

K J Solar Systems Private Limited

100

100% step down subsidiary and have common management and is engaged into similar line of business

Swelect Power Systems Private Limited

100

100 % subsidiary and have common management and is engaged into similar line of business

Swelect Green Energy Solutions Private Limited

100

100 % subsidiary and have common management and is engaged into similar line of business

Swelect Sun Energy Private Limited

100

73.99% subsidiary and have common management and is engaged into similar line of business

Swelect HHV solar Photovoltaics Private Limited

100

100% step down subsidiary and have common management and is engaged into similar line of business

Swelect Renewable Energy Private Limited

100

73.99% subsidiary and have common management and is engaged into similar line of business

Swelect RE Power Private Limited

100

73.99% subsidiary and have common management and is engaged into similar line of business

Swelect Taiyo Energy Private Limited

100

73.99% subsidiary and have common management and is engaged into similar line of business

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 345.0 CRISIL A2+ / CRISIL A-/Stable 20-10-23 CRISIL BBB+/Stable / CRISIL A2 20-09-22 CRISIL BBB+/Stable / CRISIL A2   --   -- Withdrawn (Issuer Not Cooperating)*
      --   -- 07-09-22 CRISIL BBB+/Stable / CRISIL A2   --   -- --
      --   -- 13-07-22 CRISIL BBB+/Stable / CRISIL A2   --   -- --
Non Convertible Debentures LT 100.0 CRISIL A-/Stable   --   --   --   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities 15 Kotak Mahindra Bank Limited CRISIL A-/Stable
Fund-Based Facilities 17 ICICI Bank Limited CRISIL A-/Stable
Fund-Based Facilities 15 Kotak Mahindra Bank Limited CRISIL A-/Stable
Fund-Based Facilities 44 The Hongkong and Shanghai Banking Corporation Limited CRISIL A-/Stable
Fund-Based Facilities 80 Barclays Bank Plc. CRISIL A-/Stable
Overdraft Facility 36 State Bank of India CRISIL A2+
Overdraft Facility 20 The Hongkong and Shanghai Banking Corporation Limited CRISIL A2+
Proposed Term Loan 30 Not Applicable CRISIL A-/Stable
Term Loan 80 HDFC Bank Limited CRISIL A-/Stable
Term Loan 8 CSB Bank Limited CRISIL A-/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Assessing Information Adequacy Risk
Rating Criteria for Power Generation Utilities
Criteria for Rating power transmission projects
Rating criteria for manufaturing and service sector companies
Criteria for rating solar power projects
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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