August 29, 2019

Sirwar Renewable Energy Private Limited: Rating of [ICRA]BB(Stable) assigned

Summary of rated action Instrument* Current Rated Amount (Rs. crore) Rating Action Long Term - Fund Based Term Loan 10.00 [ICRA]BB(Stable); Assigned Total 10.00 *Instrument details are provided in Annexure-1

Rationale The assigned rating favourably factors in Sirwar Renewable Energy Private Limited’s (SREPL) satisfactory operational track record of 2-MW solar power plant with plant load factor (PLF) of 19.56% since its inception. It faces limited demand risk because of long-term power purchase agreement (PPA) with Gulbarga Electricity Supply Company Limited (GESCOM) for 25 years from January 2017 at an attractive tariff of Rs. 6.51 per unit. The rating is, however, constrained by low project internal rate of return (IRR) owing to high project cost of Rs. 8.44 crore per MW while the tariff is comparatively low at Rs. 6.51 per unit. The company is exposed to the counterparty credit risk of GESCOM, which is the sole off-taker. The same is mitigated to an extent with the company receiving payments from GESCOM in less than 45 days for the past 17 months. The DSCR was 0.96 times for FY2019 owing to high interest expenses but is expected to improve to more than 1 for FY2020 with higher revenues and reduced interest expenses. The rating is also constrained by its single-asset nature of operations, lack of geographical diversification as the company has only one asset in , and sensitivity of solar power generation to adverse weather conditions as well as panel degradation that may negatively impact cash flows as revenues are linked to the actual units generated. Outlook: Stable The Stable outlook reflects ICRA’s belief that SREPL would be reporting revenues at around Rs. 2.30 crore in FY2020 owing to fixed-tariff long-term PPA with GESCOM. Any improvement in generation levels, or reduction in interest rates, or creation of a Debt Service Reserve Account (DSRA) may result in a rating upgrade. Lower-than-expected generation or profitability margins, or deterioration in payment cycle from GESCOM may result in a rating downgrade.

Key rating drivers

Credit strengths Long-term PPA with GESCOM mitigates demand and pricing risks – SREPL had signed a PPA with GESCOM at an attractive tariff of Rs. 6.51 per unit for the entire 2-MW capacity for 25 years, which limits demand and pricing risks.

Satisfactory operating track record of the plant – SREPL reported a satisfactory PLF of 19.56% since the project commissioning on January 21, 2017. The PLF is likely to remain at these levels, which would support revenues in the medium term.

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Credit challenges

Counterparty credit risk associated with GESCOM – The firm is exposed to the counterparty credit risk of GESCOM, the sole off-taker. However, the same is mitigated to an extent with the company receiving payments from GESCOM in less than 45 days for the past 17 months.

Low project IRR – The project internal rate of return is low owing to high project cost of Rs. 8.44 crore per MW while the tariff is comparatively low at Rs. 6.51 per unit. Although the agreed PPA tariff was Rs. 8.40 per unit, the same was reduced to Rs. 6.51 per unit owing to a delay in Commercial Operation Date (COD). The DSCR was lower than 1 for FY2019 owing to high interest expenses, however, the same is expected to be more than 1 for FY2020 with higher revenues and reduced interest expenses.

Lack of geographical diversification – The company remains exposed to high geographical concentration risk because of its presence in a single location and its single-asset nature of operations. However, the same is mitigated to an extent by the satisfactory operational performance of the 2-MW solar power plant over the past two and a half years.

Exposed to irregularity in cash flows due to variation in solar irradiance – The company’s operations remain vulnerable to solar radiation levels, losses in PV systems due to temperature and climatic conditions, inverter efficiency and module degradation owing to ageing. However, the variance in solar levels has historically been much lower compared to other sources of renewable energy such as wind and hydro-power projects.

Liquidity position SREPL had availed Rs. 10.00-crore term loan from Andhra Bank to fund the 2-MW solar power plant, for which the repayments had started from September 2017. It has a quarterly repayment obligation of Rs. 0.21 crore and the cash accruals are expected to be sufficient to meet its repayment obligations. The liquidity position is weak with low cash balance of Rs. 0.03 crore as on March 31, 2019 and absence of a DSRA.

Analytical approach

Analytical Approach Comments Corporate Credit Rating Methodology Applicable Rating Methodologies Rating Methodology for Solar Power Producers Parent/Group Support Not Applicable Consolidation / Standalone Standalone

About the company SREPL was incorporated in 2015 by Mr. Vijaya Shankar and Mr. D Muralidhar Reddy. SREPL had set up a 2-MW solar power plant at Sirwar village, Taluk, district, Karnataka. The solar power plant is spread across an area of 13.01 acres. The total project cost of the 2-MW solar power plant was Rs. 16.87 crore, which was funded by Rs. 5.10- crore equity, Rs. 10.00-crore term loan and Rs. 1.77-crore unsecured loans from Directors. The company has signed a 25- year PPA with GESCOM in July 2015 at a tariff of Rs. 8.40 per unit. However, the current PPA rate is Rs. 6.51 per unit as the COD got delayed by 21 days and was achieved on January 21, 2017. As per the original PPA, the scheduled COD was December 31, 2016.

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Key financial indicators FY2018 FY2019* Operating Income (Rs. crore) 1.8 2.2 PAT (Rs. crore) -0.9 0.1 OPBDIT/ OI (%) 88.3% 86.6% RoCE (%) 5.8% 8.1%

Total Debt/ TNW (times) 33.4 25.8 Total Debt/ OPBDIT (times) 7.0 5.4 Interest Coverage (times) 1.3 1.7

* provisional

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years

Chronology of Rating History for the Current Rating (FY2020) past 3 years Date & Date & Date & Date & Rating in Rating in Rating in Rating Amount Amount FY2019 FY2018 FY2017 Rated Outstanding (Rs. August Instrument Type (Rs. crore) crore) 2019 - - - Fund based- Long [ICRA]BB 1 10.00 10.00 - - - Term Loans Term (Stable)

Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details Date of Amount Instrument Issuance / Coupon Maturity Rated ISIN No Name Sanction Rate Date (Rs. crore) Current Rating and Outlook NA Term Loan Mar, 2016 NA Dec, 2029 10.00 [ICRA]BB (Stable) Source: SREPL

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ANALYST CONTACTS K. Ravichandran R. Srinivasan +91 44 4596 4301 +91 44 4596 4315 [email protected] r. [email protected]

Vinay Kumar G Karan Gupta +91 40 4067 6533 +91 40 4067 6529 [email protected] [email protected]

RELATIONSHIP CONTACT Jayanta Chatterjee +91 80 4332 6401 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

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