Solaire Surya Urja Private Limited

April 01, 2019

Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) [ICRA]A+ (Stable); upgraded from [ICRA]A- LT - Term Loans 650.00 650.00 (Stable) Total 650.00 650.00 *Instrument details are provided in Annexure - 1

Rationale: The rating upgrade takes into account the healthy operating track record of the solar photovoltaic (PV)-based project by Solaire Surya Urja Private Limited (SSUPL), which has been operational since September 2017. The plant’s average PLF level has remained above the P-75 estimate of the project, which coupled with the timely payment from the counterparty (NTPC Limited) has resulted in a robust liquidity position of the company. The rating further takes into account the limited demand risk associated with the long-term power purchase agreement (PPA) with NTPC Limited for the company’s entire capacity of 140 MW under National Solar Mission (NSM) Phase II, Batch II, Tranche I. On behalf of NTPC Limited, NTPC Vidyut Vyapar Nigam Limited (NVVN) works as the nodal agency, and in turn has signed power supply agreements (PSA) with state-owned distribution utilities for supply of solar power after bundling it with the thermal power in the ratio of 2:1 (in MW basis). ICRA’s rating favourably factors in the timely payments from NVVN, supported by the payment security mechanism under the PPA and PSA, and the provision of Payment Security Fund (PSF) (which is equivalent to three months of receivables), supported by budgetary allocation of the Ministry of New and Renewable Energy (MNRE), Government of India under the NSM policy framework. The rating also factors in the company’s strengths as a part of the Solairedirect Group, which is held by France-based utility major ENGIE (rated Moody’s A2/Stable). Moreover, the long maturity of debt with debt service reserve account (DSRA) for one quarter of debt obligations also provides an additional comfort from the credit perspective.

The rating, however, is constrained by the high leveraging level due to the capital intensity involved. The rating is further constrained by the company’s exposure to the risk of variability in solar generation as well as to the interest rate risk owing to the single-part nature of the competitively bid tariff.

The ratings draw comfort from the fact that the company has taken a warranty cover from Original Equipment Manufacturer (OEM) suppliers on the performance of PV modules as well as from the third-party insurance cover to mitigate the risk of warranty not being honoured by OEM suppliers. However, the extent to which the warranty and the insurance term will be honoured remains to be seen in the long run. ICRA, however, notes that the variance in cash flows due to variation in solar irradiance level remains lower for solar PV-based projects than other renewable source-based projects. Moreover, ICRA also notes the company’s exposure to regulatory challenges associated with the implementation of scheduling and forecasting framework, given the limited experience of the Indian industry players in this field and the variable nature of solar energy generation.

Outlook: Stable The stable outlook reflects ICRA’s expectations that the company will continue to benefit from the long-term PPA signed with NVVN and timely collections from the same. The outlook may be revised to positive if healthy PLF levels were to remain sustained and if there is a material reduction in debt levels. The outlook may be revised to Negative in case of deterioration in the payment pattern from the counterparty and/or deterioration in PLF level.

Key rating drivers

Credit strengths Step-down subsidiary of France-based ENGIE – SSUPL is a wholly-owned subsidiary of Solairedirect Energy India Private Limited (SEIPL). SEIPL is a step-down subsidiary of France-based utility major ENGIE, which is held by Solairedirect France. ENGIE is one of the largest European integrated utilities with substantial assets across the energy value chain. The ENGIE Group is listed on Euronext Paris and Euronext Brussels and is 32.8% owned and 36.7% controlled by the French Government.

Healthy operational track record since September 2017 - The company is currently operating a 140 MW (AC) / 190 MW (DC) grid connected solar PV project at Bhadla solar park in Rajasthan. The performance of the project has remained healthy, with PLF levels being in excess of the P-75 estimate of the project from September 2017 to February 2019.

Long-term PPA with NTPC Limited for entire project capacity - The company has entered into a 25-year PPA with NTPC Limited at a tariff of Rs. 4.35/ unit, which limits demand risk to quite an extent. Also, payments from NTPC Limited have been timely so far.

Limited counter-party risk as off taker is NVVN – On behalf of NTPC Limited, NVVN works as the nodal agency, and in turn has signed PSA with state owned distribution utilities for supply of solar power after bundling it with the thermal power in the ratio of 2:1 (in MW basis). ICRA’s rating favourably factors in the timely payments from NVVN, also supported by payment security mechanism under the PPA and PSA, and the provision of Payment Security Fund (PSF) (which is equivalent to three months of receivables), supported by budgetary allocation of the Ministry of New and Renewable Energy (MNRE), Government of India under the NSM policy framework.

Limited technological risk as solar modules are procured from Tier-I suppliers – Poly-crystalline modules used for the project are procured from China-based Renesola, which is a Tier-I supplier. Apart from that, the company has taken a warranty cover for a period of 25 years on the performance of PV modules from suppliers as well as a third-party insurance cover to mitigate the risk of warranty not being honoured by OEMs. However, the extent to which the warranty and the insurance term will be honoured remains to be seen in the long run. The company has also entered an exhaustive operations and maintenance (O&M) contract with the Group company, covering annual maintenance of invertors as well.

Credit challenges High leverage and exposure to interest rate risk -The company’s leveraging level remains high given that a part of the promoter contribution has been met through FCCDs (Fully and Compulsorily convertible debentures) and unsecured loans, which, however, are subordinated to the term loans and carry an interest rate of 10%. The external debt has a door-to-door tenure of 18.5 years and a ballooning repayment schedule. Further, given the single-part nature of the tariff, the operations remain exposed to interest rate risk.

Variance in cash flows due to variation in solar irradiance - The key factors that may impact the operations of the solar plant are solar radiation levels, losses in PV systems due to temperature and climatic conditions, design parameters of the plant, inverter efficiency and module degradation due to aging. However, the variance in solar irradiance levels has historically been much lower than the variation in other sources of renewable energy such as wind and hydro-power projects.

Challenges associated with implementation of forecasting and scheduling regulations - The company remains exposed to regulatory challenges pertaining to the implementation of scheduling and forecasting framework for solar power projects in Rajasthan. This is mainly due to the limited experience in scheduling and forecasting of the industry players in India and the variable nature of solar energy generation.

Liquidity position The liquidity position of the company remains healthy with presence of DSRA equivalent to one quarter of debt service obligations along with free cash balance of Rs. 12.97 crore (as on March 25, 2019) and unutilised working capital facility of Rs. 22.0 crore

Analytical approach

Analytical Approach Comments Applicable Rating Methodologies Corporate Credit Rating Methodology Parent/Group Support Parent/Group Company: Engie Consolidation / Standalone The rating is based on the standalone financial profile of the company

About the company: SSUPL, is a wholly-owned subsidiary of SEIPL, which in turn is a step-down subsidiary of France-based utility major ENGIE. The company has set-up a 140 MW (AC) / 190 MW (DC) grid connected solar PV project at Bhadla Solar Park, Rajasthan under the NSM Phase-II, Branch-II, Tranche-I- state specific bundling scheme. The company has signed a PPA with NTPC Limited for the entire 140 MW. The project was entirely commissioned in September 2017.

Key financial indicators (audited) FY 2018

Operating Income (Rs. crore) 69.6 PAT (Rs. crore) -17.1 OPBDIT/ OI (%) 73.4% RoCE (%) 7.0%

Total Debt/ TNW (times) 15.7 Total Debt/ OPBDIT (times) 16.6 Interest Coverage (times) 1.0

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years: Chronology of Rating History for Current Rating (FY2019) the past 3 years Date & S. Amount Date & Date & Date & Instrument Rating Rated Amount Rating Rating in Rating in No. Type In (Rs. Outstanding FY2017 FY2016 FY2018 Crore) (Rs. Crore) June April 2019 - - - 2018 Long [ICRA]A+ [ICRA]A- 1 Term Loans 650 630 - - - Term (stable) (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

Annexure-1: Instrument Details ISIN No Instrument Name Date of Coupon Maturity Amount Current Rating and Issuance / Rate Date Rated Outlook Sanction (Rs. crore) - Term Loans September - March 650.00 [ICRA]A+ (Stable) 2016 2035 Source: SSUPL

ANALYST CONTACTS Sabyasachi Majumdar Girishkumar Kadam +91 124 4545 304 +91 22 6114 3441 [email protected] [email protected]

Aditya Jhaver Sourabh Kannoje +91 22 6169 3379 +91 22 6169 3349 [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]

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