By Pooja Garg

India Ratings and Research (Ind-Ra) has upgraded Him Urja Private Limited’s (HUPL) Long-Term Issuer Rating to ‘IND BBB’ from ‘IND BBB-’. The Outlook is Stable. The instrument-wise rating action is as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Term loan

-

-

December 2029

INR761.85 (reduced from INR847.60)

IND BBB/Stable

Upgraded


The upgrade reflects an improvement in power generation in FY20, leading to an increase in the revenue and EBITDA, along with the sustenance of adequate liquidity position and comfortable debt service coverage ratio (DSCR). The upgrade also reflects a change in the repayment structure that eliminated the bullet payment risk during the loan tenor end and reduced the cost of debt significantly.

KEY RATING DRIVERS

Favourable Change in the Repayment Structure: HUPL's loan was refinanced by L&T Infrastructure Finance Company Limited in 2016 and around 48% was repayable in 14 years; the remaining 52% was to be repaid in a bullet payment at the end of the tenor. Indian Renewable Energy Development Agency Limited took over the said loan of around INR834 million in July 2020 at a significantly reduced cost; however, the amount of the annual principal repayment has increased by around 2x. According to the earlier schedule, the annual repayment was INR30 million-INR40 million, which has now increased to INR88 million. However, the maturity tenor has remained the same. The company was earlier making additional payments apart from the annual repayment to reduce the amount payable at the end of tenor in one bullet payment. HUPL repaid around INR107 million of additional debt in FY20 (FY19: INR18 million; FY18: INR58 million). Now, the company does not have to make any bullet payment at the end of the loan tenor but has to make high annual principal repayments.

The DSCR was comfortable at 1.15x in FY20, despite significant additional repayment (FY19: 1.5x; FY18: 1x), due to the increase in EBITDA to INR303 million in FY20 (INR283 million). The DSCR without additional debt repayment was 1.92x in FY20. Also, HUPL is maintaining a debt service reserve account (DSRA) equivalent to a minimum of two-quarters of debt servicing, providing a cushion in case of any shortfall in cash flows.

Improvement in Revenue & Sustained Average EBITDA Margins: The revenue from the sale of energy grew around 25% yoy to INR390.36 million in FY20, due to around 23% yoy increase in power generation from Vanala SHEP (61.38MU) and 15% in Rajwakti SHEP (26.79MU). The generation increased due to the adequate water availability during the year. The improvement in the revenue is also attributable to the increase in the tariff of Vanala SHEP by around 6% yoy to INR4.99/kWh in FY20. In FY19, the tariff of Vanala SHEP was increased to INR4.74/kWh (retroactively) from INR4/kWh by Uttarakhand Electricity Regulatory Commission to compensate for the additional capex incurred after the 2013 and 2016 floods. The tariff was further increased to INR4.99/kWh (effective 1 April 2018) in FY20 and HUPL received all the arrears of the increased tariff during the same year. The company received INR12.49 million of tariff arrears of Vanala SHEP and INR1.2 million of business interruption insurance claim of Rajwakti SHEP in FY20. Hence, the total revenue increased to INR404.11 million in FY20 (FY19: INR372.53 million). HUPL’s EBITDA increased to INR303.42 million in FY20 (FY19: INR282.63 million) due to an improvement in the top-line; however, the EBITDA margins fell slightly to 75% in FY20 (FY19: 76%) due to an increase in the operations and maintenance (O&M) and personal expenses. HUPL booked INR258 million of revenue and INR185 million of EBITDA during 9MFY20.

Liquidity Indicator - Adequate: The company reported healthy cash flow from operations of INR201 million in FY20 (FY19: INR67.55 million; FY18: INR258.19 million) and INR57.59 million of cash and cash equivalents (excluding debt service reserve of INR71.72 million).  The cash flow from operation improved significantly in FY20 due to the receipt of the capital subsidy from Ministry of New and Renewable Energy and other pending insurance claims. The debtors, however, increased significantly due to the delays in the receipt of payment from Uttarakhand Power Corporation Limited (UPCL). The debtor days increased to 48 in FY20 (FY19: 20). The company has annual debt service obligations of INR88 million till FYE29 and INR57.83 in FYE30. Also, the repayment varies during the peak and non-peak season and the company has to pay a higher proportion of the annual repayment during the peak season as it generates higher revenue during the same time. In addition, HUPL has a DSRA that adequately covers six months’ debt servicing requirements.

Stretched Receivables: HUPL has offtake arrangements with UPCL for both the projects. HUPL usually receives payments within 20-25 days from UPCL and offers a 1% rebate as per the terms and conditions of the power purchase agreement (PPA; 1% discount on receipt of payments within 30 days). Under the PPA, 1.25% per month interest will be charged for payment after 60 days; hence, UPCL releases payments within a maximum of 60 days. The debtor days increased to 48 in FY20 (FY19: 20) and further increased significantly to 114 during 9MFY21, due to the significant increase in UPCL's payable outstanding to generating companies during 1HFY21. However, the same has improved since 3QFY21, as reflected in a month-on-month improvement in HUPL's outstanding receivables. As of 31 December 2020, the outstanding debtors were INR80.629 million, which reduced to INR53.33 million at end-January 2021 and further to INR8.16 million at end-February 2021. Ind-Ra opines HUPL's timely debt servicing is critical in case of a substantial increase in receivables.

Generation Losses due to Natural Calamities and Technical Issues with Machinery: The company faced huge generation losses in FY14 and FY16, due to the natural calamities in Uttarakhand in July 2013 and July 2016. The plant was closed for eight months in FY14. Although power generation was resumed in March 2014, other project construction work was completed in FY18. The power generation was also impacted after the 2016 floods in the Alaknanda river, resulting in the closure of the plant for seven months in FY17. As a result, the company's operations impacted severely. Also, Vanala SHEP's turbine of half of its total capacity has been facing technical issues due to which project is not running on its full capacity during the peak season since FY18. The turbine issue is ongoing and the total time required for the maintenance work will be seven-to-eight months. The management is planning to carry out the maintenance work in FY22 during the non-peak season.

Furthermore, the generation depends on the water availability, which can impact the revenue of the company. The generation in FY21 declined due to the less water availability, which will lead to a decline in revenue. Ind-Ra opines that these plants are exposed to high hydrological risk, which can impact the company’s revenue to a great extent.

No Developments in Other Projects: The promotor is developing two more projects - Dewali SHEP and Melkhet SHEP - in Uttarakhand. The company has incurred capital expenditure on Dewali SHEP; however, the project will be operated by a separate special purpose vehicle. The project has not yet received all the required clearances. Melkhet SHEP had achieved financial closure after obtaining all the clearances; however, the construction activities have not yet started and the sanction letter (by Indian Renewable Energy Development Agency) has expired. Also, Melkhet SHEP has been operated by another company named Melkhet Power Private Limited, which is a group company. The earlier management was planning to start the construction work in FY21 where the promotor had to contribute 30% of the total project cost. However, the management is now planning to either hold the projects and not incurring any further cost or scrap the projects as no lender is willing to fund small hydro projects.


RATING SENSITIVITIES

Positive: An improvement in the power generation leading to an improvement in the financial performance on a sustained basis, along with an improvement in the liquidity position and the  DSCR being sustained above 1.25x, could lead to a positive rating action.

Negative: Developments that could, individually or collectively, lead to a negative rating action include:

- tapping of DSRA to meet any shortfall

- debt-led capex leading to deterioration in DSCR below 1.1x on a sustained basis

- adverse regulatory ruling

- material deterioration in liquidity profile due to an elongated receivable cycle
- substantial financial support to other projects



COMPANY PROFILE

Incorporated in 1995, the company operates two run-of-river projects named Rajwakti SHEP (4.4MW) and Vannala SHEP (15MW) in the Chamoli district of Uttarakhand. Both the projects were developed on Nandakni River, a tributary of Alaknanda river.

FINANCIAL SUMMARY

Particulars

9MFY21

FY20

FY19

Revenue (INR million)

257.84

404.11

372.53

EBITDA (INR million)

184.86

303.43

282.60

EBITDA margin (%)

71.70

75.09

75.86

Cash and cash equivalents (INR million)

85.06

129.31

73.64

Gross interest coverage (x)

2.19

2.43

2.18

Net leverage (x)

 

2.42

3.32

Source: Ind-Ra, HUPL

 



RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

23 January 2020

18 December 2018

Issuer rating

Long-term

-

IND BBB/Stable

IND BBB-/Stable

IND BBB-/Stable

Term loans

Long-term

INR761.85

IND BBB/Stable

IND BBB-/Stable

IND BBB-/Stable



COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity

Term loans

Low

 

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.
 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Pooja Garg

    Analyst
    India Ratings and Research Pvt Ltd DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurgaon Haryana 122002
    0124 6687270

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121