| Strong credit profile of the sponsor
Sembcorp Utilities Pte Ltd (SUPL) is the holding company of Sembcorp Green Infra Limited (SGIL) which holds Green Infra Wind Energy Limited (GIWEL). SUPL acquired VGEG through GIWEL in January 2023. SUPL has an energy portfolio of 16.7GW, with 7.1GW of renewable energy capacity comprising solar, wind and energy storage globally. The group also has a proven track record of transforming raw land into sustainable urban developments, with a project portfolio spanning over 13,000 hectares across Asia. Further, GIWEL is a majority held subsidiary of SGIL, with a portfolio of 801 MW operational wind power projects located in Maharashtra, Karnataka, Madhya Pradesh and Gujarat. GIWEL reported gross revenues at Rs. 11,739 Cr. during FY2022 and has signed long-term PPAs with Maharashtra State Electricity Distribution Company Ltd, GUVNL, Bangalore Electricity Supply Company Ltd, MP Power Management Company Ltd and SECI.
Acuité believes VGEG will benefit from the strong credit profile of SUPL over the medium term.
Established operational track record and limited off take risk
VGEG has six SPVs with total generation capacity of 230 MW. WSFPL has three projects and PSPPL and MSPPL have one each in Telangana. HSPPL has two projects in Andhra Pradesh and VGSUPL and VGSPL have one project each in Punjab. All the nine projects have started commercial operations in year 2016 and have an operational track record of more than six years along with stable cash flow generation. The average plant load factor (PLF) has ranged between 17-23 percent (above P90 levels) for the past six years with robust plant availability factor in excess of 90 percent over the same period. All the SPVs in VGEG have signed long term PPAs with State Power Distribution Companies for their installed capacity. PSPPL, MSPPL and WSFPL’s projects have PPAs with Southern Power Distribution Company of Telangana Limited, VGSUPL and VGSPL have PPA with Punjab State Power Corporation Limited and HSPPL’s projects has PPA with AP Power Distribution Company Limited. The weighted average residual tenure on all PPAs is over 20 years thus reducing the off-take risk and providing revenue visibility over the long term.
Acuité expects VGEG’s operational performance to remain stable over the medium on account of stable generation and signed long term PPAs.
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| Deterioration in the VGEG's financial performance
VGEG's operating performance has deteriorated marked by consolidated revenues of Rs. 278 Cr. in FY2023 (Provisional) against Rs. 299 Cr. in FY2022. This is due to lower revenue contribution from one of its SPVs HSPPL during the same period. Further, HSPPL has also reported losses to the tune of Rs. 45 Cr during FY2023 (Provisional). These pertain to certain bad debts provisions to the tune of Rs. 52 Cr. made by the company during FY2023 (Provisional). This is partly contributed by the tariff dispute with AP State Distribution Company. The State Distribution Companies has been making payments at the interim tariff rate of Rs. 2.44 per unit as against the rate agreed in the PPA of Rs. 5.91 and Rs. 5.98 for the two projects in Andhra, respectively. This has resulted in overall losses to the tune of Rs. 38.83 Cr for the group on a consolidated level. Further, the losses have resulted into significant washing off of the tangible net worth which stood at Rs. 233.45 Cr. as on March 31, 2023 (Provisional) against Rs. 272.45 Cr. in FY2022. The gearing stood increased at 7.42 times against 5.87 times during the same period.
Acuite believes that group's ability to limit further losses while maintaining a comfortable financial risk profile will remain a key rating sensitivity.
Intensive working capital cycle
VGEG's working capital cycle although improved in FY2023 against FY2022 is intensive reflected in the longer receivable period of 315 days against 566 days in previous year. Provisions to the tune of Rs. 52 Cr. for expected bad debts has been created under HSPPL during FY2023 and this has resulted in the overall improvement of the debtor days. The elongation has primarily been on account of delays in payment of dues from State Distribution Companies over and above the 60-90 days credit period provided in the PPA. The Group has PPAs with three State Distribution Companies – Andhra Pradesh, Telangana and Punjab. There is considerable delay in payment from the AP State Distribution Companies. The average receivable period for the last three years ended March 2023 in the HSPPL (AP SPV) stood at over 625 days. Further, the average three years receivables period in PSPPL, MSPPL and WFPPL remained at around 361 days wherein the SPVs majorly serve AP & Telangana discoms. This is majorly aggravated by the tariff dispute with AP State Distribution Company. The State Distribution Companies has been making payments at the interim tariff rate of Rs. 2.44 per unit as against the rate agreed in the PPA of Rs. 5.91 and Rs. 5.98 for the two projects in Andhra, respectively. However, as on March 15, 2022 the AP High Court has ruled in favour of the VGEG has directed AP Discom to clear all outstanding dues under PPA as per contracted PPA tariff within 6 weeks from the date of the order. However, the payments have started from August 2022. Further, AP and Telangana Discom are expected to clear the past dues in 12 equal monthly installments in line with the LPS scheme. This is expected to improve VGEG's working capital cycle over the medium term.
However, Acuite believes VGEG’s ability to restrict any elongation in its receivable position and working capital cycle will remain a key monitorable.
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