Radiance MH Solar Power Private Limited: [ICRA]A (Stable) assigned
Summary of rating action
Current Rated Amount (Rs. crore)
Rating Action Long-term Fund-based - Term loan
[ICRA]A (Stable) assigned Total
*Instrument details are provided in Annexure-I
The rating assigned to the term loans of Radiance MH Solar Power Private Limited (MH Solar) factors in its strong parentage from Radiance Renewables Private Limited (RRPL, rated [ICRA]A (Positive)), which is backed by Green Growth Equity Fund (GGEF). The National Investment and Infrastructure Fund (NIIF) and Department of International Development (DFID), Government of UK are the anchor investors in GGEF. The parentage has translated into exceptional financial flexibility for the company and managerial support in carrying out its operations as well as fund raising activity. MH Solar has setup a 4.2 MWp/3.0 MWAC solar power project in Ahmednagar, Maharashtra under the group captive model wherein RRPL has contributed 74% of common equity while remaining 26% has been contributed by the off-taker, Sahyadri Hospitals Private Limited (SHPL). The project was commissioned in October 2021 and has been operational since then. Given the group captive status of the project, the off-taker is exempt from the payment of Cross Subsidy Surcharge (CSS) and Additional Surcharge (AS), which makes the landed tariff from the project for the off-taker highly competitive vis-à-vis the grid tariff. Thus, the ratings also factor in the low offtake risk for the project on account of a highly competitive tariff vis-à-vis grid tariff and a long tenor Power Purchase Agreement (PPA) with a lock-in period of 15 years which exceeds the loan repayment tenure. The ratings also factor in the low counterparty risk on account of the healthy credit profile of the off-taker i.e. SHPL which has translated into a collection efficiency of nearly 99.90% since commissioning in October 2021 and has kept the working capital requirements minimal.
The ratings are however constrained by the limited track record of performance, risk of irradiance levels and interest rate risks along with any adverse changes in the regulations. The project was commissioned in October 2021 and has a track record of around twelve months. The performance of the project has been stable so far and will remain a key rating driver for the entity going forward. The project performance will remain susceptible to the irradiance levels given that it directly impacts the power generation and cash flows of the company. While weather remains an uncontrollable factor, impact of adverse climate changes leading to dense cloud cover over elongated period, pollution etc. impacting irradiance for the project remain key environmental risks for the project. The cash flows of the company are susceptible to the interest rates at which the funding has been raised. Given the current interest rate environment, the interest rates are expected to harden leading to headwinds for cash generation and debt servicing capability of the company. The ability of the company to renegotiate the terms of the loans and/or refinance the loans at lower rates will remain a key monitorable going forward. The ratings are also constrained by the regulatory risks given the competitiveness of the tariff vis-à-vis the grid tariff remains contingent on the group captive status of the project In case of adverse regulatory changes wherein the off-taker has to bear any additional charges levied on the offtake from the project, the competitiveness of the tariff will get impacted and which may lead to renegotiations post the lock-in period.
The Stable Outlook on the rating reflects ICRA's expectation of the company to maintain stable operating performance and ensure comfortable debt servicing going forward.
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Key rating drivers and their description
Strong parentage of Radiance Renewables Private Limited translating into financial flexibility and managerial support: MH Solar is a subsidiary of RRPL which is the holding company of the Radiance Group (installed capacity of 300 MW+) and is backed by GGEF. GGEF counts NIIF and DFID, UK Government among its anchor investors. GGEF is managed by EverSource Capital, which is a joint venture of EverStone Capital and Lightsource BP. The management of the Radiance Group has experience in setting up renewable power projects in India. GGEF has capital commitments from anchor investors for investing in RRPL, apart from Ayana Renewables, Green Cell Mobility and other platform companies.
Low offtake and price risk owing to long tenor Power Purchase Agreement (PPA) with healthy lock-in period and competitive tariff vis-à-vis grid tariff: The project is backed by a 25-year PPA with Sahyadri Hospitals Private Limited. The PPA has a lock-in period of 25 years with a fixed one-part tariff and assured offtake by the off-taker. The offtake risk remains low given the competitive tariff against the grid tariff.
Low counterparty risk given the healthy credit profile of the off-taker: Given the healthy credit risk profile of the off-taker the counterparty risk remains low. With the collection efficiency of ~99.90% witnessed since the start of operations in October 2021, the payments have been timely. Thus, ICRA expects the reliance on working capital borrowings to remain negligible going forward.
Limited track record of project performance: The project under the company was commissioned in October 2021 and has a limited track record of around 12 months. While the performance of the plant has been stable and in line with the P90 levels so far, the performance going forward will remain a key monitorable.
Cash flows exposed to risk of irradiance levels and interest rate environment: The power production and thus the cash flow generation for the solar power projects remain exposed to the irradiance levels. While the company does not have control over the weather-related factors, given the tariff being one-part in nature the cash flows will face headwinds in a scenario of lower-than-expected irradiance. The cash flows would also remain susceptible to the change in the interest rates for the loan contracted by the entity. Since the tariff is fixed in nature and the interest rate on term loans are variable, in a rising interest rate environment the cash flows will face headwinds. The ability of the company to service its debt will also moderate unless the company's performance exceeds the base case production levels.
Un-favorable changes in regulations may pose risks to cash flows going forward: The solar power project has been setup under the Group Captive Model wherein the power produced by the company is exempt from levy of Cross Subsidy Surcharge/Additional Surcharge. Given such exemptions the current landed tariff for the off-taker remains competitive against the grid tariff. However, the tariff remains exposed to regulatory changes which may result in such charges being levied going forward. While the provisions of the PPA ensure the pass-through of the levy of such charges to the off-taker, the competitiveness of the project's tariff vis-à-vis grid tariff will moderate. It may result in renegotiation of the tariff post the expiry of the lock-in period. However ICRA notes that the possibility of levy of such charges retrospectively (for commissioned projects) remains minimal.
Liquidity position: Adequate
The liquidity profile of the company is adequate as reflected by availability of surplus cash of Rs. 0.49 crore as on September 30, 2022 and ICRA's expectation of the projected cash flows to remain adequate to meet the debt servicing requirement with power generation expected to remain around P90 levels. The parent RRPL has furnished a bank guarantee for maintaining
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DSRA equivalent to peak debt servicing for two consecutive quarters and in case of a shortfall in cash flow generation, ICRA expects the parent, to support the company to meet its debt servicing requirements.
Positive factors - ICRA could upgrade MH Solar's rating in a scenario of improvement in the credit profile of the parent Radiance Renewables Private Limited along with consistent power generation in line with P90 levels and timely collections from off-taker.
Negative factors - Negative pressure on MH Solar's rating could arise in case actual PLF remains low on a sustained basis and/or inability of the company to maintain a cumulative DSCR of 1.20x on a sustained basis. The rating could also be revised downwards in case of weakening of linkages with the parent and/or weakening in the credit profile of its parent i.e., Radiance Renewables Private Limited.
Analytical approach Analytical Approach Comments Applicable rating methodologies
Corporate Credit Rating Methodology
Rating Methodology for Solar Power Producers
Rating Approach-Implicit support from Parent or Group Parent/Group support
The Rating factors in implicit support form the parent Radiance Renewables Private Limited given the business linkages, strategic importance and the willingness shown by the parent to support the entity. Consolidation/Standalone
For arriving at the ratings, ICRA has considered the standalone financials of the entity.
About the company
Radiance MH Solar Power Private Limited (MH Solar) is a subsidiary of Radiance Renewables Private Limited (RRPL, rated [ICRA]A (Positive)/[ICRA]A2+) which is the holding company of Radiance Group and is backed by Green Growth Equity Fund (GGEF). GGEF has NIIF and DFID, UK Government as its anchor investors. GGEF is managed by EverSource Capital which is 50:50 joint venture of EverStone Capital and Lightsource BP.
MH Solar has setup a 4.2MWp (DC)/3.0 MW AC ground mounted solar power project in Maharashtra under the group captive mode which was commissioned in October 2021. The long term PPAs have been signed with Sahyadri Hospitals Private Limited (SHPL) with a tenure of 25 years and a lock-in of 25 years. RRPL holds 74% while SHPL holds the remaining 26% in MH Solar as on September 30, 2022.
Key financial indicators (audited) KA Two (Standalone) FY2021 FY2022 Operating income
-2% Total outside liabilities/Tangible net worth (times)
2.85 Total debt/OPBDIT (times)
3.43 Interest coverage (times)
PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation; Amount in Rs crore
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Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for past three years Instrument Current rating (FY2023) Chronology of rating history for the past 3 years Type Amount rated Amount outstanding as of September 30, 2022 Date & rating in FY2023 Date & rating in FY2022 Date & rating in FY2021 Date & rating in FY2020 (Rs. crore) (Rs. crore) 16-Nov-22 - - - 1 Term loans
Complexity level of the rated instruments
Instrument Complexity Indicator
Long-term fund-based - Term Loan
The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated. It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are available on ICRA's website: Click Here
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Annexure I: Instrument details ISIN Instrument Name Date of Issuance Coupon Rate Maturity Amount Rated (Rs. crore) Current Rating and Outlook NA Term Loan
Please click here to view details of lender-wise facilities rated by ICRA
Annexure II: List of entities considered for consolidated analysis-NA
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