Karma Energy Ltd.

Brickwork Ratings reaffirms the long term ratings with a revision in outlook for the Bank Loan Facilities of Rs. 25.27 Crs. of Karma Energy Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (31 Mar 2020)	Present
Fund Based	34.31	25.27	Long Term	BWR BBB- / Stable Upgraded	BWR BBB - /Negative Reaffirmation and change in Outlook
Grand Total	34.31	25.27	(Rupees Twenty Five Crores and Twenty Seven lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

Brickwork Ratings has reaffirmed the long term rating at BWR BBB- with a revision in outlook from "Stable" to "Negative" for the Bank Loan Facilities of ? 25.27 Crores of Karma Energy Ltd. The rating reaffirmation factors in the extensive experience of the promoters, corporate guarantee and significant group support & DSRA account of Rs 10.00 Cr maintained by the entity. The rating is constrained on account of the decline in financial performance and EBITDA in FY21 resulting in a below average credit risk profile, exposure to changes in regulatory policies, pending litigation on sale of REC's and delayed debtors realisation. BWR has essentially relied upon the audited standalone and consolidated financial statements of Karma Energy Ltd. (KEL) for FY18, FY19 and FY20, 9MFY21 provisionals, projections of FY21, FY22 and publicly available information and information / clarifications provided by the entity’s management.

The rating outlook has been revised to "Negative" from “Stable”, on account of deterioration in financial performance, delays in debtors realisation and the pending litigation on the sale of REC’s.

KEY RATING DRIVERS

Credit Strengths:

Experienced promoter :
The promoter of KEL, Mr. Chetan Mehra has more than three decades’ experience in the wind power generation business.
Group support :
KEL is a part of Weizmann group which has 3 other companies in it i.e. Weizmann Ltd., Windia Infrastructure Finance Ltd. (WIFL) and Tapi Energy Projects Ltd. (TEPL). Windia Infrastructure has given corporate guarantee to the Bank Loans of KEL. WIFL is an investment company and have a healthy networth base of Rs. 134.36 Crs as on March 31, 2020. In FY20, WIFL and TEPL have provided inter corporate deposits to the tune of Rs. 35.62 Crs to KEL. Group companies and promoters have provided financial support to KEL whenever required and going ahead any mismatch in cash flows will be funded by financial support from group companies/promoters.
Maintenance of DSRA :
KEL maintains DSRA of Rs 10.00 Cr in the form of fixed deposits with the bank which will be maintained during the tenure of the loan. This provides additional comfort towards their debt obligations despite low DSCR.

Credit Risks:

Exposure to changes in regulatory policies :
The Company is susceptible to risks arising from changes in Government regulations and policies affecting the industry. They have a direct bearing on the operational continuity, revenue generation and profitability.
Below average credit risk profile :
Deterioration in financial performance in FY21 owing to low REC sales and poor wind availability in FY21, due to which the TOI of KEL for 9MFY21 stood at Rs. 20.47 Crs. Revenue is expected to decrease from Rs. 35.88 Crs in FY20, where revenue had increased on account of a bumper off take of Renewable Energy Certificates (REC's). This resulted in a liquidity crunch for KEL with a projected negative EBITDA in FY21, and to support its working capital requirement and fulfil its debt obligations, KEL has taken short term inter corporate deposits from its group companies to the tune of Rs. 35.62 Crs. Current ratio is poor, having decreased to 0.60x in FY20. Debt protection metrics are poor with DSCR and ISCR at 0.80x and 1.87x in FY20, and is projected to decrease to 0.13x and -0.22x in FY21 due to an estimated loss.
Delayed Debtors realisation :
Due to financial problems faced by state utilities of Tamil Nadu and Andhra Pradesh, Trade receivable of KEL has remained high at Rs. 15.86 Crs in FY20. However, the company was able to realize old dues of 3-5 years in Tamil Nadu and Andhra Pradesh in the first 4 months of FY21 due to which receivables are expected to decrease in FY21.
Pending litigation on REC's and expiring PPA's :
In FY 2021 since CERC reduced REC floor & forebearance price considerably the various RE Associations are in appeal before APTEL and hence trading of REC's in exchanges is not taking place. This has affected KEL's revenue in FY21 and might further affect the revenue in the short/medium term till the matter is resolved. While KEL has long term PPA's at 5 out of their 8 plants, however the other 3 plants have expiring short term PPA’s. This might affect the achievability of revenues if they are unable to be renewed and will be a key monitorable.

ANALYTICAL APPROACH - Standalone

BWR has factored into a standalone and consolidated business and financial risk profile of the Company along with the business Karma Energy Ltd. (KEL) to arrive at the rating as they are engaged in a similar line of business. Reference may be made to the Rating Criteria hyperlinked below.

RATING SENSITIVITIES

Going forward the ability of the Company to sustainably scale up its operations, improve the overall financial risk profile of the company backed by debt protection metrics, timely collection of its debtors and outcome of pending litigation on REC's would be key rating sensitivities.

Positive: Sustained improvement in financial risk profile, gearing levels and debt coverage indicators would be positive for the rating.

Negative: Deterioration in debt coverage indicators and further deterioration in gearing levels would be negative for the rating.

LIQUIDITY INDICATORS - Stretched

Though the liquidity indicators are stretched, however, the group companies have provided Inter Corporate Deposits from Tapi Energy Projects Ltd. and Windia Infrastructure Finance Ltd. to support short term funds requirements. ICD's increased to Rs. 35.62 Crs in FY20 from Rs. 16.17 Crs in FY19.

Current ratio is poor standing at 0.60x in FY20. This projected to further decrease to 0.34x in FY21.
Debt protection metrics are poor with DSCR and ISCR at 0.80x and 1.87x in FY20, and is projected to decrease to 0.13x and -0.22x in FY21 due to an estimated loss of Rs. 8.67 Crs.
Net Cash Accruals of - 6.36 Crs in FY21 will be insufficient to cover CPLTD of Rs. 10.14 Crs. However, the group companies have provided ICDs of Rs. 35.62 Crs to support short term funds requirements.
KEL maintains DSRA of Rs 10.00 Cr in the form of fixed deposits with the bank which will be maintained during the tenure of the loan.

ABOUT THE ENTITY

Karma Energy Limited is a public limited company listed on NSE and BSE. It was incorporated as Karma wind power Pvt. Ltd. on 15th March 2007. The company is apart of Weizmann group to which it got amalgamated in the year 2010. The company is engaged in the business of power generation through renewable energy. The company has interest in wind power, hydro power and solar power. The generated energy is transmitted via government owned grids and/ or state utilities. Karma energy also generates revenue by selling wind power directly to state governments and by selling renewable energy certificates. The company has developed and currently operating 38MW of wind power projects in the state of Maharashtra, Tamil Nadu and Andhra Pradesh.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	35.88	30.28
EBITDA	Rs.Crs.	9.98	5.05
PAT	Rs.Crs.	0.17	-4.25
Tangible Net Worth	Rs.Crs.	45.82	47.74
Total Debt/Tangible Net Worth	Times	1.55	1.19
Current Ratio	Times	0.60	0.89

KEY COVENANTS OF THE FACILITY RATED

N/A

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

N/A

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	25.27	BWR BBB-/Negative (Reaffirmation and change in Outlook)	31Mar2020	BWR BBB-/ Stable (Upgraded)	NA	NA	17Jan2018	BWR BBB-/ Stable (Reaffirmed)
		NA	NA	16Mar2020	BWR BB+/Stable; INC (Downgraded; Issuer Not Cooperating*)	NA	NA	NA	NA
Grand Total		25.27	(Rupees Twenty Five Crores and Twenty Seven lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Rachit Salian Rating Analyst rachit.s@brickworkratings.com	Sushil Kumar Chitkara Director - Ratings Board : +91 22 2831 1426, +91 22 2831 1439 sushilkumar.c@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Karma Energy Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	HDFC Bank	Term Loan - Out-standing	25.27	_	25.27
Total			25.27	0.00	25.27
TOTAL (Rupees Twenty Five Crores and Twenty Seven lakhs Only)

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