Refex Energy Limited

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 110.00 Crs. of Refex Energy Limited

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (29 Sep 2020)	Present
Fund Based	10.00	10.00	Long Term	BWR BBB /Stable Reaffirmation	BWR BBB /Stable Reaffirmation
Non Fund Based	100.00	100.00	Short Term	BWR A3 Reaffirmation	BWR A3 Reaffirmation
Grand Total	110.00	110.00	(Rupees One Hundred Ten Crores 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 (BWR) has reaffirmed the long- and short-term ratings for the bank loan facilities of Refex Energy Limited (REL or the company) at BWR BBB and BWR A3, respectively, with a Stable outlook.

The rating draws strength from the promoters’ extensive experience, and established presence of REL in the solar Engineering, Procurement and Construction (EPC) and Operation and Maintenance (O&M) business and moderate financial risk profile, as envisioned from the low gearing, strong capital structure and healthy debt coverage indicators. Furthermore, BWR factors in a geographically diversified strong order book, which further reflects healthy revenue visibility over the medium term and a well-established and diversified revenue mix.

REL provides services such as undertaking EPC contracts for utility scale projects and commercial scale rooftop Solar PV power projects, providing after sales service in the form of O&M activities and power trading with various DISCOMs and Energy Producers and Aggregators. As on 31 January 2022, REL had an unexecuted order book Rs.1118.34 Crs, which is 5 times the FY21 revenue.

The ratings are, however, constrained by the tender-based nature of the company’s business model, highly competitive nature of the solar EPC and O&M industry, and susceptibility to exchange rate risk and regulatory risk in the solar power sector. Furthermore, BWR notes that the outbreak of Covid-19 and the associated lockdowns since early FY21 have affected REL's revenues. However, the business operations have recovered in H2FY22 with improved revenues and a strong order book position.

The outlook has been kept as Stable as the company is expected to benefit from the company's strong order book position and established track record of the company in the solar EPC and O&M business.

KEY RATING DRIVERS

Credit Strengths:

Long-standing experience of the promoters in EPC solar business :
Arun Mehta, M. K. Sharda, R. K. Sharma and CVSN Murthy are the company's directors and manage daily operations. The directors have more than a decade of experience in the solar EPC and O&M business, which has enabled them to understand the intricacies of the business.
Healthy revenue visibility, reputed clientele and geographically diversified project portfolio :
The company had an outstanding order book position of Rs.1118.34 Crs as on 31 January 2022, which is 5 times the FY21 revenue. The company's operations have recovered in H2FY22 with a strong order book position, which exhibits steady revenue visibility over the medium term. The company has been executing projects for reputed clientele such as NTPC, MSPGCL, NHPC and Coal India Ltd. The company has also geographically diversified its project portfolio over various states including Tamil Nadu, Gujarat, Rajasthan, Uttar Pradesh and Maharashtra to expand its geographical presence.
Established revenue streams and moderate financial risk profile :
The company has a presence across three segments viz turnkey EPC provider, O&M business and power trading. In FY21 the company reported a strong capital structure with a Tangible Net Worth (TNW) of Rs.93.75 Crs, owing to which the gearing and overall gearing (TOL/TNW) were low at 0.16X and 1.22X, respectively in FY21. As per 8M-FY22 provisional financials, the company has improved its revenues and is expected to show substantial growth in revenues during FY22. The debt servicing capabilities remained strong, reflected by the ISCR at 5.67X in FY21.

Credit Risks:

Moderate scale of operations :
The company reported a Total Operating Income (TOI) of Rs.642.12 Crs and Rs.210.35 Crs in FY20 and FY21, respectively, registering decline in revenue. The same was mainly on account of Covid-19 outbreak in FY21, which triggered a nationwide lockdown and disrupted tendering activities and order placements in the infrastructure sector. However, the strong order book position has fuelled a revival in the business operations during H2FY22.
Highly competitive business with low entry barriers :
The solar EPC business is highly competitive, with low entry barriers, which can lead to an erosion in the EBITDA margins. The company faces intense competition from other small and medium players in the intensely competitive EPC industry.

ANALYTICAL APPROACH - Standalone

For arriving at the ratings, BWR has used a standalone approach, under which the standalone financials of the company have been considered.

RATING SENSITIVITIES

Going forward, the company's ability to increase the scale of the business would be key sensitivity over the short to medium term.

Positive : The rating may be revised upwards if the company demonstrates a significant improvement in the top-line with a substantial improvement in the profitability. The timely execution of existing orders coupled with the diversification of the order book will be credit positive.

Negative : The rating can be revised downwards if the order book position deteriorates significantly impacting the company's revenue and cash generation. Any prolonged impact of Covid-19 on account of multiple waves of the pandemic, affecting revenues will be credit negative.

LIQUIDITY INDICATORS - Adequate

The net cash accruals earned during FY21 were Rs.12.33 Crs, against no term loan obligations, and the company has no major capex requirements in the near future. The ISCR was at 5.67X during FY21. The estimated EBITDA for FY22 is sufficient to meet its interest obligations. Refex’s utilisation of fund-based working capital facilities is 81.24% over the last 9 months, reflecting moderate working capital intensive operations. Due to the back-to-back arrangements and strong collection efficiency, the cash conversion cycle was at 34 days in FY21. The timely recovery of receivables and efficient management of its working capital requirements without any strain on borrowings/cash flows will be critical.

ABOUT THE ENTITY

Refex Energy Ltd (REL) is a Chennai (Tamil Nadu) based company incorporated in 2008. The company has its corporate office in Mumbai. REL provides the complete end-to-end service of Solar PV based power solutions in the field of solar power generation from development and planning to commissioning and maintenance. Over the years it has executed solar power projects with an installed capacity of 500+ megawatts (MW). The company has three main business verticals, viz.turnkey EPC provider, O&M business and power trading.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	210.35	642.12
EBITDA	Rs.Crs.	14.10	31.36
PAT	Rs.Crs.	5.11	16.52
Tangible Net Worth	Rs.Crs.	93.75	88.65
Total Debt/Tangible Net Worth	Times	0.16	0.09
Current Ratio	Times	3.25	1.75

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for bank loan facilities.

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

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	10.00	BWR BBB/Stable (Reaffirmation)	NA	NA	29Sep2020	BWR BBB Stable (Reaffirmation)	20Aug2019	BWR BBBStable (Upgrade)
Non Fund Based	ST	100.00	BWR A3 (Reaffirmation)	NA	NA	29Sep2020	BWR A3 (Reaffirmation)	20Aug2019	BWR A3 (Upgrade)
Grand Total		110.00	(Rupees One Hundred Ten Crores Only)

Rating Advisory, as on 01Oct2021
Press Release, as on 01Oct2021
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
Aayush Verma Rating Analyst Board : +91 11 2341 2232 aayush.v@brickworkratings.com	Vipula Sharma Director - Ratings Board : +91 80 4040 9940 vipula.s@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Refex Energy Limited

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	Union Bank of India	Cash Credit - Sanctioned	5.00	_	5.00
2	Union Bank of India	Cash Credit - Proposed	5.00	_	5.00
3	Union Bank of India	Bank Guarantee - Sanctioned	_	19.20	19.20
4	Union Bank of India	Letter of Credit - Sanctioned	_	10.00	10.00
5	Union Bank of India	Letter of Credit - Proposed	_	70.80	70.80
Total			10.00	100.00	110.00
TOTAL (Rupees One Hundred Ten Crores Only)

Print and Digital Media

The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media.

About Brickwork Ratings

Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. BWR has rated over 11,400 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.

Disclaimer

Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank Loan facilities, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. [ hereafter referred to as "Instruments"]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations.

BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other reliable sources, which in BWR's best judgment are considered reliable. The Rating Rationale / Rating Report & other rating communications are intended for the jurisdiction of India only. The reports should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in Europe and also the USA).

BWR also wishes to inform that access or use of the said documents does not create a client relationship between the user and BWR.

The ratings assigned by BWR are only an expression of BWR's opinion on the entity / instrument and should not in any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.

BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgment obtained from the user's financial advisors. BWR shall not be liable to any losses incurred by the users of these Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the ratings at any time without assigning reasons for the same.

BWR's ratings reflect BWR's opinion on the day the ratings are published and are not reflective of factual circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.

Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or agents (collectively, "BWR Party") guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Rating Rationales or Rating Reports. Each BWR Party disclaims all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. In no event shall any BWR Party be liable to any one for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Rating Rationales and/or Rating Reports even if advised of the possibility of such damages. However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its affiliates do not act as a fiduciary.

BWR keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of BWR may have information that is not available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities etc., or from obligors. BWR's public ratings and analysis are made available on its web site, www.brickworkratings.com. More detailed information may be provided for a fee. BWR's rating criteria are also generally made available without charge on BWR's website.

This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories, communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.

BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as amended from time to time.