Kshema Power and Infrastructure Company Pvt. Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 96.08 Crs. of Kshema Power and Infrastructure Company Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (19 Aug 2020)	Present
Fund Based	51.65	46.08	Long Term	BWR BBB/Stable Reaffirmation	BWR BBB /Stable Reaffirmation
Non Fund Based	50.00	50.00	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
Grand Total	101.65	96.08	(Rupees Ninety Six Crores and Eight 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

The reaffirmation of ratings continue to factor the operational track record and extensive experience of the promoters, established relationship with reputed clientele, healthy order book providing short -medium term revenue visibility, above average financial risk profile and favorable outlook for renewable energy. However, the ratings continue to remain constrained by working capital intensive operations, susceptibility to risks inherent in tender business, customer and geographical concentration of the orderbook, susceptibility to competition and volatility in raw material prices and dependence on renewable energy industry and susceptibility to changes in government policies pertaining to the end user industries.

BWR notes that the company had availed relief under the COVID-19 moratorium package during Mar'20 - Aug'20 involving deferment of interest and emergency credit lines. The company has been regular in debt obligation payments in the post-moratorium period, as confirmed by the lender. BWR also notes the company has not availed for one time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related Stress.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR expects that the business risk profile will be maintained over the medium term. The outlook may be revised to Positive if the company reports a significantly better-than-estimated growth in its operations and profitability and sustained improvement in order accretion while maintaining its credit risk profile. The outlook may be revised to Negative if any significant delays in execution of key orders or slowdown in new order inflows due to Covid-19 pandemic or otherwise adversely impacts the company’s revenues and profitability or if there is deterioration in its working capital cycle, leverage or liquidity position.

KEY RATING DRIVERS

Credit Strengths:

Experienced Management and established track record :
The company is engaged in infrastructure development for the power sector, particularly for wind power generation and solar power for more than two decades and has an established track record. Dr. Satheesh Basant, the founder Chairman & Managing Director, has extensive experience in the industry. The company benefits from the management’s understanding of the dynamics of the industry and established relationships with customers.
Healthy order book, revenue visibility and reputed clientele :
The company as on 22 Sep 2021 had a confirmed order book position of Rs.1021 crores and ~ Rs.900 crores worth of orders in the pipeline. The unexecuted order book as on hand at Rs.547 crores is to be completed in the next 1-2 years. BWR also notes that the company has unbilled completed works worth ~Rs.350 crores as on 22 Sep 2021. The orderbook position provides short- medium term revenue visibility. Further, the majority of the order book is from reputed clientele which have been dealing with the company for the past few years. Key customers are private players like SBESS Projectco Two Private Limited (Belonging to the Soft Bank Group), Enel Green Power India Private Limited, Siemens Gamesa, Vestas, ReGen Powertech, etc (for establishment of Wind/Solar Farms) and State Government agencies viz. Madhya Pradesh Power Transmission Company Ltd [MPPTCL] and Madhya Pradesh Paschim Kshetra Vidyut Vitran Company Ltd [MPPKVVCL], and Power Grid Corporation of India Limited (for construction of substations and erection of transmission lines.). Counterparty risk remains minimal. Presently, the company's major ongoing projects of ~1200 MW are for reputed players such as SBESS and SBE (Belonging to the Softbank group).
Above average financial risk profile :
The company's operations remain modest with above average financial risk profile. The operating revenue, EBITDA and net profit of the company was Rs.206.56 crores, Rs.24.17 crores and Rs.5.89 crores respectively for FY 20. The tangible networth was average at Rs.52.82 crores as on 31 March 2020. The total debt/TNW was at 1.61 times as on 31 March 2020. DSCR and ISCR were adequate at 1.44 and 2.17 times respectively as on 31 March 2020. On a provisional basis for FY 21, the company's performance remained stable with a revenue of ~Rs.216 crores, Operating profit of Rs.25.93 crores and PAT of Rs.6.93 crores. The company has booked a revenue of ~Rs.125 crores for 6MFY22 on a provisional basis.
Favorable demand for renewable energy :
The outlook for the renewable energy sector remains healthy with favorable demand, especially from industrial and commercial consumers. In addition, the government’s thrust and policy initiatives favoring the sector remains a growth driver for the company.

Credit Risks:

Susceptibility to risks inherent in tender businesses :
Certain projects related to wind energy and all solar energy projects are tender based, the business depends on the ability to bid for tenders successfully. Revenue and profitability are expected to remain susceptible to risks inherent in contract based operations. Tender based operations limit pricing flexibility in an intensely competitive industry. However, BWR notes the concentration of such tender based contracts in KPICPL’s order book is low.
Client and geographic concentration risks: :
The company's order book is exposed to both client concentration and geographical risks as the major project revenue for the company presently is from the SBESS project in Madhya Pradesh (Contribution of Rs.152 crores to topline as per FY 21 (P)). SBESS Projectco Two Private Limited is a subsidiary of SB Energy Holdings which is an indirect holding of the Softbank group. The company has on hand orders worth Rs.425 crores from SBESS out of which the unexecuted position as on date is Rs.200 crores. This exposes the company to region-specific economic and political risks. Any decline in the economic scenario or changes in political scenario in the state is likely to constrain operating performance. However, with expansion of operations to other states mitigates the associated risks to a certain degree.
Working capital intensive nature of operations :
The company’s business operations are working capital intensive. Working Capital limits of the company is almost fully utlilized with adhoc limits being availed during August 2021. The receivable days increased to 121 days as on 31 March 2020 (PY:89 days) due to delay in receivables from the government projects. However, BWR notes the improvement in the receivable days to 84 days as on 31 Mar 2021 (prov) with faster realization through the SBESS project. The company's ability to effectively manage its working capital requirement will be a key monitorable.
Dependence on renewable energy industry and susceptibility to changes in government policies :
Revenue and profitability have direct linkages with demand for renewable energy and development of the industry, and government policies related to promoting the industry with incentives such as accelerated depreciation and tax exemption. Any adverse industry scenario may impact the company's business risk profile
Susceptibility to competition and volatility in raw material prices :
Fragmentation and competition in the renewable power EPC segment with large numbers of organized and unorganized players leads to volatile profitability margins. Also the competition from imports from China, Taiwan, etc., has resulted in volatility of raw material prices which again turns the profitability margins vulnerable. However KPCIPL’s projects are priced on a cost plus margin method, which effectively guards volatility in raw material prices

ANALYTICAL APPROACH - Standalone

KPICPL has 36 subsidiaries, whose financial information are included in the consolidated financial statements of the company as on 31 Mar 2020. As the contribution from such entities is nominal, while assigning the ratings, BWR has adopted a standalone approach. BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Ability of the company to increase its scale of operations as per the envisaged projections with healthy growth in order book position, sustenance of profitability, managing its working capital needs, and executing the orders in hand without delay would be the key rating sensitivities.

Positives:

Significant improvement in scale of operations, profitability on a sustained basis.
Geographical diversification of business.
Prudent working capital management

Negatives:

Deterioration in scale of operations, decline in order accretion, decline in EBITDA margins due to industry or company-specific factors, leading to a significant deterioration in the credit metrics and liquidity, all on a sustained basis
Specific credit metrics which may result in a rating downgrade include ISCR declining to below 2 times and DSCR below 1.0 time on a sustained basis.
A significant stretch in the receivables cycle of the company and reduction in the order book position resulting in deterioration of financial and business profile on a sustained basis.

LIQUIDITY INDICATORS - Stretched

The company's liquidity is considered stretched considering the near full utilisation of its working capital limits and availment of adhoc limit of Rs.7.50 crs during the last six months. The current ratio was 1.24 as on 31 Mar 2020. The unencumbered cash and cash equivalent as on 31 Mar 2021 (Prov) and 31 Aug 2021 were Rs.17.30 crs and Rs.0.24 crs respectively. The cash conversion cycle increased to ~ 127 days as on 31 March 2021 (PY:86 days). The EBITDA of Rs.24.17 crores was sufficient to cover the interest and finance cost of Rs.11.12 crores for FY 20. The net cash accruals for FY20 and FY21 was sufficient to cover the debt obligations and a similar trend is expected in FY22 and FY23. Operations are expected to remain working capital intensive and timely recovery of receivables and efficient utilization of working capital facilities will be a key rating monitorable

ABOUT THE ENTITY

Kshema Power & Infrastructure Company Private Limited (KPICPL), Kochi, Kerala is engaged in infrastructure development for the power sector, particularly for the wind power generation and solar power for more than two decades. Operations were started in 1998 as a proprietorship firm under the name Kshema Builders & Developers and later renamed to Kshema Power & Infrastructure Company Private Limited during 2013. The Company has successfully executed several contracts on a turnkey basis with an aggregate value more than Rs.1000 crores. This includes establishment of wind/solar farms, setting up of substations and erection of transmission lines in the states of Tamil Nadu, Madhya Pradesh, Karnataka, Andhra Pradesh, Maharashtra and Kerala. KPICPL has its registered office at Edappally, Kochi, Kerala and Corporate Office at Ekkaduthangal, Chennai Tamil Nadu.

Dr. Satheesh Basant is the Chairman & Managing Director, Mr Abhinand Basant and Mrs Amritha Basant are the directors

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	206.56	289.64
EBITDA	Rs.Crs.	24.17	27.35
PAT	Rs.Crs.	5.89	7.98
Tangible Net Worth	Rs.Crs.	52.82	46.93
Total Debt/Tangible Net Worth	Times	1.61	1.84
Current Ratio	Times	1.24	1.10

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	46.08	BWR BBB/Stable (Reaffirmation)	19Aug2020	BWR BBBStable (Reaffirmation)	25Jun2019	BWR BBBStable (Reaffirmation)	02Mar2018	BWR BBBStable (Upgrade)
Non Fund Based	ST	50.00	BWR A3+ (Reaffirmation)	19Aug2020	BWR A3+ (Reaffirmation)	25Jun2019	BWR A3+ (Upgrade)	02Mar2018	BWR A3 (Reaffirmation)
Grand Total		96.08	(Rupees Ninety Six Crores and Eight lakhs Only)

Rating Advisory, as on 20Aug2021
Press Release, as on 20Aug2021
Rating advisory was issued on 20 Aug 2021 for delay in review.

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
Vineetha Ann Varughese Ratings Analyst vineetha.v@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Kshema Power and Infrastructure Company Pvt. 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	Punjab National Bank	Cash Credit - Sanctioned	25.00	_	25.00
2	Punjab National Bank	Letter of Credit - Sanctioned	_	20.00	20.00
3	South Indian Bank	Term Loan - Out-standing	6.08	_	6.08
4	State Bank Of India (SBI)	Working Capital Demand Loan - Sanctioned	_	_	0.00
5	State Bank Of India (SBI)	Cash Credit - Sanctioned	15.00	_	15.00
6	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	15.00	15.00
7	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	15.00	15.00
Total			46.08	50.00	96.08
TOTAL (Rupees Ninety Six Crores and Eight lakhs Only)

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