CRISIL Ratings
| Total Bank Loan Facilities Rated | Rs.3850 Crore |
| Long Term Rating | CRISIL AA+/Stable (Assigned) |
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. 1 crore = 10 million Refer to Annexure for Details of Instruments & Bank Facilities
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA+/Stable’ rating to the long-term bank facilities of HPCL Renewable & Green Energy Limited (HPRGE).
The rating derives comfort from the strategic importance this company holds to, and the continuous operational, managerial, and financial support it is expected to receive from its parent, Hindustan Petroleum Corporation Ltd (HPCL, rated 'CRISIL AAA/Stable/CRISIL A1+'), which owns a 100% stake in HPRGE. HPRGE is critical to HPCL in its efforts of achieving its net zero carbon emission targets. The rating also factors in expected healthy project economies and limited offtake and counterparty credit risk.
The company is primarily focused towards developing assets in two verticals – renewables (solar, wind & hybrid) and biofuels. Currently, it has plans to invest Rs 5250 crore in two phases, to be funded in a debt: equity ratio of 2:1 with all the projects expected to commission by fiscal 2028 & ~90% of the budgeted investments would be towards setting up renewable power projects to cater to its energy requirements for its oil refineries and marketing locations; the balance to be towards setting up compressed biogas (CBG) and biodiesel plants, output of which would be then used for blending with natural gas and diesel respectively and sold through retail outlets of HPCL
HPCL would be executing a 25-year power purchase agreement with HPRGE for the entire renewable energy generated at prevailing discom rates. Also, an 100% offtake agreement would be executed for the CBG and biodiesel produced. The company is in the process of securing funding for these projects, expected to be a 13.75year loan tenure with 10.75 years of repayment. While this still gives a higher tail period in terms of principal repayments, average DSCRs are nevertheless expected to remain comfortable above 1.50x
These rating strengths are, however, partially offset by the initial construction phase of the projects, wherein its timely construction within the budgeted cost and its stabilisation would be key monitorables.
Analytical Approach
CRISIL has applied its parent notch-up framework to factor in the extent of support from HPCL. The company will continue to receive the required operational, financial, and managerial support, given its strategic importance to the parent.
Key Rating Drivers & Detailed Description
Strengths:
Strong support from the parent, HPCL: HPRGE is critical to HPCL in its efforts of achieving its net zero carbon emission targets. The company benefits from the financial flexibility it derives on being part of HPCL, which provides it the flexibility to raise capital at competitive rates. Amongst the budgeted investment of Rs 5250 crore for the initial two phases, Rs. 1750 crore would be funded by HPCL.
HPCL would also be executing a 25-year power purchase agreement with HPRGE for the entire renewable energy generated at discom rates. Also, an 100% offtake agreement would be executed for the CBG and biodiesel produced. The company also receives the required operational and managerial support wherein 4 directors of HPCL (including the Chairman & MD and Director-Finance) hold a directorship in HPRGE.
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Minimal offtake risks, with healthy project economics expected: Currently, the entire output will be captively consumed by HPCL. This would reduce the payment risk for the renewable projects, given HPCL’s strong credit risk profile.
The projects would be undertaken by EPC’s, to be selected for each project on tendering basis. The solar projects are expected to use crystalline technology, with equipment’s to be sourced from prominent suppliers. The projects will also have O&M agreements with EPC who would ensure performance warranty.
Given the renewable energy is expected to be sold at discom rates, project returns would be favourable, with average DSCR expected at above 1.50x. Currently, around 10.75 years of repayment period is considered, providing sufficient tail period in terms of principal repayments.
Weaknesses:
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Exposed to project implementation and stabilisation risks: Project implementation risk persists, given the early stage of execution. Also, once commissioned, the projects would remain exposed to risks related to stabilisation, akin to all greenfield projects. For Phase 1 projects, land has been identified and the various projects are at different stages, with projects at Jhansi & Panipat (~6% of overall solar projects capacity planned) at advanced stage of completion. Others are mainly at a stage where tender has been floated and company is in process of selecting EPC’s to commence execution. For Phase 2, where HPCL’s Mumbai & Vizag refinery greening is proposed, the same is still at a nascent stage. Once operational, ability to ramp-up and achieve optimum capacity utilisation at expected P90 CUF and actual power generation will be critical.
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Exposure to risks inherent in renewable energy generation: Solar power plants face technology-related risk. Power generation depends on irradiation levels around the plant and annual degradation in solar panels. Similarly, wind power generation remains vulnerable to seasonality and variance in wind intensity. Given that cash flow is highly sensitive to plant load factor (PLF) in solar as well as wind assets, these risks could severely impact debt servicing and free cash flow. These risks are however somewhere mitigated given that EPC’s would be signing a contract stipulating ‘minimum supply guarantee’ wherein incase of any shortfall from expected energy generation, the EPC contractor shall be liable to fully reimburse the HPRGE for any resulting losses . CRISIL Ratings will however continue to monitor PLF levels post implementation of the solar projects which would form ~90% of the overall capex as a key rating sensitivity factor.
Liquidity: Strong
Currently, the project is being funded through equity proceeds from HPCL. Rs. 150 crore has been infused as on 30th September 2024. The company is in the process of availing term loans, repayment of which would commence on quarterly basis from Q1 of Fiscal 2028 onwards. The projects are expected to receive the required funding support from HPCL.
Outlook: Stable
CRISIL Ratings believes HPRGE will remain strategically important to HPCL and will continue to receive support during project implementation and after commencement of operations.
Rating sensitivity factors
Upward factors:
Timely commissioning of the projects, withing the budgeted costs.
Stabilisation of the plant post commissioning, with offtake agreements in place with HPCL, supporting the average DSCR expectations of over 1.5x.
Downward factors:
Time or cost overruns, or stabilisation-related issues
Lower-than-expected support from HPCL or Downgrade in HPCL’s rating by 1 notch
About the Company
Incorporated on Jan 19, 2024, HPRGE is a wholly owned subsidiary of HPCL which was formed to house the green energy business of the group. This would enable HPCL to have greater focus & accelerate the achievement of its green energy targets. The current focus of the group is primarily on 2 verticals – renewables & biofuels.
In the renewables segment, the company’s primary focus would remain towards meeting captives requirements of the parent i.e. HPCL. Once achieved, it may look to sell excess power generated to third parties. On the biofuels side, it is focused on setting up Biodiesel and CBG units to help meet the expected mandated blending requirement.
Key Financial Indicators
| As on/for the period ended March 31** | 2024 | 2023 |
|---|---|---|
| Revenue (Rs.Crore) | NA | NA |
| Profit after tax (Rs.Crore) | -2.34 | NA |
| PAT Margins (%) | NM* | NA |
| Adjusted Debt/Adjusted Networth (Times) | NA | NA |
| Interest Coverage (Times) | NA | NA |
*NM – Not meaningful, Financial indicators not meaningful, as company is in construction phase, operations has not yet commenced. **Above financials are management certified.
Any other information: Not Applicable
Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.
CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.
For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
| ISIN | Name Of Instrument | Date Of Allotment | Coupon Rate (%) | Maturity Date | Issue Size (Rs.Crore) | Complexity Levels | Rating Outstanding with Outlook |
|---|---|---|---|---|---|---|---|
| NA | Proposed Long Term Bank Loan Facility | NA | NA | NA | 3850.00 | NA | CRISIL AA+/Stable |
Annexure - Rating History for last 3 Years
| Instrument | Type | Outstanding Amount | Current Rating | 2024 (History) | 2023 | 2022 | 2021 | Start of 2021 Rating | ||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Date | Rating | Date | Rating | Date | Rating | Date | Rating | |||||
| Fund Based Facilities | LT | 3850.0 | CRISIL AA+/Stable | -- | -- | -- | -- | -- | -- | -- | -- | -- |
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
| Facility | Amount (Rs. Crore) | Name of Lender | Rating |
|---|---|---|---|
| Proposed Long Term Bank Loan Facility | 3850 | Not Applicable | CRISIL AA+/Stable |
Criteria Details
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