ICRA rates CEPCO Industries bank facilities at LA-, outlook "stable"

(ADPnews) – Oct 21, 2010 – India's ICRA said it gave an LA- rating, with a "stable" outlook, to real estate and wind power company CEPCO Industries Private Ltd's INR 2.42 billion terms loans and INR 580 million fund-based limits.

The agency issued the following press release:

ICRA has assigned a long term rating of LA- (pronounced as L A Minus) to Rs 242 crores1 of terms loans and Rs 58 crores of fund based limits of CEPCO Industries Private Limited† “referred as CEPCO”. ICRA has also assigned stable outlook to long term rating of CEPCO.

ICRA ratings factor in favourably the diversified revenue stream with presence across real estate (generating lease rentals) and wind power businesses. ICRA has also taken a note of prime location of real estate properties, their presently healthy occupancy levels, sound tenant profile and adequate lease rentals and profitability.

Further, rating also factor in favourably moderate size of wind power operations, with well spread geographical profile, satisfactory operating track record of its wind farms as evidenced by the adequate plant availability and plant load factor. The rating takes into consideration satisfactory tariffs that CEPCO has tied up with the respective state power utilities as per long-term power purchase agreements (PPA) and addition income stream expected from sale of carbon emission reductions (CERs), incentives under the generation based incentive (GBI) scheme and fiscal benefits (under section 80 IA) available from the government to wind power companies. ICRA has also taken note of strengthen regulatory environment for the wind power generation in the country with introduction of CERC tariff norms, GBI’s, renewable purchase obligation and renewable energy certificates (REC) framework.

ICRA rating is however constrained on account of company’s proposed plans to undertake reconstruction of key property at Kalkaji. While the construction will be undertaken in phases, even then it would lead to revenue loss for the period under construction, cash outflows for the proposed capital expenditure and would also expose the new space to commercial property risks. In addition, under wind power business profitability is highly susceptible to PLF levels and wind conditions, given one-part tariff mechanism, linked to actual generation. Overall, high costs of setting up a wind power plant along with their comparatively lower PLF’s, results in pressure on intrinsic profitability of these units. Nonetheless an accelerated depreciation and 80IA benefit under wind power business coupled with healthy tariff rates improves the attractiveness of the investments.

The investment grade rating draws support from the healthy capital structure and surplus cash build by CEPCO over years (from healthy cash accruals). This supports the company to mitigate temporary liquidity mismatches arising out of these aforementioned operational risk factors. However, ICRA notes that CEPCO has been leveraging its balance to make investments in equity linked debt products, wherein the returns have remained inadequate. ICRA also takes a note of ongoing debt funded expansions of the wind power operations, which is expected to result in high debt levels in future and moderate debt coverage indicators of the company.

About the company

CEPCO Industries Private Limited (CEPCO) is primarily engaged in two areas of operation; 1) Real Estate 2) Wind Power Generation. Under the real estate business company generates rental income (along with allied incomes such as parking fee, maintenance & power charges etc) through leasing of owned2 properties with a total area of around 2.35 lac square feet across three locations (Kalkaji, Connaught Place and Rani Jhansi Marg) in Delhi. Under the wind power generation business CEPCO owns and operates a total of 49.15 MW of wind power capacity across the states of Rajasthan (28 MW), Madhya Pradesh (6.15 MW) and Karnataka (15 MW). In addition, the company is in advance stages of implementing 11.2 MW of incremental wind power capacity in state of Rajasthan. CEPCO was promoted by Mr RN Agarwal, in 1958, under the name of Cycle Equipment Private Limited. Till late 1980’s it was engaged in manufacturing of bi-cycles parts.

(INR 100 = USD 2.255/EUR 1.608)
(crore = 10 million)

Rating agency website: www.icra.in

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