Ratings revised for bank loans of Synergy Shakti Renewable Energy Limited to ICRA BB-

Synergy Shakti Renewable Energy Limited

Instrument Amount Rating Action
Term Loan Rs. 35.0 Crore [ICRA]BB-(stable)
Fund Based Limits Rs. 4.0 Crore [ICRA]BB-(stable)

ICRA has revised the long-term rating assigned to the term loan and fund based facilities of Synergy Shakti Renewable Energy Limited (SSREL) aggregating to Rs. 39.0 crore1 from [ICRA]D (pronounced ICRA D) to [ICRA]BB- (pronounced as ICRA double B minus)†. The outlook on the long term rating is Stable.

The rating upgrade takes into account the company’s track record of profitable operation year to date in FY2013, arising out of remunerative tariff through third party sales, Renewable Energy Certificate (REC) sales income and availability of basic fuel (biomass) at reasonable rates. This has also resulted in timely debt repayments since the approval of the debt restructuring package in Dec 2011. The company is currently selling power directly to third party customers (mainly industrial consumers and group companies of TVS-LUCAS group) and is realizing REC revenue as well. This arrangement has resulted in improved profitability, improved debtors turnover and enhanced liquidity, albeit at increased off take and price risk. ICRA also takes comfort from the ownership of the company (Lucas Indian Services Ltd. Holds 46.67% & India Nippon Electricals Ltd. Holds 40% in company).

ICRA notes that the repayment as well as interest payment burden is low until March 2013 on account of restructuring of term loan done in Dec 2011. ICRA’s rating is however constrained by the exposure of the company’s revenue to volatility in rates prevailing in REC market as well as off-take prices available from industrial consumers. While the substantial energy deficit in Tamil Nadu and recent upward revision in tariffs support the off take and pricing of power sold, the sustainability of the same is to be seen over extended period. In addition ICRA notes that the profitability and liquidity will be largely contingent upon timely REC sales realization. In addition, although, the company has been able to source the requisite bio-mass fuel for its power plant at affordable price in current year, increases in fuel costs cannot be ruled out.

Company Profile

SSREL is a part of Lucas TVS group. Pursuant to obtaining clearance from Government of Tamil Nadu to put up a 10 MW biomass based power plant, SSREL started construction at Ollaipatti Village, Krishnagiri District, Tamil Nadu (TN) in 2007. The total project cost was around Rs 49 crore, of which promoters contributed Rs 15 crore as equity. The plant was commissioned in Feb 2010. It’s currently selling power to third party industrial consumers and realizing income through Renewable Energy Certificate sales on power exchanges. The company is part of TVS-Lucas group with Lucas Indian Services Ltd. Holds & India Nippon Electricals Ltd holding 86.67%. In FY 2012, SSREL reported net loss of Rs. 3.86 crore on an operating income of Rs. 28.63 crore, while the same were Rs 7.75 crore and Rs 22.32 crore respectively in FY2011.

December 2012

For further details please contact:
Analyst Contacts: Mr. Sabyasachi Majumdar, (Tel. No. +91-124-4545 304) sabyasachi@icraindia.com
Relationship Contacts: Mr. Jayanta Chatterjee, (Tel. No. +91-80-43326401) jayantac@icraindia.com

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