Novus Green Energy Systems (P) Ltd

August 09, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument Rating Action
(Rs. crore) (Rs. crore)
[ICRA]BB+; Outlook revised to Positive from
Fund-based Limits 8.75 17.00
Stable
[ICRA]BB+; Outlook revised to Positive from
Non Fund-based Limits 23.00 31.00
Stable
[ICRA]BB+; Outlook revised to Positive from
Unallocated 18.25 2.00
Stable
Total 50.00 50.00

Rating action
ICRA has reaffirmed the long-term rating assigned to the Rs. 17.00 crore1 fund-based limits (revised from Rs.8.75 crore),
Rs.31.00 crore non fund based limits (revised from Rs.23.00 crore) and Rs.2.00 crore unallocated limits (revised From
Rs.18.25 crore) of Novus Green Energy Systems (P) Ltd (NGESPL)2 at [ICRA]BB+ (pronounced ICRA double B plus). The
outlook on the long-term rating has been revised to Positive from Stable.

Rationale
The revision in the outlook factors in strong growth in operating income by 67% from Rs. 64.5 crore in FY2017 to Rs.
107.4 crore in FY2018 driven by healthy order execution and increased order book; and strong order book of Rs. 159.80
crore as on March 31, 2018 providing near term revenue visibility. The rating also considers long experience of
promoters in the solar industry spanning over one decade; demonstrated execution capabilities backed by its expertise
in design and engineering of solar projects with company completing EPC work of more than 35 MWp in the past five
years; and reputed client portfolio of the company comprising Government agencies such as the Uttar Pradesh New and
Renewable Energy Development Agency (UPNEDA), Madhya Pradesh Urja Vikas Nigam Ltd (MPUVNL), Chhattisgarh State
Renewable Energy Development Agency (CREDA) etc. The rating also factors in diversified presence of the company with
projects spread across different states in India; and favourable demand outlook for the solar segment with increasing
awareness and support from both Central and state governments for the promotion of solar power and target of 100 GW
of solar capacity by 2022 under Jawaharlal Nehru National Solar Mission (JNNSM).

The rating is however constrained by high dependence on outside funds to execute the order book as reflected by
TOL/TNW ratio of 3.7 times as on March 31, 2018; tight liquidity position as reflected by 93% of average utilisation of
cash credit limits in the past 12 months owing to high debtor days and significant increase in working capital
requirements given the expected growth in scale of operations. Therefore, timely sanction of enhanced working capital
limits would be a key rating monitorable. The rating is further constrained by the proposed debt funded capex plan to
set-up a module manufacturing unit which would adversely impact the debt coverage indicators in the medium term;
exposure of operating margins to volatility in prices of solar modules and tender-based nature with fixed price contracts;
and highly competitive solar industry with presence of many players in the industry.

1
100 lakh = 1 crore = 10 million
2
For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications

1
Outlook: Positive
The ‘Positive’ outlook reflects ICRA’s expectations that NGESPL will continue to benefit from the favourable demand
outlook for solar products installation and healthy order book position. The outlook may be revised to Stable, if the
company is the profitability margins decline or decline in scale of operations.

Key rating drivers

Credit strengths
Healthy growth in operating income and operating margins - The operating income has grown by 67% to Rs. 107.4 crore
in FY2018 from Rs.64.5 crore in FY2017 driven by healthy execution of orders and increased order book. Further, the
company has an order book of ~Rs. 159.80 crore as on March 31, 2018 providing near term revenue visibility as most of
the orders have to be completed by FY2019 end. Moreover, the margins improved to 12.5% during FY2018 from 6.7% in
FY2017 owing increase in scale of operations and benefit accruing from lower module prices.

Long experience of promoters in the solar industry spanning over one decade - The promoters have more than one
decade of experience in solar power industry with the projects being undertaken mainly in installation of solar water
pumps, solar power projects (rooftop and ground mount). Further, the company has executed more than 35 MWp of
solar EPC projects over the past five years mainly in solar water pumps; however from past two years the company has
increased its focus on solar power plants both roof top and ground mount.

Reputed client portfolio reducing counterparty risk - The client portfolio consists of different state nodal agencies such
as the UPNEDA, MPUVN, CREDA, Eastern Power Distribution Company of Andhra Pradesh Ltd (APEPDCL), Andhra
Pradesh Southern Power Distribution Company Limited(APSPDCL) etc for supply of solar water pumps and the company
is associated with the state government agencies for more than five years reflecting positively on the track record. The
order book concentration is moderate with top 5 clients accounting for 45% of the orderbook as on March 31, 2018.

Low geographical-concentration risk - The company executed projects across Pan India with presence in 14 states for
supplying of solar water pumps. The current order book for the company is spread across 9 states in India for supply and
installation of pumps and soar projects.

Favourable demand outlook for solar industry - With increasing awareness and support from both Central and State
governments for the promotion of solar power, the demand outlook is favourable for solar module and EPC contracts
with JNNSM target of 100 GW of solar capacity by 2022.

Credit challenges
Tight liquidity position as reflected by high utilisation in working-capital requirements - The average utilisation of cash-
credit facility in the past 12 months was high at ~93% owing to high debtor days. Given the increase in scale of
operations over the near term, timely sanction of enhancement in working capital limits would be a key rating
monitorable.

High dependence on outside funds - The solar EPC business is working capital intensive and the company has high
dependence on outside funds for the execution of order book as reflected in TOL/TNW of 3.7 times as on March 31, 2018
which increased from 2.5 times as on March 31,2017 on account of high creditors and low net worth levels of Rs.16.5
crore as on March 31,2018. The company gets average credit period of 45-60 days from its suppliers.

Proposed debt funded Capex – The company plans to set up a module manufacturing unit at an estimated cost of Rs.25
crore to be funded by term loan of Rs.18 crore from bank and remaining Rs.7 crore from promoters’ contribution and
internal accruals. The expected debt funded capex would adversely impact the debt coverage indicators of the company
in the medium term.

2
Vulnerability of profitability to adverse fluctuation in raw material prices – As majority of the raw materials for order
execution is procured from outside with modules being one of the major raw material being sourced, the profitability of
the company remains exposed to fluctuations in the module prices given the fixed price nature of the contracts.
However, the risk is mitigated to some extent given the relatively short execution cycle.

High competitive domestic solar industry with presence of many organised players put pressures on margins - The
company faces competition from many organised players in installing solar power plants and solar water pumps which
limits its pricing flexibility and bargaining power with customers, given the tender based nature of business; thereby
putting pressure on its revenues and margins.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria:

Corporate Credit Rating Methodology

About the company:

Novus Green Energy Systems Private Limited (NGESPL) was incorporated in the year 2009 and is based out of Hyderabad,
Telangana. The company is promoted by Mr.Y.Anshuman, Mr.Y.Venkata Ravindra and Mr.K.Ramchand who have more
than 10 years of experience in the solar industry. It is mainly engaged in the installation of solar water pumps and solar
power plants (both rooftop and ground mount).

In FY2018, the company reported a net profit of Rs. 7.7 crore on an operating income of Rs.107.4 crore against the net
profit of Rs.1.8 crore on an operating income of Rs.64.5 crore in the previous year.

Key financial indicators

FY2017 FY2018*
Operating Income (Rs. crore) 64.5 107.4
PAT (Rs. crore) 1.8 7.7
OPBDIT/ OI (%) 6.7% 12.5%
RoCE (%) 31.1% 54.8%

Total Debt/ TNW (times) 0.8 1.0

Total Debt/ OPBDIT (times) 1.5 1.3
Interest Coverage (times) 2.8 5.7
*Provisional

3
Status of non-cooperation with previous CRA: CRISIL, in its rationale published on Novus Green Energy
Systems Private Limited, dated July 16, 2018, put the ratings on Issuer not cooperating category at CRISIL/B/Stable/A4
based on best available information.

Brickwork, in its rationale published on Novus Green Energy Systems Private Limited, dated September 11, 2017,
downgraded the ratings to BWR BB (stable)/ BWR A4 and moved the ratings to Issuer not cooperating based on best
available information.

Any other information: None

Rating history for last three years:

Chronology of Rating History for the past
Current Rating (FY2019) 3 years
Date & Date & Date &
Amount Amount Date & Rating in Rating in Rating in
Rated Outstanding Rating FY2018 FY2017 FY2016
Instrument Type (Rs. crore) (Rs. crore) August 2018 July 2017 - -
1 Fund-based-Cash Long 17.00 - [ICRA]BB+ [ICRA]BB+ - -
Credit Term (Positive) (Stable)
2 Non-fund based Long 31.00 - [ICRA]BB+ [ICRA]BB+ - -
Term (Positive) (Stable)
3 Unallocated Long 2.00 - [ICRA]BB+ [ICRA]BB+ - -
Term (Positive) (Stable)

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

4
Annexure-1: Instrument Details
Date of Amount
Instrument Issuance / Coupon Maturity Rated
ISIN No Name Sanction Rate Date (Rs. crore) Current Rating and Outlook
NA Cash Credit - - - 17.00 [ICRA]BB+(Positive)
Bank
NA - - - 25.00 [ICRA]BB+(Positive)
Guarantee
NA Letter of credit - - - 6.00 [ICRA]BB+(Positive)
NA Unallocated - - - 2.00 [ICRA]BB+(Positive)
Source: NGESPL

5
ANALYST CONTACTS
K. Ravichandran R. Srinivasan
+91 44 4596 4301 +91 44 4596 4315
ravichandran@icraindia.com r. srinivasan@icraindia.com

Vinay Kumar G Prateek Pasari

+91 40 4067 6533 +91 40 4067 6517
vinay.g@icraindia.com prateek.pasari@icraindia.com

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

6
ICRA Limited
Corporate Office
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300
Email: info@icraindia.com
Website: www.icra.in

Registered Office
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50

Branches

Mumbai + (91 22) 24331046/53/62/74/86/87

Chennai + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294,
Kolkata + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008,
Bangalore + (91 80) 2559 7401/4049
Ahmedabad+ (91 79) 2658 4924/5049/2008
Hyderabad + (91 40) 2373 5061/7251
Pune + (91 20) 6606 9999

© Copyright, 2018 ICRA Limited. All Rights Reserved.

Contents may be used freely with due acknowledgement to ICRA.

ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of
surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer
concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA
office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to
be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it.
While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any
kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such
information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained
herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication
or its contents