ReNew focusing on potential acquisitions after launching IPO in April

The company might consider expanding into adjacent verticals in the renewable energy value chain

While ReNew Power is seeking to raise equity through an initial public offering, the company has seen its borrowing cost shooting up to Rs 8.3 billion during FY17, compared with Rs 5.3 billion during FY16. As on December 31, 2017, the total borrowings of ReNew stood at Rs 151 billion, which consisted of long-term borrowings, short-term borrowings and current maturities of long-term borrowings.

ReNew, which filed for IPO last month, aims to raise Rs 260 billion from the market. Of the total net proceeds, it will utilise Rs 19.5 billion for redemption or early redemption of certain debentures issued by the company or its subsidiaries. Last year, ReNew closed a non-convertible debenture issue of Rs 22.35 billion to raise debt for its projects.

The company aims to deploy the funds raised through IPO towards a potential acquisition of projects and also diversify into allied sectors. “In line with our strategy to continue to pursue growth through inorganic growth opportunities, we intend to continue our expansion through an active evaluation of inorganic growth opportunities,” ReNew mentioned in its draft red herring prospectus (DRHP).

It has further disclosed the company might consider expanding into adjacent verticals in the renewable energy value chain, “transmission and distribution infrastructure, energy storage and third party EPC and O&M contracting to develop new growth areas.”

Since its inception in 2012, the project capacity of the company has increased to 5.6GW. This includes the two acquisitions it made recently – KCT Energy (103 MW) in 2017 and Ostro Energy (1,100 MW) in April, 2018. It also acquired four entities of Vikram Solar Group, Shruti Power Projects Private Limited and Helios Infratech Private Limited in 2016. In the same year, it also acquired 100 per cent voting shares of Sunsource Energy Services Private Limited.

For the DRHP, the company has mentioned its portfolio till March 2017 which is 3,921 MW.

The company has 540 MW of project acquisitions in pipeline which includes 60 MW projects of SREI Infra and 40 MW of India Energy (Mauritius) Ltd.

However, as it preps to be the first renewable company to be listed in India, ReNew saw its profits slide by 44 per cent in FY2016-17 to Rs 509 million compared to the previous year. In FY15, it made a loss of Rs 416 million. The company’s income from operations however doubled during the same period but so did the finance cost to support its inorganic growth and highly competitive bidding.

As on March 2017, the company’s EBITDA stood at Rs 13.1 billion which is a 76.27 per cent increase over the previous fiscal. At the same time, the company’s finance cost increased to Rs 8.25 billion during FY17 over Rs 5.3 billion during FY16.

ReNew said that its finance costs increase majorly due to an increase in bank borrowings and other loans for financing new wind and solar energy projects, refinancing of existing loans, and amortisation of the discount on issue of bonds and the premium on redemption of bonds.

Given that the business of the company is heavily dependent on the cash flow generated from the sale of power which in turn is proportionate to the financial health of the state power companies, ReNew’s income generation is steady but unpredictable, according to an expert.

Coupled with it is the constantly falling tariff in solar and introduction of competitive bidding in wind power, leading to reduction in tariff. Lower tariffs impact the internal rate of returns for power project developers. As per market estimates, the IRR at the current prevailing rate of Rs 2.5 per unit stands at 8-11 per cent.

“In the past, we have experienced delays in the receipt of payments from state electricity distribution companies, including in Maharashtra and Rajasthan. Non-payments or delays in payment under our PPAs could negatively impact our results,” ReNew has mentioned in its DRHP.

The company’s trade receivables bludgeoned to Rs 4.6 billion (as on March 2017) due to delays in payments from state electricity distribution companies. Of this, a major chunk of payments is overdue for more than 90 days.

Among the mandatory disclosure of the risk factors, ReNew in its DRHP has mentioned that its primary customers the state electricity distribution companies may not be able to fulfil their contractual obligations as a result of their poor financial health or for other reasons, “which may have an adverse effect on our business, financial condition, results of operations and prospects.”

Source: business-standard