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New UserInd-Ra revises wind energy outlook to stable for 2017
23 Feb 2017
The increase in receivables position of wind power plants limited the headroom available to
handle low wind patterns; hence, IndRa has revised wind energy’s outlook to negative for
FY18 from stable for FY17. With little improvements in the issues facing the toll roads sector
(low inflation, slower ramp up, lower toll rate growth) and coalbased thermal power
(demandsupply mismatch, increased thrust on renewables), IndRa continues with its
negative outlook on these two sectors. Favourable policy actions and strong passenger
growth drive the outlook revision to positive for airports for FY18 from stable, while other
subsectors (solar, ports, transmission) have been maintained on a stable outlook on the
back of performances largely in line with IndRa’s expectations.
IndRa has maintained a negative outlook on toll roads for FY18, on the expectation of
sluggish traffic growth compounded by a subdued Wholesale Price Index. IndRa’s analysis
reveals the vulnerability of projects, especially the ones with a short operational track record
(less than three years), to a 200bp reduction in base case growth rates, which would lead to
impairment in debt serviceability. Road developers have found a penchant for infrastructure
Investment Trusts (InvITs) – 75% of the InvITs in the listing stage are from the highway
sector. Though prima facie traction in InvITs seems positive, the actual trimming of debt to
the desired levels would be clear by 1HFY18, and discord over valuation may be a major
stumbling block for InvITs. The pace of financial closures under the hybrid annuity model is marred, due to low termination payments and
less equity contributions; consequently, lenders exercise caution before lending.
The negative outlook on thermal power is mainly due to suboptimal plant load factors, lack of interest for longterm power purchase
agreements which has been compounded by low priority in power scheduling, and added uncertainty in awarding compensatory tariffs.
Slow demand growth and abundant options for state distribution companies to tap into shortterm market for meeting any temporary
demand spikes have led to the lack of interest for longterm power purchase agreements. Although steps have been taken at the policy
level by the introduction of measures such as Ujwal Discom Assurance Yojana, IndRa believes that reliance on state distribution
companies’ errant payment cycle places issuers at a disadvantage for tapping capital markets.
IndRa maintains a stable outlook for the solar power sector on the back of a stable performance, predictable nature of cash flows based
on longterm power purchase agreements, decreasing panel prices, favourable debtor days, albeit with a limited operational track record.
IndRa believes that a combination of evolving payment security mechanism (such as creation of a payment security fund and state
government guarantee) and a fall in panel prices (November 2017 yoy about 28%) will not only reduce the funding costs but also drive low
solar tariffs.
Source: Economic Times