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April 2, 2008 |
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PHOENIX SOLAR: CRISIL Assigns BB+ Rating to INR2 Bil. Term Loan CRISIL has assigned a bank loan rating of ‘BB+/Stable’ to Phoenix Solar India Ltd’s INR2 billion term loan. The rating reflects: -- the implementation risk associated with the company’s project, -- the company’s lack of tie-ups with raw material suppliers in a situation where supplies are short, and -- the fact that funding for the project has not been fully arranged. The rating also factors in the healthy prospects of the solar power industry, the promoters’ long experience in running entrepreneurial ventures, and the company’s use of the proven and well-established crystalline wafer technology. Phoenix Solar’s project is technology–intensive. Its order for machinery has been placed, but the machines will arrive only in November 2008, and production is likely to commence from April 2009. Delays in the arrival of machines and stabilisation of production lines could result in production delays. Further, for smooth implementation of the project, the technology needs to be successfully absorbed by the company’s technical team, which is to be recruited over the next 6 to 12 months. The company’s success in getting experienced staff, and the absorption of technology and smooth running of the lines by shop floor employees, will be key rating sensitivity factors. Moreover, Phoenix Solar has not yet tied up with any raw material suppliers for the supply of silicon wafers, the key raw material for photovoltaic (PV) cells. The project will cost around INR3 billion, to be funded at a debt-to-equity ratio of 2:1. The equity portion will be funded by the promoters, but the debt funding has not been tied up yet. Moreover, the working capital requirements of the project will be high because of the need to maintain large inventory; bank lines for working capital are yet to be arranged. These weaknesses are partially offset by the strong demand for PV cells due to government support through subsidies and tax holidays. The promoters, with their long-standing experience behind them, have exhibited their ability to successfully run projects and scale up operations. Moreover, the company will be using crystalline wafer technology, which has been tested and commercially implemented globally by major PV manufactureINR The PV cell lines are being sourced from the Schmid group, Germany, which has given a performance guarantee and will train Phoenix Solar’s staff and provide annual maintenance services. Outlook: Stable The outlook on Phoenix Solar’s proposed PV cells manufacturing project factors in the promoters’ strong entrepreneurial background and their technology tie-up with the Schmid group. The outlook also factors in the expected strong cash accruals from the business, and consequent improvement in capital structure over the medium term. The outlook may be revised to ‘Positive’ if there are no project delays and if the company manages to enter into long-term contracts for the supply of the key input, silicon wafers. Conversely, the outlook may be revised to ‘Negative’ in case of cost overruns or delays. Lower-than-expected profitability will also lend a negative bias to the rating. About Phoenix Solar Phoenix Solar was incorporated in February 2006 by B. K. Gupta and his son H. R. Gupta. The company plans to set up a 70-mega watt capacity plant in Greater Noida to manufacture PV cells using the crystalline wafer technology. |
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