Large renewable energy companies in India continue to face difficult times as yet another wind energy major reports poor financial results in the second quarter.
Wind turbine manufacturer and project developer Inox Wind Limited reported a loss of almost US$2 million in the quarter ending 30 June 2019. While the company managed to contain the loss when compared to the previous quarter of January to March 2019 when it reported a loss of US$7.5 million, the company had reported a profit of almost US$1.5 million in Q2 2018.
Quarter-on-quarter the company did manage to improve its revenue from US$25 million in Q1 2019 to more than US$36 million in Q2 2019. However, year-on-year there was a decline of nearly 40% in revenue.
In its investors’ presentation, however, the company’s management maintained a positive outlook for the future. Following the abrupt shift in the government’s policy from feed-in tariffs to auctions, wind turbine manufacturers are now facing liquidity crunch while some have had to shut down operations, the company said. According to the management, this offers Inox a unique opportunity to expand its market share as it provides very low-cost equipment. The company now sees only a few foreign manufacturers as its competition which are unlikely to match its low costs.
Inox currently has an order book worth 1.23 gigawatts with a value of almost a billion US dollars. However, the company, likely several other stakeholders in the Indian renewable energy sector, is facing fundamental challenges like unavailability of the adequate transmission network to support new projects.
The company had secured a 250 megawatt project in India’s first-ever wind energy auction held in February 2017. It could manage to commission the project only in April this year following a delay of 15 months due to unavailability of the transmission network.
The liquidity crunch prevalent in the Indian economy is yet another significant hurdle for the company’s growth. At the end of the first quarter of this year, the company had reported receivables worth US$228 million. This, however, is a substantial improvement compared to a record-high receivable of US$337 million the company reported at the end of Q1 2016.
The ability of service debt has become a critical aspect of a company’s performance in India over the last few months. We have seen a very large number of companies unable to service their debt and being forced to sell off their assets, with Suzlon Energy, IL&FS Wind, and Essel Solar being a few examples.
Inox’s long-term debt at the end of Q1 2019 had increased to US$56 million, four times what it was four years back. Its short-term debt is also very high at US$332 million (at the end of Q1 2019). The only cushion that the company currently enjoys is the large volume of receivables on its books. However, things could turn ugly if those receivables are not realized in time.
In November last year an Indian ratings company, CARE Ratings Limited, had Inox’ credit facilities as A- with a negative outlook. The company managed to get the rating withdrawn, with no objections raised two banks. The only other rating not available for the company’s credit facilities was provided by CRISIL Ratings in September 2018. CRISIL had revised its outlook for the company’s long-term credit facilities from ‘stable’ to ‘positive’. CRISIL, however, also pointed out some risks and downsides to the company’s business; these include a threat to profit margins due to the shift to the auction regime, delay in execution of projects and non-realization of receivables.
Inox Wind does draw strength from its parent company Gujarat Fluorochemicals Limited, which cannot be said about most of its competitors in the manufacturing as well as project development business.