Rationale

 To arrive at the ratings, ICRA has considered consolidated financials of KPI Green Energy Limited (KPIGEL) and its wholly-owned subsidiaries, KPIG Energia Private Limited (KPIGEPL) and Sun Drops Energia Private Limited (SDEPL), referred to as the Group. The ratings upgrade factors in the expected improvement in scale and profitability at the Group level in FY2023 following the significantly higher execution of captive power plant (CPP) orders and commissioning of the ~28 MW capacities under the subsidiaries (full capacities expected to be operational from July 2022 onwards). The outstanding CPP order book as of May2022 stood healthy at ~Rs. 350.0 crore compared to an order book of ~Rs. 180.0 crore (44.3 MW) as on December 14, 2021 (during the last rating exercise). These orders are expected to be executed over the next six to nine months, leading to significant revenue booking in the current fiscal. In FY2022, the Group's revenue more than doubled to Rs. 229.9 crore from Rs. 103.5 crore in FY2021 owing to a substantial increase in the CPP projects executed. ICRA expects the growing CPP business, commissioning of the new capacities with desired operating parameters under the IPP model and the remunerative tariff rates to improve the credit profile of the Group, going forward. The ratings continue to factor in the extensive experience of the key promoter in the renewable energy sector and allied construction activities. The ratings also derive comfort from the long-term and medium-term power purchase agreements (PPA) for its independent power producer (IPP) capacities with reputed counterparties and a track record of timely payment of bills from them. Further, the ratings derive comfort from the debt service reserve account (DSRA) for the term loans availed for independent power producer (IPP) assets, which is expected to support the servicing of debt obligations, providing sufficient cushion in case of any distress. The ratings, however, are constrained by the increase in the Group's debt levels, resulting from the debt-funded capex undertaken to increase the IPP capacities, which has led to a leveraged capital structure (TOL/TNW of 4.1 times as on March 31, 2022) at a consolidated level. Nevertheless, the TOL/TNW is expected to improve going forward, with the expected decline in debt levels following scheduled debt repayments as well as higher anticipated profitability. The ratings are also constrained by the risks associated with adequate generation levels in line with the P-90 PLF levels for the ~20 MW capacity at KPIGEPL and 8 MW capacity under SDEPL. The cash flows from the IPP segment are also susceptible to remunerative tariff realisation, which remains exposed to grid tariff rates, open access/transmission charges and competition. The ratings are further constrained by the risks pertaining to the termination of PPAs by the existing clients, given the weak exit clause of the PPAs. ICRA also notes the Group's relatively high working capital intensity resulting from KPIGEL's engineering, procurement and construction (EPC) business for captive power plants (CPP). The Stable outlook on the long-term rating reflects ICRA's opinion that KPIGEL will continue to benefit from the extensive experience of its promoter, and a healthy order book position in the CPP segment providing near-term revenue visibility. Also, the IPP segment is expected to demonstrate satisfactory generation levels as witnessed in the past, leading to stable cash inflows that would support the company's profitability and debt servicing.