The agency has also downgraded the company’s short-term rating to "[ICRA] A3+” from "[ICRA] A2”.
ICRA said that the rating downgrade factors in the considerable and continuous decline in GE Power India’s (GEPIL) revenues, profit margins and cash flow generation owing to significant cost pressures, provisions for accidents and the slow pace of project execution. The company had witnessed significant cost pressures and under-absorption of costs due to hardening of commodity prices and weak order intake in the previous years.
The trend continued in H1 FY2023-24 as well for a few projects, resulting in large cost absorptions. The order intake has been slow for the last couple of years as customers deferred projects post-Covid. However, the order intake improved in H1 FY2024. The pace of project execution has also remained slow owing to issues faced by the company, such as contractor’s financial health and customer-related hurdles.
The profitability remains susceptible to the challenges of timely execution of orders and volatility in the prices of key raw materials and bought-out components, given the relatively long project execution cycle and the fixed-price nature of some contracts.
The ratings draw comfort from GEPIL’s established position in the thermal and hydropower plant equipment and services industry in India, supported by technological and financial benefits derived from its strong parent, General Electric Company (GE), and its strong technical/execution capabilities.
ICRA also notes the increase in outstanding receivables (majorly retention money), translating into increased reliance on working capital debt. However, with the FGD contracts nearing completion, a sizeable amount of retention money is expected to be released, which will bring down the working capital requirement.
The continued ‘negative’ outlook on GEPIL’s rating reflects the subdued demand outlook, pressure on margins due to high commodity prices and elevated working capital borrowings which will keep the coverage indicators under pressure.
GE Power India (GEPIL) is engaged in the engineering, procurement and construction of key equipment for thermal and hydropower plants. It manufactures and/or supplies critical electrical and industrial equipment, including boilers, turbines and pollution-control equipment for these power plants, along with associated services.
The scrip advanced 2.79% to end at Rs 226.35 on the BSE today.
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