Rationale
The rating
reaffirmation on the bank lines of GE Power India Limited (GEPIL) takes into
account the company's improved performance in Q2,FY 2022, after its Q1,FY 2022
performance. In Q1, FY 2022, the company had incurred losses attributable to
the cost overrun in National Hydroelectric Power Corporation Limited's (NHPC)
Subansiri project, wherein GEPIL is a contractor, along with hardening of
commodity prices, amid the Covid-19 pandemic-related disruptions. The rating
also draws comfort from GEPIL's established position among the major players in
thermal and hydro power plant equipment and services industry in India,
supported by technological and financial benefits derived from its strong
parentage, General Electric Company (GE1 ), and its strong technical/execution
capabilities. Notwithstanding the lower order inflow in the current fiscal, the
company's unexecuted order book provides revenue visibility for the medium
term. However, timely execution of the same within the budgeted costs will be
crucial for sustaining the profit margins. Moreover, the company's revenue
stream remains diversified, given the wide product/service base offered and
contribution from international orders (primarily from GE Group companies). The
company's profitability is vulnerable to cost escalations and any delay in
execution of its projects. Also, the working capital borrowings are likely to
remain high which will keep the coverage indicators under pressure.
Furthermore, the demand outlook for power equipment manufacturers remains
subdued, given the limited fresh capacity additions in the thermal and hydro
power industry. Future order inflows in the emission control systems segment
[primarily flue gas desulphurisation (FGD) orders] are also likely to be
deferred to some extent given the relaxation in timelines, in light of the
adverse impact of the pandemic, supply chain challenges and financing
challenges faced by the thermal power generation sector. Further GEPIL's profit
margins remain susceptible to challenges in timely execution of orders and
hardening of key raw material prices and bought out components, given the
relatively long project-execution cycle and fixed-price nature of some
contracts. The continued Negative outlook on GEPIL's rating reflects the subdued
demand outlook due to deferment of projects, and elevated working capital
borrowings which will keep the coverage indicators under pressure.
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