Rationale

 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. GEPIL’s profitability witnessed major headwinds owing to fire incidents, first at the flue gas desulphurisation (FGD) installation site at NTPC Limited’s (NTPC, rated [ICRA]AAA (Stable)/[ICRA]A1+) Solapur plant in FY2023 and subsequently at NTPC’s Sipat plant in Q1 FY2023-24. The fire incidents resulted in provisions of ~Rs. 147 crore, including damage to equipment and expected liquidated damages (LD) that may be levied by NTPC. However, the equipment damage loss may be recovered partly through insurance proceeds. 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. Access to GE’s cash pool with a sanctioned limit of up to Rs. 226 crore and the expected release of a substantial sum of retention money provide comfort on liquidity. While the parent, General Electric Company (GE1 ), has announced that it will de-promoterise GEPIL by February 2025, it intends to strengthen GEPIL technologically and financially by transferring IPRs, extending technological support and helping GEPIL in catering to new export markets. ICRA will closely monitor the developments (including availability of cash pool) in this regard. 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.