Rationale

 The rating reaffirmation for FPEL MAHA 2 Private Limited (FPEL MAHA 2) derives comfort from the cash pooling mechanism available with the fellow group subsidiaries, VSV Offsite Pvt Ltd {VSV, rated [ICRA]A- (Stable)} and FPEL Stellar Private Limited {FPEL Stellar, rated [ICRA]A- (Stable)}, wherein any shortfall in debt servicing in one company can be met through the cash surplus available with the other companies prior to the due date of debt servicing. Further, comfort is drawn from the limited demand risks due to the presence of a 25-year long-term power purchase agreement (PPA) at a fixed tariff under the group captive mode with creditworthy offtakers which is expected to result in timely receipt of payments, as demonstrated so far. Also, the tariff offered is highly competitive, which is at a significant discount to the grid tariff rates. The rating is, however, constrained by the sensitivity of generation to solar irradiation levels and equipment performance as the revenues are linked to the actual units generated and exported, in view of the single-part tariff structure in the PPA. This is amplified by the geographic concentration of the asset. The ability of the company to demonstrate generation in line or above the design PLF levels on a sustained basis remains important. The projects have a limited generation track record of operations. The rating also factors in the risk of cash flow mismatch as the PPA has a lock-in period of 10 to 15 years, while the debt repayment is spread across 18.5 years. Nonetheless, comfort can be drawn from the highly competitive tariff offered by the company to its customer against the HT industrial grid tariff and the track record of the sponsor in securing PPAs with large industrial and commercial (C&I) customers. The company is also exposed to interest rate risks, given the floating interest rates for the project debt, subject to regular resets. Further, the company’s operations remain exposed to the regulatory risks associated with forecasting & scheduling regulations, captive project norms and open access charges. While increase in the open access charges or imposition of new charges would be borne by the offtaker under the terms of the PPA, it would impact the competitiveness of the tariff (savings to the customer) offered under the PPA. The Stable outlook reflects the revenue visibility provided by the long-term PPA, a stable generation performance and timely payments from the offtakers of the cash pooling SPVs.