India Ratings upgrades Adani Green Energy to IND AA-, outlook stable amid robust growth

New Delhi, May 30: India Ratings and Research (Ind-Ra) on Thursday upgraded Adani Green Energy Limited’s (AGEL) long-term issuer rating to 'IND AA-’ from ‘IND A+’, saying the company’s outlook is stable. Among the key rating drivers are AGEL being the largest renewable developer in India with sound operating parameters of operational assets and healthy free cash flow to equity, along with promoter infusion covering equity commitments.

The upgrade factors in the continued strong operational asset performance include strong execution scale up, with annual capacity additions likely to be 4GW-5GW annually over the medium term from the earlier 2.5-3.5GW.

Other factors for the upgrade include healthy counterparty diversification and a reduction in receivables, leading to an increase in the (cash flow from operations interest)EBITDA conversion compared to historical levels.

According to the rating agency, the upgrade also reflects AGEL’s change in policy with respect to the leveraging of the holding company, as the company has now earmarked funds towards the repayment of $750 million holdco bond.

In addition, the upgrade factors in the creation of a platform within AGEL with Total Energies SE, which allows for part asset monetisation while retaining consolidation benefits, the equity infusion by the promoters through warrants of which 25 per cent has already been received, and the continued ability of the company to tie up both debt and raise equity to ensure fully funded under-construction portfolio, according to analysts.

Earlier this month, AGEL reported 30 per cent EBITDA growth at Rs 7,222 crore in FY24, as the renewable energy (RE) major revised its target for 2030 to 50 gigawatt (GW) from 45 GW. The robust growth in revenue, EBITDA and cash profit was driven by capacity addition of over 2.8 GW over the last year, representing 15 percent of the country’s total renewable energy capacity addition.

According to analysts, the upgrade in ratings also reflects Ind-Ra’s expectation of favourable operational to under construction book ratio, given the operational capacity of nearly 10.9 GW, and an increase in annual capacity addition targets to 5 GW and the amortising structure of the debt as against bulleted structures earlier, which ensure amortisation of debt, leading to 15 per cent tail life for the projects, thus lowering the refinance and tail risks.

The above factors have jointly contributed to a moderation in the leverage to more reasonable levels of 5.5-6.5 times from the historically high levels of 9 times, said the note.