ICRA Lanka assigns [SL]AA- to Windforce with Stable outlook

ICRA Lanka Limited has assigned the issuer rating of [SL]AA- (Pronounced SL double A minus) with Stable outlook for Windforce (Pvt) Limited (WPL).

Windforce is expected to announce its Initial Public Offering (IPO) to raise Rs.3.2 billion on the Colombo Stock Exchange shortly.

ICRA Lanka said it has taken a consolidated view on Windforce and its subsidiaries, given the significant operational and financial linkages among them. 

The rating primarily factors in Windforce’s position as a leading private sector power producer in Sri Lanka with diversifications into wind, solar (roof top and ground solar) and mini hydropower segments.

With the recent group restructuring exercise, the company’s total power generation capacity has increased by additional 56MWs to 218 MWs in FY2021. Given its larger scale of operations in Sri Lanka, the company has been efficiently managing its operations through prudent selection of energy sources, locations and strong control over operations and maintenance. 

Majority of the company’s power purchase agreements (PPAs) with the Ceylon Electricity Board (CEB) are in place for the next 10-20 years, which provides strong revenue visibility over the long term. 

ICRA Lanka also took comfort from the presence of the main promoters of the group, namely Akbar Brothers (Pvt) Ltd and Hirdaramani (Pvt) Limited. 

“This together with the company’s strong liquidity profile with adequate cash balances and liquid investments, besides access to bank funding lines, given their strong relationship with financial institutions provides further comfort to the assigned rating,” the rating agency said. 

“The rating further draws comfort from the company’s healthy financial profile, which is characterized by robust profitability (average return on capital employed (RocE) in excess of 15 percent), comfortable capital structure (gearing of 0.35x as on March 31, 2020) and adequate coverage metrics,” it added.

In assigning the rating, ICRAL Lanka has also weighed in the company’s higher reliance on wind power mills and run-of-the-river mihi-hydro power plants, which are exposed to vagaries of the Monsoons in Sri Lanka. 

“However, this risk is mitigated to a larger extent by the company’s diversification efforts into geographies and other renewable energy sources,” the rating agency said.

Windforce has reported a net profit of Rs.1, 897 million on total operating income of Rs.3,692 million in FY2020 compared with the net profit of Rs.1,483 million on total operating income of Rs.2,884 million in FY2019.