Receivables of leading RE companies to shrink 20% this fiscal: Crisil

Receivables of leading renewable companies will shrink 20 per cent during this financial year, Crisil Ratings said.

Leading renewable energy (RE) companies are set to see their receivables reduce a fifth from 180 days a year ago to 140 days as of March 2023, a level last visible pre-COVID, the agency said in a statement.

According to the statement, two-thirds of the improvement will be because of increasing central counter-party offtake, and the rest due to state discoms implementing the late payment surcharge (LPS) scheme.

The incremental cash flow will allow RE companies to build capacity for growth and reduce leverage, it opined.

Payment cycles had stretched in the past two fiscals because state discoms such as Madhya Pradesh, Maharashtra, Telangana and Andhra Pradesh (accounting for 23 per cent of the overall capacity exposure) held back payments to RE developers following liquidity crunch or contractual disagreements, it added.

This increased the overall cycle for the 10 assessed RE companies by over 10 per cent to 180 days as of March 2022 (compared with the March 2019 level).

"Receivable levels could have deteriorated more but for the increase in the proportion of central counterparties (Solar Energy Corporation of India and National Thermal Power Corporation Ltd) to 40 per cent of the operational portfolio in March 2022 from 20 per cent in March 2019...," Manish Gupta, Senior Director, Crisil Ratings said.

Central counterparties are expected to maintain their payment track record, given the benefit of diversity, payment security funds, and higher bargaining power, because of their scale and flexibilities, such as being a beneficiary in a tripartite agreement between state government, central government, and the Reserve Bank of India, it stated.

"Some states have subscribed to the government's LPS scheme under which they are to clear past dues of power generating companies and regularise their fresh dues. Under the scheme, Power Finance Corporation/ REC Ltd will provide loans to state discoms to help pay off the dues of gencos (over 1-4 years).

"Andhra Pradesh, Madhya Pradesh, Karnataka and Maharashtra, which have subscribed to this scheme, may potentially clear dues worth Rs 2,000 crore in fiscal 2023, which will help improve the receivable level of key RE companies by another 15 days," Ankit Hakhu, Director, Crisil Ratings said in the statement.