Modern Solar Private Limited Grading Drivers ICRA has assigned an SP 3B (pronounced Solar Power three B) grading to Modern Solar Private Limited (MSPL). The grading indicates ‘Moderate Performance Capability’ and ‘High Financial Strength’ of the channel partner to undertake solar projects. The grading is valid till March 16, 2017 after which it will be kept under surveillance. Strengths Manufacturing of solar modules leads to additional revenue stream from sale of same Satisfactory feedback from customers and suppliers Growing scale of operations as indicated by healthy growth in operating income in 2013-14; healthy order book provides revenue visibility in the near term Risk Factors Limited O&M network of the firm at present that limits its ability to provide adequate customer service Limited number of technically qualified employees at present Financial profile of the company is constrained by low profitability and moderate coverage indicators Grading Rationale While assigning the grading, ICRA has taken into consideration MSPL’s module manufacturing operations which leads to augmentation of revenue. The grading also takes into consideration the healthy growth in order execution and consequently in operating income of the company in 2013-14 and satisfactory feedback received from customers. The grading also positively factors in MSPL’s reputed suppliers, who have a long period of relationship with the company. The grading is, however, constrained by the limited O&M network of the firm at present, which limits MSPL’s ability to provide adequate customer service in a timely manner, as well as the limited number of technically qualified employees in its rolls. SI Related Business – Moderate Performance Capability The financial profile of MSPL is characterized by its growing scale of business although, profitability remains low. Moreover, accruals from business have been low requiring infusion of funds either from directors or from external sources to meet the requirement. ICRA notes that debt on the books of the company primarily comprises interest free unsecured loans from directors which have led to a comfortable interest cover for the company. While assigning the financial grading, ICRA has also taken comfort from the financial strength of the directors, funding from whom is likely to provide financial support to the company. Promoter’s Track Record: MSPL is promoted and managed by Mr. Ketan Doshi and Mr Jigar Avalani based in Kolkata. The company started operating in the field of solar energy since 2011-12 and the experience of the promoters in the solar industry is limited to their working with MSPL. The company has installed around 162.62 KW of decentralized, off-grid and on grid solar power plants, since its inception. Given, the short span of operation of the company in the solar power domain the number of solar installations of the company is low. Technical Competence and Adequacy of Manpower: MSPL has the capability to undertake design and installation of solar PV home lighting systems and submersible pump systems and also manufacture solar modules, thus leading to a partially integrated nature of operations. MSPL has executed around 162.20 KW of solar power plant in various parts of the country and have also supplied solar modules to various companies setting up solar power plants. MSPL has also entered into a Memorandum of Understanding with InSolare Energy for the joint installation of units and this is likely to provide a technological advantage to MSPL. InSolare is to advise MSPL on technological parameters for setting up the 500 KW project in hand. However, MSPL has a small team of employees and their experience in the solar industry is limited to their involvement with MSPL. MSPL has a small team of employees and their experience in the solar industry is limited to their involvement with MSPL. Mr. Bhaven Avlani, who is also one of the directors of the company is the chief technical advisor of the company and is an IIT pass out. AT present, the company is relying on local engineers in the project locations for execution of projects with supervision being carried out by MSPL’s employees. ICRA notes that the firm would be required to recruit technically qualified employees having experience in the solar PV industry in order to scale up its operations. Quality of Supplier and Tie-ups: MSPL procures batteries from HBL Power Systems Ltd., glass fro Gujarat Borosil Limited and inverters from Delta Inverters. For its solar pumps, MSPL buys pumps from Lorentz India which, also provides technical assistance at the project site if required. Payments to the suppliers are made either on advance basis or against delivery of the products. The suppliers have never faced any issues in receiving payments from MSPL. Customer and O&M Network: Since incorporation, MSPL has successfully completed the installation and commissioning of solar PV projects across India. The company relies on its network of distributors to provide after sales service to the clients in several locations. The company has three service centers in West Bengal and one each in Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, Maharashtra and Rajasthan. The customers are satisfied with the performance of the company, which has also generated quotation for repeat orders by a customer in MSPL’s limited time of operations. However, the maintenance network of the firm is limited as of now. Financial Strength-High Revenues Return on Capital Employed (RoCE) Total Outside Liabilities / Tangible Net Worth Interest Coverage Ratio Net (Company promoters) Current Ratio Relationship bankers Worth and with Significant growth in revenue from Rs 3.89 crore in 2012-13 to Rs 15.67 crore in 2013-14 on the back of healthy execution of orders. Low RoCE of 1.21% in 2013-14 High at 2.12x as on 31st March 2014 although the same reduces to 0.56x after adjusting for interest free unsecured loans infused by the directors. Low interest expense on account of dependence on interest free loans to meet funding requirements led to a high interest coverage of 2.83x during 2013-14 The net worth position of the company was low at Rs 7.59 crore as on 31st March 2014 and the networth of the promoters was Rs. 97.13 crore as on March 31, 2014 thus, leading to a high combined networth. Ratio of 11.10x as on 31st March 2014 Bankers are satisfied with the account’s conduct. March 2015 For further details please contact: Analyst Contacts: Mr. Jayanta Roy, (Tel. No. +91-33-22876617 / 22800008) [email protected] Relationship Contacts: Mr. Jayanta Chatterjee (Tel. No. +91 33 7150 1100) [email protected] © Copyright, 2015, ICRA Limited. All Rights Reserved. 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