ICRA has reaffirmed A-plus rating on GE Power India Ltd (GEPIL) but said the outlook revision to negative from stable on the bank lines is driven by deterioration in credit profile on account of losses incurred in Q1 FY2022.
The losses were primarily attributable to the cost overrun in National Hydroelectric Power Corporation's Subansiri project where GEPIL is a contractor along with hardening of commodity prices amid Covid-19 pandemic-related disruptions.
ICRA also noted the company's elevated funding requirements because of increase in debtor levels (including retention money), translating into increased reliance on working capital debt.
Moreover, there has been a decline in its surplus cash and bank balance.
ICRA said the funding requirements are likely to remain elevated over the medium term as some of its major orders currently underway have inherently high funding needs during initial years.
Additionally, the demand outlook for power equipment manufacturers remains subdued owing to limited fresh capacity additions in the thermal and hydro power industry.
The future order inflows in the emission control systems are expected to be deferred to some extent given the relaxation in timelines in light of the adverse impact of pandemic, supply chain challenges, and financing challenges faced by thermal power generation sector.
Further, said ICRA, GEPIL's profit margins are subject to challenges in timely execution of orders and hardening of key raw material prices and bought-out components due to the relatively long project execution cycle and fixed-price nature of some contracts.
GEPIL is involved in the engineering, procurement and construction of key equipment for thermal and hydro power plants. It reported a profit after tax of Rs 71 crore on an operating income of Rs 3,343 crore in FY21.
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