S.E. Power Limited. Revised from CARE BBB- (Triple B Minus) Short-term Bank Facilities 2.50 CARE A4 (A Four) Revised from CARE A3 (A Three)

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1 Ratings S.E. Power Limited Facilities Amount (Rs. crore) Ratings 1 Remarks Long-term Bank Facilities CARE BB+ (Double B Plus) Revised from CARE BBB- (Triple B Minus) Short-term Bank Facilities 2.50 CARE A4 (A Four) Revised from CARE A3 (A Three) Total Facilities (Rupees Thirty Seven crore and Sixty Two lakh only) Rating Rationale The revision in the ratings assigned to the bank facilities of S.E. Power Limited (SEPL) takes into consideration lower sales realisation from reclaimed rubber division coupled with weak operational performance of the rubber reclamation plant and deterioration in the financial risk profile of the company. The ratings are further constrained by SEPL s dependence on seasonal wind patterns for wind power generation and presence of the company in a highly competitive reclaimed rubber industry coupled with subdued demand for reclaimed rubber in the domestic market. The ratings, however, continue to derive strength from company s experienced and resourceful promoters with long track record of operations in the group companies. The ratings also take into consideration SEPL s stable track record of operating wind mills since 2006 and differentiated product offering by the company. Going forward, SEPL s ability to derive the envisaged benefits from reclaimed rubber division and maintain profitablity amidst volatility in rubber prices would be the key rating sensitivities. Background Incorporated in August 2010, SEPL is engaged in the manufacturing of reclaimed rubber and production of power through wind mill power generation plants. SEPL is promoted by the Agarwal family based at Agra, which is engaged in various businesses, including financial sector [S E Investments Ltd (SEIL), rated CARE A- ], trading of heavy machinery [Spring Infradev Limited (SIL), rated CARE BBB- (FD), CARE A3 ), education sector (two DPS school franchises), aviation sector and car dealership (Tata Motor dealership). The company operates five wind mill power plants with four plants of 0.6 MW and one of 0.8 MW located respectively at Chitradurga, Karnataka, and Jaisalmer, Rajasthan. The power generated from these sources is sold to the respective state governments through Power Purchase Agreements (PPA). Furthermore, the company has set up a rubber reclamation plant at Baroda, Gujarat, in March 2014 with an installed capacity of 45 TPD (tonne per day) at a total project cost of Rs.49 crore. Credit Risk Assessment Lower sales realisation from reclaimed rubber division coupled with weak operational performance of the rubber reclamation plant During FY15 (refers to the period April 01 to March 31), SEPL has reported total sales of Rs.3.54 crore from reclaimed rubber division. Furthermore, capacity utilisation of rubber reclamation plant was around 10% during FY15. Weak operational performance of the rubber reclamation plant was on account of technical difficulty faced in operating the machines which were imported from China for the production of reclaimed rubber. Although the machines were ordered taking into consideration the characteristics of the raw material (waste rubber) available in India, SEPL was not able to produce reclaimed rubber of the desired quality. As a result, the plant got operational from December 2014 despite the completion of rubber reclamation plant on time and without cost overrun in March Furthermore, sale from reclaimed rubber division remained low due to the subdued demand for reclaimed rubber in the domestic market. The sale from this division were also adversely impacted by the steep fall in the prices of natural rubber which has shown a declining trend. As such, SEPL s major source of revenue in FY15 was from the sale of crumb rubber (an intermediate product in the production process of reclaimed rubber), major markets for which include: athletic surfaces and 1 Complete definitions of the ratings assigned are available at and other CARE publications 1

2 field, landscape, trails and walkways, playground and other safety surfaces, etc. During 5MFY16 (refers to the period April 01 to August 31), SEPL has reported total sales of Rs.3.26 crore from reclaimed rubber division. Deterioration in financial risk profile During FY15, SEPL has reported total operating income of Rs.5.65 crore (PY: Rs.3.77 crore), which includes income of Rs.1.99 crore from non-conventional energy division and Rs.3.54 crore from reclaimed rubber division. Income from non-conventional energy division has decreased from Rs.3.38 crore in FY14 to Rs.1.99 crore in FY15 on account of sale of bio-gas plants of SEPL in FY14 to fund the rubber reclamation plant. SEPL had bio-gas plants located across rural areas in North India which were sold off during FY14 at a total value of Rs.21 crore. The PBILDT margin declined from 68.00% during FY14 to 14.74% during FY15 on account of commissioning of the rubber reclamation plant which resulted in increase in raw material cost, employee benefit expenses and manufacturing expenses. Furthermore, SEPL reported net loss of Rs.3.48 crore in FY15 against net loss of Rs.2.43 crore in FY14. However, SEPL reported positive GCA of Rs.0.41 crore in FY15 as against negative GCA of Rs.0.26 crore in FY14. Interest coverage ratio declined from 6.38x during FY14 to 1.78x during FY15. Experienced and resourceful promoters with long-track record of operations in the group companies SEPL is promoted by the Agarwal family based at Agra, which has interests in various sectors, including financial services, aviation, education, real estate, automobile dealership, etc. The group s flagship company, S.E. Investments Limited (SEIL) is an NBFC, which operates in northern and western India (including Uttar Pradesh, Delhi, Rajasthan and Gujarat), with focus on business loans. SEIL has a track record of more than 20 years in the financial sector. During FY15, SEIL has recorded total operating income of Rs crore and PAT of Rs crore. Another group company, Spring Infradev Limited (SIL) is engaged in the business of merchant trade of heavy machinery and computer hardware and construction contracts on small scale. During FY15, SIL has recorded total operating income of Rs crore and PAT of Rs.5.16 crore. Furthermore, Dr Arun Gopal Agarwal, Chairman and Mr Ravindra Kumar Agarwal, Managing Director of SEPL have a vast experience in diversified sectors. Dr Agarwal (FCS, FICA, and B.Com) has a business experience of 45 years and has also been associated with rubber industry while working with the Modi group & the Apollo group. Dr Agarwal has also served as Chairman and MD of Central Electronics Ltd and as Director (Finance) at India Tourism Development Corporation. Also, Mr Ravindra Kumar Agarwal has an experience of more than 25 years, primarily in manufacturing sector. Apart from above, the promoters continue to support the operations of the company. During FY15, the promoters have infused unsecured loans to the amount of Rs.8.53 crore to repay debt obligations of the company as well as to support its operations. During 5MFY16 (refers to the period April 01 to August 31), the promoters have infused unsecured loans to the amount of Rs.2.58 crore. Five operational wind mills with stable track record of generation and sale of power; however, dependence on seasonal wind patterns for power generation The company operates five wind mill power plants with four plants of 0.6 MW and one of 0.8 MW located respectively at Chitradurga, Karnataka and Jaisalmer, Rajasthan. All these plants were commissioned under SEIL in FY05 and FY06; however, the same were demerged into SEPL during FY12 in order to enable SEIL to focus on its core business activity, i.e. corporate lending. The PPAs for the sale of power generation have been executed with the respective state electricity boards. As these wind mills have been operational for around 9-10 years, they have a stable track record of power generation and sale. However, the wind farms remain exposed to inherent risk of weather fluctuations leading to variations in the wind patterns which affects the Plant Load Factor (PLF). Generally, the wind farms enjoy high PLF during June November period (monsoon period). However, un-favourable wind conditions in the other half of the year results in lower PLF, thereby impacting the revenue derived from the same during the said period. During FY15, average PLF stood at 23% for wind power plants based in Karnataka and 14% for plant based in Rajasthan. Furthermore, during Q1FY16 (refers to the period April 01 to June 30), average PLF stood at 25% for wind power plants based in Karnataka and 16% for plant based in Rajasthan. Comfortable capital structure Overall gearing ratio although, deteriorated from 0.50x as on March 31, 2014, to 0.72x as on March 31, 2015, however, it still remained within comfortable levels. The deterioration in overall gearing ratio was on account of unsecured loans infused by the promoters to support the operations of the company. The promoters infused unsecured loans to the amount of Rs.8.53 crore in FY15. 2

3 Subdued demand for reclaimed rubber in the domestic market The demand for reclaimed rubber in the domestic market remains subdued on account of falling natural rubber prices. The price of natural rubber has fallen from last year s peak of Rs. 165/ kg to Rs.112.5/kg (decline of %) as on September 28, 2015, following drop in global prices of natural rubber on account of slowing economy of China as well as falling crude oil prices. However, considering the subdued demand for reclaimed rubber, SEPL has started importing waste tyres to improve its profitability margins. SEPL is importing waste tyres from gulf countries which are 50% cheaper as compared with the waste tyres purchased domestically. The same is expected to improve the profitability margins of SEPL. Fragmented nature of reclaimed rubber industry leading to high competition but differentiated product offered by the company The rubber recycling sector is fragmented consisting of few large recyclers in the organised sector and the competition is further increased by presence of small scale units having limited local presence. In order to lower the competition in the reclaimed rubber market, SEPL has focused on quality aspects and is offering differentiated product by manufacturing reclaimed rubber with a tensile strength of around 80 to 120 kg/sqcm, whereas the tensile strength of other reclaimed rubber available in the market is around 60 kg/sqcm (tensile of natural rubber is around 200 kg/sqcm). This product variation of the product is expected to help the company in differentiating its product and better position itself in the reclaimed rubber market. Financial Performance (Rs. Cr) For the period ended / as at March 31, Working Results Net Sales Total Operating income PBILDT Interest Depreciation PBT PAT (after deferred tax) Gross Cash Accruals Financial Position Equity Capital Networth* Total capital employed Key Ratios Growth Growth in Total income (%) Growth in PAT (after D.Tax) (%) Profitability PBILDT/Total Op. income (%) PAT (after deferred tax)/ Total income (%) ROCE (%) Solvency Long-term Debt Equity ratio (times) Overall gearing ratio(times) PBILDT/Interest (times) PBIT/Interest (times) Term debt/gross cash accruals (years) Total debt/gross cash accruals (years) Liquidity 3

4 Current ratio (times) Quick ratio (times) Turnover Average collection period (days) Average creditors (days) Average inventory (days) Operating cycle (days) A- Audited *unsecured loans of amount Rs.6.26 crore are subordinated to bank facilities and are therefore treated as quasi equity Details of Rated Facilities 1.Long-term facilities 1.A. Secured rupee term loans Sr. No. Lender Rated Amount (Rs. Crore) Remarks 1. Andhra Bank Sanctioned 2. Andhra Bank 2.30 Sanctioned Total B. Fund-based limits (Rs. Crore) Sr. No. Name of Bank Fund-based limits CC*# Others Total fund-based limits 1 Andhra Bank *CC=Cash credit; # including sub limit of FBP of Rs crore Total Long-term facilities are Rs crore 2.Short-term facilities 2.A. Non-fund-based limits Sr. No. Name of Bank Non-fund-based limits LCs/ BGs* Others 1 Andhra Bank *LC=Letter of credit; BG=Bank guarantee (Rs. Crore) Total Short-term facilities are Rs.2.50 crore Analyst Contact Name: Mr Gaurav Dixit Tel: Cell: gaurav.dixit@careratings.com (This follows our brief rationale for entity published on 28 October, 2015) Disclaimer: CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 4

5 CONTACT Head Office Mumbai Mr. Sanjay Kumar Agarwal Mr. Amod Khanorkar Mobile: Mobile: sanjay.agarwal@careratings.com amod.khanorkar@careratings.com CREDIT ANALYSIS & RESEARCH LIMITED Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com Website: REGIONAL OFFICE AHMEDABAD Mr. Mehul Pandya 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: mehul.pandya@careratings.com BENGALURU Mr. Dinesh Sharma Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , dinesh.sharma@careratings.com CHANDIGARH Mr. Sajan Goyal 2nd Floor, S.C.O , Sector 34-A, Chandigarh Cell: Tel: / 09 sajan.goyal@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore Cell: Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Saikat Roy 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Cell : Tel: saikat.roy@careratings.com JAIPUR Mr. Rakesh Jayaraman 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 rakesh.jayaraman@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: ; Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: ; Tel: swati.agrawal@careratings.com PUNE Mr. Rahul Patni 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: ; Tel: rahul.patni@careratings.com CIN - L67190MH1993PLC