Sumant Sinha Helmed ReNew Power Takes A Beating
Company has new debt of 5.5 times versus EBITDA
One of India's renewable power companies, ReNew Power has witnessed an 87 percent drop in quarterly profits. The profit from the April to June quarter of ReNew Power fell to Rs 39.4 crores from Rs 298 crores. The company is listed on the Nasdaq stock exchange in the US and its share price has been on a downward spiral recently with a 28 percent decline from its 52-week high levels and crashed nearly 6 percent last Friday as the company reported 87 percent drop in profit. Sumant Sinha, son of India's former finance minister Yashwant Sinha, is the founder promoter of the company that has major renewable energy businesses in India.
ReNew In A Debt Trap?
1. Leverage: Net Debt/EBITDA is 5.5x – high financial risk, especially with 45% of debt variable-rate.
2. Liquidity: Current Ratio 0.79 – potential liquidity issues.
3. Profitability: Operating Margin ~83.3 per cent, but high interest costs reduce net profit margins.
4. Interest Coverage: ~2.24x – limited ability to cover interest payments.
5. Asset Efficiency: Low Asset Turnover Ratio ~0.025 – reflects inefficiency in revenue generation.
6. Debt Maturity: 45% of debt is variable, with significant USD exposure, increasing currency risk.
7. Revenue Risk: Heavy reliance on govt entities, DSO ~83 days – potential cash flow issues.
8. Operational Issues: Declining PLFs (Wind: 31 per cent to 29 per cent, Solar: 28 per cent to 27 per cent) – operational inefficiencies.
9. Expansion Risk: Target to double capacity in 5 years – significant execution risk with high leverage.
Since the reported earnings for the first quarter did not meet expectations, prompting the analyst to revise the company's fiscal year 2025 estimates downwards. Yet, despite the reduction in the price target, the analyst's outlook on ReNew Power's stock remains positive on the basis of fact that the company has been successful in securing Power Purchase Agreements (PPAs) for the 8-gigawatt capacity it won in an auction in the fiscal year 2024. This achievement is seen as a key factor in bolstering investor confidence regarding ReNew Power's long-term growth prospects, which the company highlighted in its analysts call.
Further in the analyst call, ReNew's financial health and growth strategy were discussed, with the company reaffirming its financial guidance for FY '25 and expressing confidence in meeting its annual EBITDA targets. Notably, the company is expected to start production of solar cells in the coming months, with stabilization projected by the end of the financial year. ReNew has reduced its year-on-year wind power forecast, it has secured transmission connectivity for its commissioned and planned capacity. The company said that its recent auction wins are expected to generate better returns than previous projects, indicating potential for expansions.
