ICRA reaffirms Vidullanka rating

ICRA Lanka reaffirmed that Vidullanka PLC has the issuer rating of (SL)A-, along with the short-term rating of (SL)A2+ assigned to two of Rs. 100 million each commercial paper programmes of the company. 

Accordingly, the company was predicted to benefit from its diversified project portfolio going forward while the rating would be upgraded if the coverage, leverage, and working capital indicators improve significantly in the medium term.

As per credit strength, Vidullanka PLC’s strategy of diversification was noted to have improved performance due to overseas investments. As the company has diversified its operations internationally, in the past, initially, the company’s operations were concentrated in the Southern part of the country, which is exposed to the South-West monsoon. 

Subsequently, as it diversified to the Eastern part of the country through Rideepana and Udawela Mini Hydro Power Plants (MHPP), the Eastern part of the country is exposed to the North-East monsoon which records relatively lower rainfall in the range of 100 mm to 1,000 mm, as compared to the South-West monsoon in the range of 100 mm to 3,000 mm. 

As a result, Rideepana and Udawela are reporting lower plant load factors (PLFs). With the commissioning of the Muvumbe Small Hydro Power Plant (SHPP) in March 2017 and the Bukinda SHPP in July 2020, Vidullanka has further diversified its geographical presence to the African region. 

Thereby, ICRA noted that plants in Uganda reported high PLFs due to better hydrological constant flow compared with the Sri Lankan conditions. Sri Lanka’s river catchment areas are within the 10-100 sq. km. region, whereas in Uganda, this is generally within a 800-2,000 sq. km. radius.

ICRA Lanka has also noted VLL’s diversification to other non-renewable energy sources (NRES). Vidullanka has commissioned two rooftop solar plants with a capacity of 0.76 MW during 2020/2021. It has four new solar projects in the pipeline with a total capacity of 14 MW.

With the largest project being a 10 MW joint venture with Windforce PLC and Hi-Power )Pvt.) Ltd., it was also noted to not impact the consolidated financial profile of the company.

As per the company’s moderate financial profile, the company reported an operating profit margin of 63.3% in 9MFY2021 as compared to 65.5% in FY2020 and 69.3% in FY2019. The profit margins moderated during the last nine months remain comfortable.

The net profit margin (NPM) of Vidullanka remained volatile, as it was 36.7% in 9MFY2020 as compared to 25.1% in FY2020 and 41.1% in FY2019. The NPM of the company was moderate in FY2020 due to reduction in other income, increase in overhead expenses, and increase in tax expenses of the local MHPPs.

It was noted that most of the tax holidays available for local subsidiaries have ended and as a result, a tax rate of 14% applies. The company has consistently reported healthy return on capital employed (ROCE) over the past five years except for FY2017

Also, the experienced management team was also analysed by the ICRA as having a good operational track record with projects operational since 2001, with the ratings favouring the experience of the management team and strong operational track record, which has enabled the company to record growth in revenues and profits over the past several years. 

The company has been efficiently managing its operations through a prudent selection of locations and strong control over operations and maintenance. Vidullanka has also developed engineering expertise in the hydropower space over the past several years. This enables the company to respond quickly to outages at their power plants and restore normal service with quick turnaround times.