­Established track record and presence of PPA providing revenue visibility:
The company started initially as partnership between Urjankur Nidhi Trust (UNT) and IL&FS Renewable Limited in 2008 and it has been operational since 2011. However, in 2017 Shree Datta Sahakari Shetkari Sakhar Karkhana Limited (SDSSSKL) took over IL&FS’s stake in the entity while UNT's stake in the company was diluted in FY2023. Further, Maharashtra Energy Development Agency (MEDA) had a 11 percent shareholding in Urjankur Shree Datta Power Company Limited (USDPCL), which was fully taken over by Shri Datta Shetkari Sahakari Sakhar Karkhana Limited (SDSSSKL) during FY2024. Now SDSSSKL has complete 100 percent shareholding of USDPCL. The company currently operates a 36 MW bagasse based thermal power plant in Kolhapur, Maharashtra. Costs to USDPCL are limited to O&M and fuel costs as it has signed an agreement with its parent SDSSSK for procuring bagasse free of cost and in exchange supplying them with part of its electricity generated. For the rest of its output it has signed a power purchase agreement (PPA) with MSEDCL in 2011 valid for 15 years. The PPA has provisions for a levelized fixed tariff (Rs. 2.26/ KWh) and a variable tariff which can be revised yearly. With PPA in place with a levelized fixed tariff and yearly revised variable tariff, ensures revenue visibility for the long term and also mitigates the offtake risk.
Acuité believes that USDPCL will continue to benefit from its PPA with MSEDCL and agreement with parent company for ready resource procurement in the long run.

Estimated improvement in operating performance in FY2025:
The company’s power generation in the first 11 months of FY2025 stood at 105.43 Million units compared to 134.42 Million units in FY2024 and 147.53 Million units in FY2023, while the tariff rate stood at Rs.7.06 per unit in FY2025 compared to Rs.6.94 per unit in FY2024 and Rs.6.83 per unit in FY2023. The reduction in power generation is due to lower availability of bagasse from its supplier SDSSSKL. Lower cane availability and lower crushing in parent company ‘SDSSSKL’ over the last three years ending FY2025, resulted in lower availability of bagasse for co-generation. Consequently, the average plant load factor (PLF) also has declined marginally to 42.62 percent in FY2024 from 46.78 percent in FY2023. Further for FY2025, the PLF is expected to be in the range of 40-42 percent. The operating income is estimated to be at Rs.69.45 Cr. in FY2025 against Rs.63.66 Cr. in FY2024 and Rs.71.34 percent in FY2023. The operating profit margin recovered to 31.33 percent in FY2024, after a sharp decline to 9.72 percent in FY2023. This decline was due to an additional royalty expense of Rs.34 Cr. paid to SDSSSKL, which had been pending from pervious ten years. Further, for FY2025, the operating profit margin is estimated to improve further between 40-45 percent due to lower royalty expense.
Acuité believes USDPCL’s ability to expand its source of raw materials while increasing its scale of operations will remain critical towards future growth of the company.

Healthy financial risk profile.
The financial risk profile of the company is healthy marked by strong net worth and no long term debt. The aggregate net worth stood at Rs. 254.92 Cr. as on March 31, 2024 against Rs. 248.67 Cr. as on March 31, 2023. The share capital during FY2024 increased by Rs.39.41 Cr. totalling to Rs.90.08 Cr. However, there has been a reduction of reserves by Rs.27.16 Cr, due to meet the royalty payment of Rs.30 Cr. during FY2024. Further, though the company has no outstanding debt it has availed ~Rs.4.90 Cr. cash credit facility but the utilization is negligible. Acuite expects the financial risk profile of the company to remain healthy over the medium term on account of absence of debt-funded capex.

Intensive nature of working capital operations:
USDPCL’s working capital operations are intensive in nature as reflected by the gross current (GCA) days of 393 days in FY2024 against 295 days in FY2023. The elongation in GCA days in FY2024 is due to increase in loans given to SDSSSKL to the tune of Rs.25 Cr, which are classified under other current assets. The company realizes bills from its sole customer i.e. MSEDCL within 90-120 days, as reflected in the debtor days of 120 days in FY2024 against 102 days in FY2023, which further takes the GCA days to elongated levels. Further, bagasse which is used as the primary fuel in the power plants is available only as per the sugarcane crushing season which begins in October and lasts till March. So the company has to maintain sufficient amount of inventory in the form of raw material to ensure uninterrupted supply of fuel to its power plants. The inventory days stood at 49 days and 89 days during FY2024 & FY2023 respectively. 
Acuité believes USDPCL’s working capital operations are likely to remain in the similar range due to the nature of its operations.

Susceptibility to sugarcane crushing business of associate parent:
USDPCL’s key raw material is bagasse from its parent sugar factory which it receives free of cost. This is the key reason for the company’s healthy profitability. Bagasse is an agro waste product hence it’s availability is highly seasonal. Its availability varies with the sugarcane crushing season. This makes the company susceptible to the sugar crushing operations of the parent company. Any adverse impact on sugar manufacturing operations will reduce the availability of the raw material available free of cost impacting their profitability metrics.