­Established track record of operations with experienced management
ARS Energy Private Limited (formerly known as ARS Metals Private Ltd) is the power division of the ARS Group which was promoted by Mr. Ashwani Kumar Bhatia in the year 1990. Mr. Bhatia has more than three decades of experience in steel industry. Later, in October 2013, the promoter decided to use his experience to diversify the business into two divisions i.e. Steel & Power and set up a 60-MW thermal power plant in the same year. This led to demerger of its steel division and name of the company ARS Metals Private Ltd was changed to ARS Energy Private Limited (AEPL). 
Acuite believes that the company will benefit from the experience of the management along the company's established track record of operations

Overdrawing and devolvement of working capital limits
The liquidity profile of the company is stretched marked by the overdrawings in the cash credit facilities along with the devolvement in the letter of credit in September 2022.

Declining sales and profitability
ARS Energy Private Ltd (AEPL) has registered a degrowth of 40.74% in its topline. The revenue stood at Rs.140.34 Cr in FY2021 as against Rs.236.83 Cr in FY2020. Such decline in revenue comes at the back of low manufacturing activities of its clients on account of Covid-19 leading to a decline in Plant Load factor (PLF) in FY2021. The average PLF in FY2021 was 52.66% as against 76.04% in FY2020. The overall tied capacity of the plant however improved from 41.28 MW in FY2020 to 46.84 MW in FY2022 on account of renewal of certain PPA’s. AEPL’s plant was shut between October 2021 to December 2021 on account of leakage in tube in furnace and radiography test carried out in the power plant. Hence, the average PLF for FY2022 stood at ~35.56%. As of March 2022, AEPL has registered Rs.109.49Cr (Prov) of revenue with a Y-o-Y decline of 23.34% in FY2022. EBITDA margins of the company declined by 967 bps form 20.50% in FY2020 to 10.83 % in FY2021. Such decline is majorly on account of increase in raw material prices. Tariff charged to the customers is fixed at the time of entering the PPA agreement. AEPL can revise the tariff charged only in the event of revision in prices by TNEB (Tamil Nadu Electricity Board).Hence, the company cannot pass the fluctuations in coal prices to the customers. PAT margins have also declined from 0.92% in FY2020 to -20.36% in FY2021. The EBITDA margin and PAT margins for FY2022 (Prov) remained negative at 7.36% and 49.77%.
Acuite believes that the improvement in Plant load factor and profitability levels will remain key sensitivities factors in the medium term.

Intensive working capital operations
The working capital operations of the company remain intensive marked by Gross Current Asset (GCA) days of 275 days in FY2021 as against 196 days in FY2020 driven by elongated debtor and inventory days. AEPL raises bills to the customers on a monthly basis and extends a period of 7 days for payment. Debtor days stood at 41 days in FY2021 as against 21 days in FY2020. As a policy, AEPL maintains inventory sufficient for 60-90 days of operations and trades the coal over and above its requirement. The company in the current year has stopped trading of coal on account of the fluctuations in prices. Inventory days stood at 176 days in FY2021 as against 163 days in FY2020. AEPL opens LC of 180 days for purchase of coal. The creditor days stood at 127 days in FY2021 as against 175 days in FY2020.
Acuité believes that the operations of the company to remain working capital intensive on account of high inventory levels maintained by the company for regular supply of power.