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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 44.12 | ACUITE BBB | Stable | Upgraded | - |
| Total Outstanding Quantum (Rs. Cr) | 44.12 | - | - |
| Rating Rationale |
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Rating Rationale
Acuité has upgraded the long term rating to ‘ACUITE BBB’ (read as ACUITE Triple B) from ‘ACUITE BB+’ (read as ACUITE double B plus) on the Rs 44.12 crore bank facilities of R R Energy Limited (RREL). The outlook is 'Stable'. Rationale for upgrade The rating was upgraded was driven by long operational track record and experienced management with low offtake risk. The rating takes into account the moderate business risk profile with diverse revenue streams. The rating also draws comfort from a well-established customer base with low off-take risk in the power sector. Although the company’s FY2023 performance decrease from Rs. 94.45 Cr in FY2022 to Rs. 65.87 Cr due to shut down in bio-mass power plant operations for maintenance works. Presently, the company achieved a turnover of approximately Rs. 45.00 Cr by September 30, 2023 with bio- mass power generation contributing to Rs. 39.00 Cr and coal trading accounting for Rs. 6.00 Cr. The rating also factors slight moderation in profitability margins which decreased to 8.72% in FY2023 from 8.89% in FY2022. Furthermore, the Company has a healthy financial risk profile characterized by a healthy adjusted net worth, comfortable gearing levels and strong debt protection metrices. The liquidity position of the company remains adequate with steady cash accruals against matured debt obligations and absence of debt funded capex plans. However, these strengths are partially offset by the company's operationally intensive working capital nature. |
| About the Company |
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Established in 2004, R R Energy Limited (RREL), a company headquartered in Chhattisgarh, is involved in the production of biomass based power. Until FY2021, the Company was also engaged in manufacturing ferro alloys but it has divested the same in FY2022 and is not engaged in that line of business. The biomass power plant has a total capacity of 15MegaWatt (MW), and RREL holds a 20-year power purchase agreement (PPA) with Chhattisgarh State Power Distribution Company Limited (CSPDCL) for the sale of 13MW power, effective from March 2016. The management has introduced opportunistic coal trading business. Currently led by Mr. Rajendra Kumar Agrawal, Mr. Amar Agrawal, Mr. Subhash Chander Singhal, Mr. Naresh Garg, Mr. Vijay Kumar Garg, and Mr. Prabhu Nath Pandit, the key promoters have an industry experience of 16 years.
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| Standalone (Unsupported) Rating |
| None |
| Analytical Approach |
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Acuité has taken a standalone view of the business and financial risk profile of RREL to arrive at the rating.
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Key Rating Drivers
| Strengths |
Incorporated in 2004, RREL, a Chhattisgarh based company, is engaged in generation of biomass power. Currently, the company is headed by Mr. Rajendra Kumar Agrawal, Mr. Amar Agrawal, Mr. Subhash Chander Singhal, Mr. Naresh Garg, Mr. Vijay Kumar Garg and Mr. Prabhu Nath Pandit. The key promoters of the company have been in the industry for 16 years. The total capacity of the bio mass based power plant is 15MW and RREL has a power purchase agreement (PPA) with Chhattisgarh State Power Distribution Company Limited (CSPDCL) for 20 years (from March 2016) for sale of 13MW power. This reduces the off-take risk of the Company. Additionally, the management started opportunistic coal trading operations since FY2022.
The company’s FY2023 performance was impacted by a shut-down during two-month for plant maintenance (August-September 2022), leading to a revenue decrease from Rs. 94.45 Cr in FY2022 to Rs. 65.87 Cr in FY2023. Presently, the company achieved a turnover of approximately Rs. 45.00 Cr by September 30, 2023, with bio- mass power contributing about Rs. 39.00 Cr and coal trading business of about Rs. 6.00 Cr.
Further, the operating profit dipped marginally to 8.72% in FY2023 from 8.89% in FY2022.Additionally, the PAT margin declined to 3.13% compared to 4.09% in FY2022. Acuité believes the profitability margin of the company will remain at similar levels over the medium term.
The company’s financial risk profile is marked by healthy adjusted net worth, comfortable gearing and strong debt protection metrics. The adjusted tangible networth of the company stood at Rs.77.93 Cr as on March 31, 2023 from Rs.74.28 Cr as on March 31, 2022 due to accretion of reserves. Acuité has considered unsecured loans of Rs.19.77 Cr as on March 31, 2023, as quasi-equity as the management has undertaken to maintain the amount in the business over the medium term and the same is subordinated to bank loans. The adjusted gearing of the company stood moderate at 0.20 times as on March 31, 2023. The adjusted Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 0.59 times as on March 31, 2023. The strong debt protection metrics of the company is marked by Interest Coverage Ratio at 3.91 times as on March 31, 2023 and Debt Service Coverage Ratio at 3.26 times as on March 31, 2023. The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.23 times as on March 31, 2023.
Acuité believes that going forward the financial risk profile of the company will remain healthy over the medium term. |
| Weaknesses |
The working capital management of the company is intensive marked by improving high Gross Current Assets (GCA) of 383 days in 31st March 2023 as compared to 247 days in 31st March 2022. The GCA days is high primarily on account of high receivables. The debtors stood at 148 days in FY2023 compared to 94 days in FY2022. The inventory holding stood at 62 days in 31st March 2023 as compared to 38 days in 31st March 2022. Further, the GCA days of the company has also emanates from the other current asset, which mainly consists of loans and advances to the tune of Rs.24.11 Cr and other loans advances to the tune of Rs.8.05 Cr. The fund based limit remained utilized at ~85.46 per cent over the six months ended August, 2023. Against this, the company has dependence on its suppliers and other creditors to support its working capital; creditors stood high at 37 days as on March 31, 2023 as against 2 days as on March 31,2022. Acuité believes that the working capital operations of the company will remain at similar levels as evident from elongation in the receivable period, which will remain a key monitorable.
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| Rating Sensitivities |
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| All Covenants |
| None |
| Liquidity Position |
| Adequate |
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The company’s liquidity is adequate marked by low but steady net cash accruals of Rs.3.61 Cr as on March 31, 2023 as against long term debt repayment of Rs.1.47 Cr over the same period. The current ratio stood comfortable at 3.37 times as on March 31, 2023. The fund based limit remained utilized at ~85.46 per cent over the six months ended August, 2023. Moreover, working capital management of the company is intensive marked by high Gross Current Assets (GCA) of 383 days in 31st March 2023 as compared to 247 days in 31st March 2022. Acuité believes that the company will continue to maintain adequate liquidity position owing to steady accruals and absence of debt funded capex plans.
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| Outlook: Stable |
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Acuité believes that the outlook on RREL will remain 'Stable' over the medium term on account of the long track record of operations and comfortable financial risk profile. The outlook may be revised to 'Positive' in case of significant growth in revenue with improvement in profit margin or improvement in working capital cycle. Conversely, the outlook may be revised to 'Negative' in case of deterioration in financial risk profile due to fall in margins leading to deterioration of debt protection metrics or weakening of liquidity profile due to further elongation in its working capital cycle.
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| Other Factors affecting Rating |
| Not Applicable |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 65.87 | 94.45 |
| PAT | Rs. Cr. | 2.06 | 3.86 |
| PAT Margin | (%) | 3.13 | 4.09 |
| Total Debt/Tangible Net Worth | Times | 0.20 | 0.23 |
| PBDIT/Interest | Times | 3.91 | 4.22 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| Not AApplicable |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Service Sector: https://www.acuite.in/view-rating-criteria-50.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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