­For arriving at the ratings, Acuite has considered the consolidated financial and business risk profile of VEL along with its subsidiaries, hereinafter referred to as the ‘Vascon’. Consolidation is on account of the common management and business synergies among the group companies. Subsidiaries of the company include Marvel Housing Private Limited, Vascon Value Homes Private Limited, GMP Technical Solutions Private Limited, GMP Technical Solutions Middle East (Step Subsidiary), Almet Corporation Limited, Marathawada Realtors Private Limited, Vascon EPC Limited. Associates and Joint Ventures of VEL include Phoenix Ventures, Cosmos Premises Private Limited, Vascon Saga Construction LLP, Vascon Qatar WLL, Mumbai Estates Private Limited and Ajanta Enterprises.

­Established t rack record of operation and experienced management
Vascon is a Pune-based player, engaged in real estate construction and development. The company was incorporated in January 1986, being in the construction business for over three decades, the company has gained strong technical and design expertise. Mr. R Vasudevan is the Chairman Emeritus of the company. He is a qualified engineer - BE (Civil) – from the University of Pune and has worked with organizations such as Maharashtra Industrial Development Corporation, Hindustan Construction Company Ltd, Atul Constructions Company Ltd and Beck Engineer Company Private Ltd. Mr. Siddharth Vasudevan is the Managing Director of the company. He is a qualified engineer – with Diploma in Engineering from Sinhgad Institute of Technology and has done Bachelors of Applied Sciences in Construction Management from Singapore. The company has a strong and capable second line of management with people who have been with the company since its inception.

Steady sales in Real estate projects and Improving Scale of execution and order book position in EPC:
VEL has reported sales of Rs.65.50Cr as on December 31, 2022. VEL has successfully sold five of its projects as on January,2022. Rs.110Cr NCD’s taken for Windermere project successfully repaid during October, 2022 and has collected Rs.40Cr from receivables. This healthy sales and collection has resulted in increase of cash flows during the 9 months of FY23. Revenue from EPC segment stood at Rs.454.43Cr as on December 31,2022 against Rs.282.87Cr for the period December 31,2021. This significant improvement in revenue is mainly due to improved order book and execution of orders during the past 9 months till December,2022. VEL has outstanding orders worth Rs.1,321Cr which are to be executed in next 6-12 months with more than 90% of the orders are from government entities. Acuité believes Vascon’s ability to scale up its EPC segment without significantly adverse impact on its working capital efficiencywill remain a key monitorable.

Improved liquidity and FInancial risk profile:
VEL’s has surplus flow from the real-estate segment and healthy advances from customers in GMP. This has led to prepayment of working capital. Currently VEL has total debt around Rs.80Cr in as per YTD figures December,2023. The overall DCSR of the company stood at 1.31 times. VEL’s liquidity is expected to be adequate in the medium term with adequate cash flows from the real-estate and EPC projects. Vascon's gearing stood at 0.19 times as on March 31, 2022 against 0.30 times in previous year. Total debt of vascon came down to Rs.159Cr inn FY22 against Rs.213Cr as on March 31, 2021. Total debt is further expected to come down in FY23 as VEL has prepaid its Non convertible debentures (NCD's) during October, 2022.

­Susceptibility to real estate cyclicality and regulatory risks
The real estate industry in India is highly fragmented with most of the real estate developers, having a city specific or region - specific presence. The risks associated with real estate industry are cyclical in nature of business (drop in property prices) and interest rate risk, among others, which could affect the operations. Vasocn is exposed to the risk of volatile prices on account of frequent demand supply mismatches in the industry. The Real Estate sector is under high stress on account of large amounts of unsold inventory and high borrowing costs. This is primarily attributable to the high residential property prices due to persistent rollover of bank debt, which has a cascading effect on the overall finance costs. Given the high degree of financial leverage, the high cost of borrowing inhibits the real estate developers' ability to significantly reduce prices to augment sales growth. Further, the industry is exposed to regulatory risk, which is likely to impact players such as Vascon, thereby impacting its operating capabilities.

Vascon’s EPC operations are working capital intensive
Vascon’s EPC operations are working capital intensive, primarily on account of high receivable which include retention money it has to keep with clients (10-15 percent). Vascon has significant receivables in the EPC segment, with recoverable due for more than 3 years amounting to Rs. 55.03Cr as on December 31, 2022 and receivables due for more than two years but less than three years of about Rs. 13.65Cr out of total receivable of Rs. 107.70Cr as on December 31, 2022. Acuité believes that the ability of the Vascon to realize the  receivables with ageing of above 3 years and faster realization of receivables from EPC projects going forward will be a key rating sensitivity.