­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 track 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:
Vascon Engineers Limited (VEL) has reported sales of Rs.94.01Cr as on March 31, 20223 in real estate segment. Currently VEL has successfully sold Forest Edge project and has received all the pending receivables. VEL currently has 6 on-going projects namely Windermere, Tulips, Vascon Goodlife, Ecotower, Vascon Springs, Forest county and all the projects have been reporting decent sales. EPC segment has registered revenue of Rs.654.05Cr for FY23 against Rs.409.28Cr of previous year implying a growth rate of ~60 percent and shown similar growth in revenue during Q1 of FY24 with a revenue of Rs.148Cr. VEL has outstanding orders worth Rs1739. Cr for EPC segment which are to be executed in next 12-24 months providing healthy revenue visibility over the medium term. Acuité believes Vascon’s ability to scale up its EPC segment without significantly adverse impact on its working capital efficiency will remain a key monitorable.

Continued improvement sclae of operations in clean room partition business:
GMP technical is the subsidiary of VEL involved in manufacturing and trading of clean room partitions with three manufacturing units.  The company has registered revenue of Rs.253.91Cr for FY23 posting a growth of 28 percent against previous years’ revenue of Rs.196.41Cr. This significant growth in revenue is mainly due to healthy orders from pharma sector customers in clean room partition business. EBITDA margin of the company has improved to 9.04 percent in FY23 against 7.96 percent of previous year on account of improved realisations. GMP has outstanding orders worth Rs.350.Cr as on September , 2023 which are to be executed in next 12-18 months months providing healthy revenue visibility over the medium term.

Healthy Financial risk profile:
The financial risk profile of the group is healthy with healthy capital structure and debt protection metrics. The net worth of the company stood at Rs.923.82 Cr as on March 31, 2023 against Rs.823.83 Cr during previous year. Improvement in net worth is primarily on account of accretion of profits to the reserves during the year. The gearing of group remained healthy under unity over the last 3 years, during FY23 VEL’s gearing stood at 0.15 times against 0.19 times of previous year.

Debt protection metrics – Interest coverage ratio and over all debt service coverage ratio stood at 9.61 times and 2.22 times as on March 31, 2023 respectively. VEL has surplus cash flows from real estate  project which is evident from a DSCR of ~1.25 times in real estate segment. Healthy networth along with Low debt levels has led to improvement in TOL/TNW at 0.78 times and Debt /EBITDA  at 1.07 times as on March 31, 2023 against 0.80 times of TOL/TNW and 2.10 times Debt/ EBITDA of previous year. Going forward financial risk profile of the group is expected to remain healthy on account of  low debt levels and expected improvement in EBITDA.

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. 36.81Cr as on March 31, 2023. 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.

­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. Vascon 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.