Established track record along with experienced management
VAL has an established track record of more than a decade in the business of auto components. The directors of the company, Mr. Devendra Kumar Mantri, Mrs. Tanuja Mantri and Mr. Shashankdhar Mantri possess long experience and are in the business of manufacturing of automobile parts for commercial vehicles since 1990. The extensive expertise of the management has aided the operations of the company in establishing healthy relations with the clients like TATA Motors Limited, TM Automotive Seating, ZF Commercial Vehicle Control Systems India, Orient Electric, Adient India, etc.
Acuité believes that the company will continue to benefit from the experienced management and established clientele relationships.

Stable operating performance with improving margins
The operating margins of the company has improved to 4.13 percent in FY2024 as against 3.87 percent in FY2023 owing to the decline in the input costs and efficient operations. However, the revenue of the company remained stable at Rs. 136.16 Cr. in FY24 as against Rs. 139.09 Cr. in FY23 owing to slow demand growth in commercial vehicles of TATA Motors and pass through of downtrend in the steel prices leading to lower realisations.  Further, the company has successfully completed phase I of the capex plan in December’ 23 for the addition of new manufacturing facility in Jamshedpur with the capacity of 6,000 MT and the phase II is expected to be completed by March’ 25 with an additional capacity of 6,000 MT. Also, in FY23, the company had enhanced the existing production capacity of auto components by 9,000 MT resulting into increase in capacity of existing plant to 21,000 MT. The company incurred capex of Rs 34.42 Cr. of which Rs 9.42 Cr. was towards expansion of existing capacity and Rs 25 Cr. towards development of new unit. This capex is expected to boost the revenue and profitability for the company in the near to medium term.
Acuite expects that going forward, the revenue of VAL may increase further due to better industry growth prospects over the medium term.

Moderate Working Capital Operations
The working capital management of the company is moderately efficient marked by Gross Current Assets (GCA) of 99 days as on March 31, 2024, as against 89 days as on March 31, 2023. The GCA days are driven by increase in the inventory levels which stood at 48 days for FY2024 as against 34 days for FY2023. The company receives the production plan from the OEMs on a monthly basis and hence can plan the production and supply of the auto parts accordingly. Further, the debtor’s collection period stood improved at 35 days for FY2024 as against 48 days for FY2023. Furthermore, the creditor days stood at 65 days in FY2024 as against 64 days in FY2023. The average utilization of its working capital limits remains moderate at ~32.15 percent for the last six months ended as of November’2024.
Acuite believes that managing the working capital operations efficiently is a key rating sensitivity.

Moderate Financial Risk Profile
The company’s financial risk profile is moderate, marked by low net worth, moderate gearing, and moderate debt protection metrics. The tangible net worth improved to Rs. 17.22 Cr. as on March 31, 2024, as against Rs. 14.95 Cr. as of March 31, 2023, owing to infusion of funds by promoters of Rs. 1.59 Cr. in FY24 and accretion of reserves. The gearing stood at 1.50 times as on March 31, 2024 as compared to 1.43 times as on March 31, 2023 owing to increase in debt levels to fund the capex. Total outside liabilities/Tangible net worth (TOL/TNW) stood at 2.70 times as of March 31, 2024, as against 2.86 times as of March 31, 2023. The debt protection metrics of the company are moderate marked by interest coverage ratio of 2.43 times as of March 31, 2024 as against 2.96 times as of March 31, 2023 and debt service coverage ratio of 0.99 times as of March 31, 2024 as against 0.86 times as of March 31, 2023.
Acuité believes the financial risk profile of the company may continue to remain moderate over the medium term owing to the slower demand in the industry.

Customer concentration and susceptible to volatility in raw material prices
The top three customers account for nearly 80% of the revenue in FY2024. Any decline in the business of these clients could impact the company’s business and financial risk profiles. Revenue is majorly dependent on the performance of the automobile industry, which is directly linked to economic cycles. Further, the auto ancillary industry is a highly competitive with presence of both organized and unorganized players. The profitability in industry is susceptible to increase in raw material prices such as steel and aluminium. Therefore, the downtrend in the steel prices led to fall in the realisation price of the company’s products for FY2024. Moreover, the fluctuations in the prices are passed on to customers with a lag of a quarter.