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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 666.21 | ACUITE A- | Negative | Downgraded | - |
| Bank Loan Ratings | 1633.79 | - | ACUITE A2+ | Downgraded |
| Total Outstanding Quantum (Rs. Cr) | 2300.00 | - | - |
| Rating Rationale |
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Acuité has downgraded the long term rating from ‘ACUITE A’ (read as ACUITE A) to ‘ACUITE A-’ (read as ACUITE A minus) and the short term rating from‘ACUITE A1’ (read as ACUITE A one) to ‘ACUITE A2+’ (read as ACUITE A two plus) on the Rs. 2300.00 Cr bank facilities of Vikram Solar Limited (VSL). The outlook remains 'Negative'.
Rating Rationale The downgrade in the rating, primarily considers the company's inability to launch the IPO within the stipulated timelines as specified by the management during our previous rationale dated September 13, 2023 and underachievement of the anticipated revenue till 9MFY2023. Nevertheless, Acuité also notes that the company has plans to raise Rs. 200-250 Cr within the current fiscal which would be a key rating sensitivity.
The outlook continues to be ‘negative’ majorly on account of their working capital intensity in operations which in turn impacted the liquidity position of the company. The expected increase in their scale of operations would entail higher working capital requirements which if not met through own sources may further deteriorate their capital structure. The rating on VSL continues to consider the strong market position of the company in both the domestic and the global solar energy solutions industry. The rating also derives comfort from the robust order book position buoyed by increasing demand for solar power. Further, it is also supported by the management’s long track record in the sector. |
| About the Company |
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Incorporated in 2006, Vikram Solar Limited (VSL) is a Kolkata based company engaged in providing solar energy solutions, manufacturing and exporting PV modules and undertakes engineering, procurement, and construction (EPC) of solar power plants. Currently, the company is headed by Mr. Hari Krishna Chaudhary and Mr. Gyanesh Chaudhary along with a set of experienced professional individuals. VSL has its manufacturing facility located in Falta Special Economic Zone (FSEZ) in West Bengal with an installed capacity of 1.2 GW of solar PV module and in Chennai with an installed capacity of 1.3 GW of solar PV module. In addition to this, the company operates and sells power from a 10 MW solar power plant, which has a long term power purchase agreement with the Tirupati temple.
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| Standalone (Unsupported) Rating |
| Not Applicable |
| Analytical Approach |
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Acuité has taken a standalone view of the business and financial risk profile of VSL to arrive at the rating.
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Key Rating Drivers
| Strengths |
| Experienced management and established relationship with customers
Established in 2006, the company has been operational for more than fifteen years. The key promoters, Mr. Hari Krishna Chaudhary and Mr. Gyanesh Chaudhary have been engaged in solar business for more than five decades by virtue of their association with this company. Moreover, the extensive experiences of promoters have helped the company to maintain a robust order book. Acuité believes the company will continue to benefit from experienced promoters that will help to maintain long -term relations with customers and suppliers. Healthy order book position The company has an unexecuted order book position of around Rs. 11,500 Cr as on 30.11.2022. These orders primarily includes supplying of PV modules in the domestic market as well as exports. The company’s order book position continues to remain strong as on date, which provides revenue visibility for the near to medium term. Moreover, the company has received a large order from a reputed player under variable price contract, with pre-decided EBITDA margins.
Acuité believes the company’s strong execution capabilities backed by its expertise, has helped the company in generating healthy orders over the years. These orders were primarily secured from large reputed customers that reduce counterparty risks, and in turn, are expected to ensure timely realization of receivables. Positive industry outlook Government of India’s thrust on developing solar capacity in India and increase in the Basic Customs duty (BCD) on solar modules to 40% and solar cells to 25% with effect from April 2022, will enable the company to boost sales and increase profitability margins going forward.
Further, in the export market USA government has imposed anti-dumping duty as high as 200% on the import of modules from China. The European Union has resolved to lower its dependency on imports of energy requirement from Russia due to ongoing Russia-Ukraine conflict. The European nations are looking for options beyond China to cater its energy needs and with no other alternative source the demand from Indian renewable energy is bound to happen. Acuité believes that the Government’s focus on this sector would help the company in maintaining their continuous receipt of orders and sustain the high growth momentum. Significant improvement in performance till 9MFY2023 The company’s performance has improved manifold in the current fiscal through execution of variable price contract, better supply chain arrangement and better negotiations on freight rates in the 9MFY2023, where it has achieved a turnover of Rs. 1753.43 Cr (prov). Further, EBITDA levels have improved significantly where the company has achieved a EBITDA of Rs 150 Cre in the 9MFY2023 i.e a operating margin of 8.50 per cent (prov).
The company is expected to report a sharp revenue growth in the current financial year given their till date performance coupled with their very high order book. Raw material price fluctuation risk would be largely mitigated due to induction of price escalation clause in their EPC contracts. |
| Weaknesses |
| Moderate financial risk profile
The company’s moderate financial risk profile is marked by healthy networth, moderate gearing and weak debt protection metrics. The tangible net worth of the company declined to Rs.435.62Cr as on March 31, 2022 from Rs.494.71 Cr as on March 31, 2021 due to losses incurred in FY2022. Acuité has considered unsecured loans of Rs.84.87 Cr as on March 31, 2022, as quasi-equity as the management has undertaken to maintain the amount in the business over the medium term. Gearing of the company stood moderate as Debt-to-Equity ratio stood at 1.50 as on March 31, 2022 as compared to 1.17 as on March 31, 2021. The weak debt protection metrics of the company is marked by weak Interest Coverage Ratio (ICR) at 0.64 times as on March 31, 2022 and Debt Service Coverage Ratio (DSCR) at 0.57 times as on March 31, 2022. Acuité believes that going forward the financial risk profile of the company will improve backed by considerable improvement in their accruals and no major debt funded capex plans. Working capital intensive nature of operations The working capital-intensive nature of operations of the company is marked by high Gross Current Assets (GCA) of 313 days as on March 31, 2022 as against 249 days as on March 31, 2021. The high GCA days are on account of high debtor period which stood at 193 days as on March 31, 2022 as compared to 147 days as on 31st March 2021. The clients of EPC segment are the primary debtors of the company, NTPC Limited, West Bengal State Electricity Distribution Co. Ltd (rated at ACUITE BBB/Stable/A3+), West Bengal Power Development Co. Ltd. (rated at ACUITE A-/Stable/A2+), Indian Oil Corporation Limited, Hindustan Petroleum Co. Ltd., Rays Power Infra Private Limited, to name a few. However, the inventory holding level is comfortable at 58 days as on March 31, 2022 as compared to 50 days as on March 31, 2021. Going forward, Acuité expects substantial improvement in their working capital management mainly due to the company’s increased focus on manufacturing activities and reduced dependence on EPC contracts. |
| ESG Factors Relevant for Rating |
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The industry’s exposure to environmental risks is lower than its social and governance risks. The primary material issues for the industry include efficient use of energy, putting environmental management structures in places, GHG emissions, development of green products and services and emitting air pollutant emissions. Since the industry has a large amount of e-waste generation in manufacturing process as well as end use, waste management is also a key material issue. Material efficiency is also important for the industry.
In social aspect, the quality of the product and the safety of the employees are important material issues. The community support and development initiatives taken by the companies in the industry are also a significant factor. Responsible procurement and supply chain transparency are crucial for evaluating the performance of the industry players. On governance front, upholding fundamental business ethics is the most pertinent material issue in this industry. Factors such as management compensation, board independence, compensation and diversity are relevant to the industry. Audit committee functioning, financial audit and control, takeover defense mechanisms and shareholder rights are also important key issues. |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position: Adequate |
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The company’s liquidity is adequate marked by the cash and bank balances of the company, which stood at Rs.16.82 Cr as on March 31, 2022 as compared to Rs.3.07 Cr as on March 31, 2021. The fund-based limit remains utilised at 83 per cent over the thirteen months ended June 2022. However, the current ratio stood moderate at 1.04 times as on March 31, 2022. The working capital-intensive nature of operations of the company is marked by high Gross Current Assets (GCA) of 313 days as on March 31, 2022 as against 249 days as on March 31, 2021. Further, the company has incurred loss in FY2022 primarily due to dip in global industrial scenario. Acuité believes that going forward the company will improve its liquidity position due to steady accruals, on account of positive outlook of industry and healthy order book position.
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| Outlook: Negative |
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Acuité believes that the outlook of the company would remain ‘Negative’ on account of their working capital intensive nature of operations. The rating may be ‘downgraded’ in case the company fails to meet their revenue and profitability targets or is unable to improve their working capital management. The outlook may be revised to 'Stable' in case VSL registers significant growth in its revenue while improving the profitability levels and successfully raises funds to meet their incremental working capital requirements.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 1709.00 | 1589.50 |
| PAT | Rs. Cr. | (60.14) | 37.14 |
| PAT Margin | (%) | (3.52) | 2.34 |
| Total Debt/Tangible Net Worth | Times | 1.50 | 1.17 |
| PBDIT/Interest | Times | 0.64 | 1.93 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
| 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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