­Acuité has consolidated the business and financial risk profile of Virinchi Limited (VL) and its subsidiary - Virinchi Healthcare Private Limited (VHPL); together referred as Virinchi Group (VG) to arrive at the rating. The consolidation is on account of common management, significant financial linkages and corporate guarantee extended by VL.

­Experienced management and established track record of operations;
Hyderabad based Virinchi Limited (VL)was incorporated in 1990 by Mr. Vishwanath Kompella, engaged in the business of providing IT based products and services to fintech companies. The company’s flagship product Q-Fund is used by the alternate finance companies in North America to fund the subprime customers for a short term. In the year 2016, Virinchi Health care Private Limited was incorporated with 350 beds capacity at Hyderabad and current capacity at 600 beds, which is 100% subsidiary of Virinchi Limited. Virinchi Group (VG) is promoted by Mr. Vishwanath Kompella who has more than three decades of experience in IT and Healthcare Industry. The group has an established position in the IT industry of about three decades. VL’s revenues are 100 percent export-oriented catering to North America. Acuité believes that VG shall continue to benefit from its long standing presence of more than three decades in the IT and Health care industry and its established position which is likely to result in steady stream of revenues for the company over the medium term.

Comfortable financial risk profile:
Financial risk profile of the group is marked by comfortable net worth, capital structure and debt protection metrics. Group’s net worth stood at Rs. 244.76 Cr. as on March 31, 2023 as compared to Rs. 206.81 Cr. as on March 31, 2022. Improvement in net worth is on account of ESOPs of Rs.4.32 Cr. allotted during the year, share warrants of Rs.10.50 Cr. issued by the company during the year, premium amount of Rs.9.45 Cr. received by the company and accretion for profits to reserves. Virinchi group’s capital structure is comfortable marked with healthy gearing and total outside liabilities to total net worth (TOL/TNW) of 0.79 times and 1.55 times respectively as on March 31, 2023 as against 0.89 times and 1.66 times as on March 31, 2022. The coverage indicators were moderate with DSCR of 1.64 times as on March 31st 2023 as against 1.73 times as on March 31st 2022. Interest coverage stood at 3.27 times as on March 31st 2023 as against 3.79 times as on March 31st 2022. Debt to EBITDA is continued to remain moderate at 1.75 times during FY23 from 1.78 times during previous year. Acuite believes that the financial risk profile of the company will remain comfortable for FY24 as well on account of healthy net worth position.

Stagnant growth in operations:
The Virinchi group’s revenue has declined during FY23 to Rs.311.94 Cr. from Rs.363.01 Cr. in FY22. Decline in revenue is on account of lower revenue reported in healthcare segment. Revenue from healthcare segment have declined by 25 percent in FY23 to Rs.136.16 Cr. The decline in revenue is due to lower IP flow post Covid period followed by moving out of few specialized doctors during last 2 years. Further the group has registered revenue of Rs.226.48 Cr. in 9MFY24 against Rs.236.46 Cr. of 9MFY23 and expected to register revenue in the range of Rs.310-315 Cr. by the end of the year. EBITDA margin of the group is improved to 34.34 percent in FY23 against 27.61 percent in FY22. Further, the group registered stable EBITDA margin in the 9MFY24 at ~36 percent. Going forward the operations of the group are likely to improve on account of its expansion plans in both healthcare and IT segments.

­Intensive working capital operations:
The working capital operations of the group are intensive which is evident from the Gross Current Assets (GCA) of 208 days in FY23. Stretch in GCA days is mainly on account of elongated debtor days at 77 days. Receivable period in healthcare segment is generally stretched as the recovery from general insurance, ESI and government’s Arogya Shree schemes takes 3-4 months to recover. However, debtors in I.T business will be recovered in 30- 45 days. The fund based working capital limits were utilized at an average of ~92percent in the past 6 months ending December 2023. Acuite believes that working capital operations of the group will remain intensive over the medium term as the nature of its operations.

Highly competitive industry and stringent regulatory framework, reputational intensive healthcare sector.
IT industry is characterized by intense competition from large players enjoying benefits and higher bargaining power. The company also remains susceptible to industry-specific risks, such as exchange-rate fluctuations. However, the entrepreneurial experience is supporting its operating margins. Despite the increasing trend of privatization of healthcare sector in India, the group continues to operate under stringent regulatory control. Accordingly, regulatory challenges continue to pose a significant risk to private healthcare institutions, as they are highly susceptible to changes in regulatory framework. Healthcare is a highly sensitive sector, where any mishandling of a case or negligence on the part of any doctor and/or staff of the unit can lead to distrust among the masses. Thus, all the healthcare providers need to monitor each case diligently and maintain standard of services in order to avoid the occurrence of any unforeseen incident. They also need to maintain high vigilance to avoid any malpractice at any pocket