Extensive experience of the promoters in the chemical industry and established track record of operations of the company
VCL was established in 1996, thus having an operational track record of over two decades in the chemical industry. The company is promoted by Mr. B. Vivek Shetty and Mr. Vinesh Shetty who have more than two decades of experience in the industry. The operations of the group are managed by its promoters and a qualified and experienced senior management team who are ably supported by a strong line of mid-level managers. The extensive experience of the promoters and management has helped the group to establish long and healthy relationships with reputed customers and suppliers over the years. The promoters' industry experience and established brand presence has helped the company to establish longstanding relationships with reputed clientele.
Acuité believes the company will continue to benefit from its established presence in the industry, and the promoter’s demonstrated ability to sustain a healthy level of operations across various cycles.

Strong operating performance
The total operating income of VCL has seen a strong growth with a CAGR of 30.39% over the last 3 years. Total operating income of the company stood at Rs.665.25 crore in FY22 as against Rs.362.10 crore in FY21 and Rs.300.85 crore in FY20. Growth seen in the operating income comes at the back of increased demand of surfactants in the industry during and post Covid-19. ~95 percent of the revenue is generated from sale of surfactants and 2.81 percent by specialty chemicals. The share of surfactants in the revenue has seen a steady increase from 70% in FY20 to 95% in FY22. VCL has generated ~Rs. 318.95 crore of revenue till August 22. Further, capacity utilization of the company has also improved. Capacity utilization at the Ambernath plant has been steady at 59% during the last two years and the utilization at the Dahej plant has seen an improvement from 37 percent in FY21 to 55.71 percent in FY22.
Operating profit margin of the company is range bound between 9.5-10 percent. Operating profit margin improved by 70 bps at 9.88 percent in FY22 as against 9.18 percent in FY21 and 7.49 percent in FY20. PAT margins also saw an improvement and stood at 5.44 percent in FY22 as against 3.28 percent in FY21 and 0.54 percent in FY20. Improvement in profitability of the company comes at the back of increase in scale of operations.
Acuité believes that the business risk profile of the company is likely to continue to improve on the back of reputed clientele and healthy demand expected over the near to medium term.

Healthy financial risk profile
Financial risk profile of VCL is healthy marked by moderate networth, low gearing and a comfortable debt protection metrics. Tangible Net worth (TNW) of the company stood at 122.68 crore as on 31st March, 2022 as against 87.25 crore as on 31st March, 2021 and Rs. 75.95 crore in FY20. Networth of the company has strengthened over the years on account of accretion of profit to reserves. Gearing of the company stood 0.89 times as on 31st March, 2022 as against 1.14 times as on 31st March, 2021 and 1.23 times in FY20. Gearing of the company has improved from its peak gearing at 1.23 times as on 31st March, 2019 and is likely to improve further in the near to medium term on account of repayment of existing debt obligations and absence of debt funded capital expenditure. Total outside liabilities (TOL/TNW) has seen a consistent decline and stood at 1.52 times as on 31st March, 2022 as against 1.83 times as on 31st March 2021 and 1.90 times in FY20. Net cash accruals to Total Debt (NCA/TD) stood at 0.43 times in FY22 as against 0.22 timed in FY21 and 0.10 times in FY20. Debt protection metrics remained comfortable with Debt service coverage ratio (DSCR) at 3.44 times in FY22 as against 2.35 times in FY21 and 2.12 times in FY20. Interest coverage ratio (ICR) stood at 5.85 times as against 3.75 times in FY21 and 2.67 times in FY20.
Acuite believes that the financial risk profile is likely to remain healthy in the absence of any debt-funded capital expenditure and any large deviations in incremental working capital requirements.

Moderate working capital operations
Working capital operations of the company are moderate marked by GCA days of 106 days in FY22 as against 139 days in FY21 and 130 in FY20. GCA days are driven by high debtor collection period. While the GCA days of the company are moderate the working capital cycle of the company is low and has seen an improvement from 57 days in FY21 to 48 days in FY22. Raw materials of the company include various types of chemicals like Ethylene Oxide and fatty acids which are majorly procured domestically. Inventory holding period stood at 18 days in FY22 as against 27 days in FY21 and 32 days in FY20. Debtor collection period stood at 67 days in FY22 as against 83 days in FY21 and 71 days in Fy20. Creditor days stood at 37 days in FY22 as against 53 days in FY21 and 56 days in FY20.
Acuite believes that the working capital operations of the company will remain moderate over the medium term and will continue to remain a key rating sensitivity.

Susceptibility of operating performance to input price volatility and increasing competition
Ethylene oxide is the major raw material for the company. The prices of the raw material is highly volatile in nature and any adverse movement in the price of raw material may impact the profitability of the company. rther, the company operates in a highly fragmented chemical industry with the presence of large number of players in the organised as well as unorganised sector. This limits the bargaining power of VCL’s with customers leading to intense margin pressures. However, the longstanding customer relationships moderates this risk to an extent.