Extensive experience of the promoters in the chemical industry and established track record of operations of the company
VCL was incorporated 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.

Improvement in Revenue and profitability
The revenue of the group increased and stood at Rs. 766.15 crore in FY24 compared to revenue of Rs. 739.84 crore in FY23. The group recorded a Y-o-Y growth of 3.56 % in its operating performance. VCL generates its revenue from four main products: Surfactants, Textiles, Specialty Chemicals, and Job Work. Surfactants alone account for 91.25%, Specialty Chemicals for 3.87%, Textiles for 4.13%, and Job Work and others for 0.75%. The revenue of the group increased in FY24 on account of an increase in the orders from export markets for surfactants. VCL has reported a revenue of Rs. 452.83 crores in H1FY2025. The groups exports contribute to around 30% of the total sales of FY24. Some of the key export markets of the company include – Bangladesh, Central America, China, Colombia, Egypt, Ethopia, Finland, Indonesia, Italy, Germany, Kenya, Korea, Middle East, Sri Lanka, Switzerland, Nepal, Netherlands among others. The operating profit margin of the group  improved and stood at 8.03 percent in FY24 compared against 7.12 percent in FY23. The PAT margin of the group stood higher at 3.84 percent in FY24 compared to 3.07 percent in FY23. In H1FY2025 group achieved operating profits of around 7 percent.

Capex plans
VCL has undergone capacity expansion at both of its plants. A capacity of 72,000 MT at Dahej and Ambernath plant locations with an investment of Rs. 103.50 crore and the same is funded from internal accrual and bank borrowingsf ~ 70% of total cost. In this capex a new plant for GMP and FDA certified products is also being set up to cater to the high margin sectors. The operations for the same are likely to commence from March 2025. The group’s ability to continuously improve its scale of operations and profitability while augmenting capacity would remain a key rating monitorable.

Healthy financial risk profile
The group has a healthy financial risk profile marked by moderate net worth, low gearing and comfortable debt protection metrics. The group’s tangible net worth stood marginally improved at Rs. 173.56 crores as of March 31, 2024, against Rs. 144.66 crore as of March 31, 2023, on account of accretion of profits to reserves. The group’s gearing stood similarly at 0.76 times as on March 31,2024. The group’s total debt as on March 31,2024 stood at Rs. 131.21 crore as compared to Rs. 110.08 crores as on March 31, 2023; comprising of long-term debt of Rs. 51.15 crore, short-term debt of Rs. 65.27 crore and maturing debt obligations of Rs. 14.79 crores. TOL/TNW stood at 1.22 times as on March 31, 2024. The interest coverage ratio of the group stood improved at 6.10 times in FY24 against 4.80 times in FY23. DSCR stood at 2.14 times in FY2024 against 2.02 times in FY2023.

Acuité believes that the ability of the group to maintain its healthy financial risk profile on the back of debt funded capex over the medium term will remain a key rating sensitivity factor.

Moderate working capital operations
The group has moderate working capital operations with average gross current asset (GCA) days standing over 106 days during FY22 to FY24. GCA days stood similarly at 104 days in FY2024 against 108 days in FY2023 due to decrease in inventory days. Inventory days stood at 17 days in FY2024 against 21 days in FY2023. Raw materials consist of various types of chemicals like Ethylene Oxide and fatty acids. The debtor days stood similarly at 63 days for FY24 against 61 days for FY23. The average credit period allowed to its customers is around 60-90 days. The creditor days of the group stood at 30 days for FY24 as against 35 days for FY23. The average credit period allowed by the suppliers is around 0 to 30 days. The average bank limit utilization for 09 months period ended September 2024 stood at 74.64% for the fund-based limits and 43.40% for the non fund-based limits.

Acuité believes that the ability of the group to maintain its working capital cycle at comfortable level over the medium term will remain a key rating sensitivity factor.

Susceptibility of profitability 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. Further, 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.