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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 14.00 | ACUITE BB+ | Stable | Assigned | - |
| Bank Loan Ratings | 32.90 | ACUITE BB+ | Stable | Reaffirmed | - |
| Bank Loan Ratings | 22.10 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding | 69.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BB+’ (read as ACUITE double B plus) and the short-term rating of 'ACUITE A4+' (read as ACUITE A four plus) on the Rs.55.00 Cr. bank facilities of Vsoft Technologies Private Limited (VTPL). The outlook is 'Stable'.
Acuité has assigned the long-term rating of ‘ACUITE BB+’ (read as ACUITE double B plus) on the Rs.14.00 Cr. bank facilities of Vsoft Technologies Private Limited (VTPL). The outlook is 'Stable'. Rationale for Reaffirmation The rating takes into account stable operating performance of the group, however, is constrained by stretched receivable position and modest debt protection metrics. The Debt Service Coverage Ratio (DSCR) stood at 0.87 times for FY2023 against 1.77 times for FY2022. Intensive working capital operations with by high GCA days of 349 days for FY2023 as against 380 days for FY2022. The operating income of VPTL stood at Rs.72.49 Cr. in FY2023 as against Rs.71.64 Cr. in FY2022 and operating margin at 16.01% in FY2023 as against 21.06% in FY2022. Going forward, the company’s ability to scale up its operations while maintaining profitability margins and capital structure will remain a key rating monitorable. |
| About the Company |
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Incorporated in 2004, Vsoft Technologies Private Limited (VTPL) is a Hyderabad (Telangana) based company, promoted by Mr. Murthy Veeraghanta. VTPL is engaged in providing Information technology (IT) and Information technology enabled services (ITes) primarily to banking, financial services and insurance sector (BFSI). It offers wide range of technology products and services along with platform based BPO services which cover payment systems and core banking solutions.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
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Acuité has considered the standalone view of the business and financial risk profile of Vsoft Technologies private Limited (VTPL) to arrive at the rating.
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| Key Rating Drivers |
| Strengths |
| Extensive experience of the management team, strong vintage client base and variegated products and services’ revenue mix
VTPL, incorporated in 2004, provides information technology-based products and solutions to the BFSI segment. The promoter - Mr Murthy Veerghanta has an experience of over 2 decades in the core banking IT solutions business and Software Development and Services. The long track record of operations and experience of the management supported by experienced management team has helped the company develop healthy relationships with its key customers. VTPL offers relatively complex services supported by its expertise, execution capabilities and long-standing relationships with its clients helped in strengthens its value proposition, it also helps in generating higher margins. VTPL has strong counterparties in Government, private, public sector majorly banks. VTPL offers services though software delivery and revenue models – License sale/Usage/outsourcing model (used mostly for Core banking solutions) being a recurring revenue model. However, the operating income of VTPL stood stagnant over the past two years at Rs.72.49 Cr. as on FY2023 as against Rs.71.64 Cr. in FY2022. The EBITDA margins are volatile in nature and stood at 16.01% in FY2023 as against 21.06% in FY2022. The reason for fluctuations in operating margin as the income from maintenance & trading products generates low margin comparatively to income from software developments & license arrangements. Further, the company has achieved a revenue of Rs.59.84 Cr. till 9MFY24 and has Outstanding order book of Rs.200.14 Cr. as on 28 February 2024 providing the medium-term revenue visibility. Acuité believes that experienced management, strong and vintage client base along with variegated revenue mix will continue to aid VTPL’s business risk profile over the medium term. Moderate financial risk profile albeit low debt service coverage ratio (DSCR) VTPL's financial risk profile is moderate, marked by low gearing rations, moderate capital structure and healthy debt protection metrics. VTPL has tangible net worth of Rs.158.46 Cr. as on March 31, 2023. The total debt outstanding of Rs.36.52 crore consists of working capital borrowings of Rs.23.24 crore, unsecured loans of Rs.0.37 crore term loan of Rs.7.94 crore and current maturities for the term loan is Rs.4.97 Cr. as on 31 March, 2022. The gearing level of the company stood low at 0.23 times as on 31 March, 2023 as against 0.27 times as on 31 March, 2022. The Debt –EBITDA of VTPL stood moderate at 3.05 times as on 31 March 2023, as against 2.77 Cr. as on 31 March 2022. The total outside liabilities to tangible net worth (TOL/TNW) of the company stood low at 0.32 times as on March 31, 2023 against 0.41 times as on March 31, 2022. The coverage ratios of the company are low with Interest Coverage Ratio (ICR) of 2.92 times for FY2023 against 3.98 times for FY2022. Also, the Debt Service Coverage Ratio (DSCR) stood at 0.87 times for FY2023 against 1.77 times for FY2022. The NCA/TD (Net Cash accruals/Total debt) of the company stood at 0.16 times for FY2023. Acuite believes the financial risk profile of VTPL will improve owing to expected improvement in the operating margin in FY2024. |
| Weaknesses |
| Intensive working capital operations
The working capital operations of the company are intensive in nature marked by high GCA days of 349 days for FY2023 as against 380 days for FY2022. The high GCA days is on account of high debtor days of 313 days for FY2023 compared against 348 days for FY2022. The creditor days of the company stood at 51 days for FY2023 as against 110 days for FY2022. The average bank limit utilization stood at high for fund-based limits 88 - 98 per cent and moderate utilisation for non -fund based limits of 53.17 percent for nine months ended December 2023. Acuite believes that VTPL continues to have intensive working capital management owing to its nature of operations. Vulnerability of profitability to competitive pressures The intense competition in the IT industry, especially the global landscape with larger peers and uncertainty on account of the evolving visa and immigration legislations in key developed markets are challenges that the industry faces. Like other companies in the industry, VTPL also faces challenges with respect to employee attrition rates. With rapid evolution of the Indian IT-enabled services sector, competition is intensifying as more companies vie for a share of the outsourcing pie. VTPL has to compete with multiple players in most of the verticals within the IT services business. Further, the IT industry is susceptible to risks related to technological changes, competition from substitutes and shifts in customer’s preferences. This necessitates continued investments in technology upgradation. High dependence on the BFSI sector for revenue The company is adding new clients every year and has diversified client base. However, the revenue remains restricted to the BFSI sector. VTPL derives a significant proportion of its revenues from the BFSI segment; this makes its operations vulnerable to any slowdown in the segment. |
| Rating Sensitivities |
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| Liquidity Position: Stretched |
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The liquidity position of the company is stretched, the company generated cash accruals of Rs.5.90 crore in FY2023, while its’ maturing debt obligation were in the range of Rs.7.39 Cr. for the same period. The short fall of the debt obligations was supported timely support from group entity. The cash accrual of the company is estimated to remain around Rs.10.26 crore to Rs.13.58 crore during 2024-26 against repayment obligations of around Rs.4.97-2.87 crore during the same period.
The average bank limit utilization stood at around 89.41 per cent for twelve months ended December, 2023. The company maintained unencumbered cash and bank balances of Rs.0.07 crore as on 31 March 2023. The current ratio of the company has improved to 1.63 times as on 31 March 2023. Acuite believes that Liquidity position of the company will improve over the medium term owing to improvement in the net cash accruals. |
| Outlook: Stable |
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Acuité believes that VTPL will maintain a 'Stable' outlook over the medium term on the back of its established track record of operations, experienced management and reputed clientele. The outlook may be revised to 'Positive' in case the company registers higher-than expected growth in its revenues and profitability, while maintaining its liquidity position. Conversely, the outlook may be revised to 'Negative' in case VTPL registers lower-than-expected revenues and profitability or any significant stretch in its working capital management or larger-than expected debt funded capital expenditure leading to deterioration of its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 72.49 | 71.64 |
| PAT | Rs. Cr. | 2.45 | 5.00 |
| PAT Margin | (%) | 3.38 | 6.98 |
| Total Debt/Tangible Net Worth | Times | 0.23 | 0.27 |
| PBDIT/Interest | Times | 2.92 | 3.98 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Service Sector: https://www.acuite.in/view-rating-criteria-50.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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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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