| VeeGee Industrial Enterprises Private Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable/CRISIL A3+’ ratings on the bank facilities of VeeGee Industrial Enterprises Private Limited (VGI).
The ratings continue to reflect group’s established market position in the auto component industry, its strong association with key customer Maruti Suzuki India Limited (MSIL) and group’s comfortable debt protection metrics. These strengths are partially offset by the group’s leveraged capital structure and moderate cushion between net cash accruals & repayment obligation. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of VGI and VEE GEE Auto Components Pvt Ltd (VGAC). These companies, together referred to as the Veegee group, are in the same business with common promoters and management as well as significant operational and financial linkages. Moreover, VGI holds 74% stake in VGAC.
Unsecured loan of Rs 31.72 crore as on March 31, 2022, from the promoters has been treated as 75% equity and 25% debt as these are expected to be maintained in the business.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The Veegee group enjoys established market position in the auto components manufacturing industry backed by its long-standing presence in the industry, promoters extensive experience of over three decades and association with principal supplier Maruti Suzuki India Ltd (MSIL). Because of deeper penetration in industry over the years, the group has consistently diversified its product portfolio and has also increased its outreach to MSIL through strategical location of its plants. Resultantly, the business risk profile was able to weather the impact of covid-19 induced demand slowdown and further reported strong revenue growth of over 50% in fy22 (vis a vis fy21) on account of both better volumes and improved realisations. Additional of new product line for chassis parts manufacturing, expected increase in demand for existing products amid demand revival etc. shall further aid the business risk profile of the group over the medium term.
Veegee group gets fixed conversion charges from MSIL and hence remains insulated from the input price volatility. More than expected increase in overhead cost is also passed on, which further supports the stability in operating profitability. As a result, the debt protection indicators continue to remain comfortable with interest coverage and net cash accrual to debt ratios estimated at 2.4 times and 0.12 times, respectively, during fy22. Absence of sizeable debt funded capital expenditure along with accretion to reserves shall strengthen the debt protection indicators over the medium term.
Weaknesses:
Because of continuous increase in debt levels over the years, for business expansion and increased working capital requirements, the capital structure of the group remains leveraged with total outside liabilities to tangible networth (TOL/TNW) ratio of 3.56 times as of Mar 31, 2022, hence constraining its financial flexibility. Though cash reserves of around Rs 54.5 crore partly aides the financial flexibility, adjusted TOL/TNW (net of cash) continues to remain leveraged at around 3.3 times as on the afore-stated dated (3.1 times during previous fiscal). Though absence of sizeable debt funded capex and accretion to reserves will aid the capital structure, its significant and sustained improvement will remain a key monitorable over the medium term.
Net cash accruals were estimated at around Rs 43.5 crore as against the repayment obligation of Rs 33.65 crore, hence keeping the cushion between net cash accruals and repayment obligation (NCA/RO) low at around 1.3 times, during fy22. On the back of expected increase in volume sales and operating profitability, NCA/RO cushion shall also improve, however, it will remain moderate at around 1.4-1.6 times over the medium term; annual repayment obligations are expected at around Rs 40 crore each during fy23 and fy24. Though available cash reserves and cushion in bank lines will continue to aid the liquidity, improvement in NCA/RO to over 2 times will remain a key rating sensitivity factor. |
Liquidity: Adequate Bank limit utilisation was moderate at 77% on average for the 12 months through March 2022. Net cash accrual is expected to be Rs 50-60 crore per annum as against annual term debt obligation of around Rs 40 crore over the medium term, and the surplus will cushion liquidity. Current ratio was low at 0.88 time as on March 31, 2022. The promoters are likely to extend support in the form of equity and unsecured loans to meet the working capital requirement and debt obligation. |
Outlook: Stable The Veegee group will continue to benefit from its established market position |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company VGI was set up in 1990 as a partnership firm and was reconstituted as a private limited company. The company is based in Faridabad, Haryana, and manufactures sheet metal components, pedals and chassis for the auto segment. MSIL and HCIL are its leading customers.
VGAC, incorporated in 2016, is a subsidiary (74%) of VGI. Both companies are in the same business. Its manufacturing unit in Gujarat caters to the Gujarat plant of MSIL. F-Tech Inc (Japan) has acquired 26% stake in VGAC and invested Rs 28 crore as on March 31, 2021. |
Key Financial Indicators - Consolidated
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Bank Guarantee | 11 | HDFC Bank Limited | CRISIL A3+ |
| Bank Guarantee | 6.45 | Kotak Mahindra Bank Limited | CRISIL A3+ |
| Bill Discounting | 75 | Kotak Mahindra Bank Limited | CRISIL BBB/Stable |
| Cash Credit | 15 | HDFC Bank Limited | CRISIL BBB/Stable |
| Cash Credit | 30 | Kotak Mahindra Bank Limited | CRISIL BBB/Stable |
| Letter of Credit | 10 | RBL Bank Limited | CRISIL A3+ |
| Long Term Loan | 2.73 | HDFC Bank Limited | CRISIL BBB/Stable |
| Long Term Loan | 22.27 | HDFC Bank Limited | CRISIL BBB/Stable |
| Long Term Loan | 32.15 | Kotak Mahindra Bank Limited | CRISIL BBB/Stable |
| Long Term Loan | 14.17 | RBL Bank Limited | CRISIL BBB/Stable |
| Long Term Loan | 12.17 | Swavalamban Academic Centre | CRISIL BBB/Stable |
| Long Term Loan | 10 | YES Bank Limited | CRISIL BBB/Stable |
| Proposed Fund-Based Bank Limits | 0.49 | Not Applicable | CRISIL BBB/Stable |
| Working Capital Demand Loan | 15 | RBL Bank Limited | CRISIL BBB/Stable |
| Working Capital Demand Loan | 15 | YES Bank Limited | CRISIL BBB/Stable |
This Annexure has been updated on 22-Dec-2022 in line with the lender-wise facility details as on 19-Jul-2022 received from the rated entity.
Criteria Details
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