Rationale

 The upgrade in the ratings factors in Vilas Transcore Limited’s (VTL) healthy financial performance in FY2024, which is expected to sustain in FY2025 as reflected by the expansion in scale and strengthening of its net worth position post fund raise of ~Rs. 95 crore through an Initial Public Offering (IPO). VTL’s sales volumes increased in FY2024 and the same is further projected to rise in FY2025 on the back of favourable demand outlook from the end-user industries. The ratings continue to consider VTL’s healthy financial risk profile, characterised by comfortable capital structure with low debt and healthy debt coverage indicators. Healthy profitability, along with negligible debt levels resulted in robust debt protection indicators with an interest cover of ~20.4 times and DSCR of ~17.5 times in 9M FY2024. The ratings reflect the promoter’s extensive experience and established track record in the transformer industry, along with the company’s reputed client base and long association with them. The ratings are, however, constrained by the working capital-intensive operations and customer concentration risk, since a single customer contributed to ~45-55% of revenues during the last three-four years. VTL’s new customer additions in FY2023 and FY2024 is expected to reduce the client concentration risk to an extent in the medium term. It is also exposed to intense competition in the highly fragmented transformer component supplier industry due to the presence of various organised and unorganised players. ICRA also considers the vulnerability of the company’s profitability to fluctuations in raw material (cold rolled grain oriented [CRGO] steel) prices and its availability. The ratings factor in the high working capital intensity owing to the elevated inventory holdings. The company plans to enhance its capacity in the medium term, which will be largely funded by IPO proceeds. Consequently, the coverage and leverage metrics are expected to remain comfortable in the interim. The Stable outlook reflects ICRA’s opinion that the company will continue to benefit from its comfortable financial profile and its established relationship with customers, resulting in continued order inflow.