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The group comprises five companies operating in India, organised under two divisions - VEPL and its subsidiaries, VESPL, and Durovalves, which are in the electrical and metallic components business; and VPPL and its subsidiary, VELPL, which manufacture polymer-based components.
For arriving at its ratings, CRISIL has combined the business and financial risk profiles of VEPL, Varroc Exhaust Systems Pvt Ltd (VESPL), Durovalves (I) Pvt Ltd (Durovalves), Varroc Polymers Pvt Ltd (VPPL) and Varroc Elastomers Pvt Ltd (VELPL); collectively referred as Varroc group, as all the companies are in the same line of business and are owned by the same promoter.
Mohan Dodeja, VEPL was reconstituted as a private limited company in 1990.
VEPL recorded a profit after tax (PAT) of Rs.47.0 million on net sales of Rs.1.31 billion in 2009-10 (refers to financial year, April 1 to March 31), against a PAT of Rs.50.2 million on net revenues of Rs.1.31 billion for 2008-09.
The ratings assigned by ICRA reflect VEPL's presence in low voltage distribution transformer segment, which is characterised by small unorganised players, thereby resulting in stiff competition to the company.
While assigning the rating, ICRA has factored in the corporate guarantee extended by VEPL against the debt in its group company, Rahul Conductors Private Limited (RCPL).
These rating strengths are partially offset by VEPL's exposure to risks related to high customer concentration in revenue profile and limited segment diversification.
The rating takes into account VEPL's long operating track record, established relationship with key customers, significant experience of the promoters in the industry and moderate net profitability.
The rating is however constrained by the modest scale of VEPL's operations, competitive nature of industry and its relatively high gearing.
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