August 06, 2019
NCL VEKA Limited: Ratings reaffirmed
Summary of rating action
Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Fund Based Term
10.79 10.79 [ICRA]BBB+(Stable) Reaffirmed
Loans
Fund Based Cash
18.00 18.00 [ICRA]BBB+(Stable) Reaffirmed
Credit Limits
Non Fund Based Limits 6.50 6.50 [ICRA]A2; Reaffirmed
Unallocated Limits 0.71 0.71 [ICRA]BBB+(Stable)/[ICRA]A2 Reaffirmed
Total 36.00 36.00
*Instrument details are provided in Annexure 1
Rationale
The reaffirmation of ratings takes into consideration the strong operational profile of NCL VEKA Limited (NCLVL) in the
unplasticised polyvinyl chloride (uPVC) profiles, doors and windows industry, supported by benefits from Germany-based
VEKA AG, having extensive experience for more than five decades in the uPVC profiles industry. The ratings consider the
increase in operating income (OI) by 24% to Rs 143.2 crore in FY2018 and further by 23% to Rs. 175.99 crore in FY2019
from Rs. 117.3 crore in FY2017 primarily on the back of growth in uPVC profile sales by 29% and 24% in FY2018 and
FY2019, respectively; and healthy capacity utilization of uPVC profiles at above 80% levels over the past three years. The
company continues to operate in the doors and windows segment, as a part of its brand building efforts by associating
with reputed builders. However, the share of the same in the overall revenues has been declining over the years to
13.9% in FY2019 from 21.7% in FY2017 because of the conscious decision of the management to restrict sales in this
segment owing to high receivables. ICRA expects the OI to grow over 18% in the medium term, on the back of favourable
demand of uPVC profiles with increased acceptance of the uPVC doors and windows in the real estate industry and a
dedicated network of 120 fabricators for VEKA brand.
The ratings are, however, constrained by the significant decline in NCLVL’s operating margins to 8.40% in FY2019 from
12.54% in FY2018 owing to increased raw material prices, employee and marketing expenses along with increased
revenue contribution from PlastoneT brand, where margins are lower. Although the operating margins improved to
15.08% in Q1 FY2020 due to decline in raw material prices, the company’s ability to sustain its operating margins in a
scenario of increasing raw material costs remains to be seen and would be a key rating monitorable. The ratings are also
constrained by its deteriorated capital structure with gearing increasing to 0.93 times as on March 31, 2019 and reduced
interest cover of 2.73 times in FY2019 owing to significant debt-funded capital expenditure and reduced operating
margins in FY2019. The rating notes the company’s moderate liquidity position as reflected by 82% average utilisation of
working capital limits in the past 15 months. Further, NCLVL faces stiff competition in the uPVC profile and windows and
doors segment from both new and existing players in the domestic market.
Outlook: Stable
The Stable outlook reflects ICRA’s belief that the company will continue to benefit from the extensive experience of its
promoters and established brand presence of VEKA in the uPVC profiles industry. The outlook may be revised to Positive,
if there is substantial scale up of operations, improvement in profitability margins and reduction of debtors improving
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the liquidity position. Conversely, the outlook may be revised to Negative if there is a decline in its operating margins
weakening the coverage metrics and increase in receivables leading to a stretched liquidity position.
Key rating drivers
Credit strengths
Strong operational profile supported by technical capabilities of VEKA – NCLVL has a strong operational profile as
reflected by 10 years of presence in the uPVC profile, doors and windows manufacturing with around 120 dedicated
fabricators network. The company has a total installed achievable capacity of uPVC profiles of 14,520 MT per annum and
is one of the largest players in the country in uPVC profile manufacturing. Further, NCLVL gets benefits from its strategic
investor VEKA AG, which has been present in the uPVC industry for more than five decades and enjoys strong technical
capabilities.
Consistent revenue growth – The company’s OI increased by 24% to Rs. 143.24 crore in FY2018 and further by 23% to
Rs. 175.99 crore in FY2019 from Rs. 117.3 crore in FY2017 primarily on the back of growth in uPVC profile sales. The
capacity utilisation of uPVC profiles remained healthy at above 80% levels over the past three years, despite an increase
in the installed achievable capacity to 9,648 MT in FY2019 from 7,670 MT in FY2017.
Favourable demand scenario of uPVC profiles and windows – The market share of uPVC windows and doors is about
15% in the overall window and door market in India. While uPVC windows and door systems are already established in
the rest of the world, they are still gaining a foothold in the Indian market. Further, growing awareness about the
benefits of uPVC has increased the acceptance of the uPVC doors and windows in the real estate industry.
Credit challenges
Significant decline in operating margins in FY2019 – The operating margins declined to 8.40% in FY2019 from 12.54% in
FY2018 owing to increased raw material prices, employee and marketing expenses along with increased revenue
contribution from PlastoneT, where margins are lower. The raw material prices increased by 11% in FY2019, however,
the net realisation of profiles increased by 4% in FY2019. The company imports PlastoneT profiles from China and the
margins from the same are lower as compared VEKA or Plastone profiles and the contribution from PlastoneT to the
total sales increased to 17% in FY2019 from 9% in FY2018.
High working capital intensity – The company’s working capital intensity remained high, with NWC/OI at 24% in FY2019
owing to high debtors and moderate inventory holding period. The delay in receivables is mainly from real estate
companies, while it receives payments in 60-70 days from fabricators. The liquidity profile is constrained as reflected
through average utilisation of 82% of working capital limits in the past 15 months.
Significant debt-funded expansion plans impacting debt coverage metrics – NCLVL shifted the operations of its
manufacturing unit to a new location with a total capex of ~Rs. 32.00 crore in February 2019. The capex was funded by a
debt of Rs. 25.00 crore of term loans (Rs. 17.00-crore term loan from Axis Bank and Rs. 8.00-crore ECB from parent VEKA
AG) and the remaining from internal accruals, which impacted its capital structure and debt protection metrics in the
medium term. Nevertheless, the company at its new factory can increase the capacity up to 30 extruder lines to meet
future demand, with capex being restricted only for machinery. The gearing increased to 0.93 times as on March 31,
2019 from 0.34 times as on March 31, 2018, while the interest coverage reduced to 2.73 times in FY2019 from 5.27 times
in FY2018 and the NCA/TD reduced to 17% in FY2019 from 56% in FY2018.
Sensitivity of profits to raw material prices and intense competition – The company’s profits are vulnerable to any
increase in the raw material costs as witnessed in past given its limited ability to pass on the same to its customers.
NCLVL faces stiff competition from both new and existing foreign and domestic players in the uPVC profile and windows
and doors segment. Its ability to pass on the price increases to its customers, in a timely manner, would be a key rating
sensitivity.
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Liquidity position
The company’s liquidity profile remained moderate on account of working capital intensive nature of operations.
Although the funds flow from operations remained positive over the years, high capex expenditure led to negative free
cash flows in FY2019 with the shortfall being primarily met from borrowings. As on June 30, 2019, it reported undrawn
cash credit limits of Rs. 3.09 crore.
Analytical approach
Analytical Approach Comments
Applicable Rating Methodologies Corporate Credit Rating Methodology
Parent/Group Support Not Applicable
For arriving at the ratings, ICRA has considered the consolidated financials of NCL
Consolidation / Standalone
VEKA Limited and its 100% subsidiary Plastone uPVC Profiles Private Limited
About the company
Incorporated in 2008, NCL VEKA Limited (NCLVL, Erstwhile NCL Wintech India Limited) manufactures uPVC profiles and
uPVC doors and windows. NCLVL started its operations in 2009 and has one manufacturing and fabrication unit in
Hyderabad and one fabrication unit (for doors and windows) in Chennai. The total installed achievable capacity of uPVC
profiles is 14,520 MT per annum and that of uPVC doors and windows is 8,40,000 sqft per annum. The company has a
dedicated fabricator network of over 120 fabricators spread across the country. NCLVL sells its uPVC profiles under two
different brands, namely VEKA and Plastone. It started trading of medium-range uPVC profiles imported from China
under the brand, PlastoneT from FY2017. NCLVL has floated a 100% subsidiary, Plastone uPVC Profiles Private Limited,
which is involved in selling Plastone and PlastoneT from January 2018.
VEKA AG, which is one of the world’s largest extruder of uPVC profiles, is headquartered in Germany. It has been present
in the industry for more than five decades has acquired 50% stake in NCLVL in November 2017 through secondary share
sale.
Key financial indicators
FY2017 FY2018 FY2019 3M FY2020
Operating Income (Rs. crore) 117.37 143.24 175.99 50.30
PAT (Rs. crore) 6.14 5.85 3.08 3.79
OPBDIT/ OI (%) 12.17% 12.54% 8.40% 15.95%
RoCE (%) 22.74% 20.41% 12.38% -
Total Debt/ TNW (times) 0.46 0.34 0.93 -
Total Debt/ OPBDIT (times) 1.38 0.93 3.23 -
Interest Coverage (times) 4.41 5.27 2.73 4.15
NWC/ OI (%) 32.35% 25.91% 24.40% -
*Provisional; Source: Annual Reports and ICRA research
Status of non-cooperation with previous CRA: Not Applicable
Any other information: None
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Rating history for last three years
Chronology of Rating History for
Current Rating (FY2020) the past 3 years
Date &
Rating Date &
Date & in Date & Rating in FY2018 Rating in
Amount Rating FY2019 FY2017
Rated Amount
(Rs. Outstanding Feb 2018 August
Instrument Type crore) (Rs.crore) Aug 2019 - Nov 2017 2016
1 Fund Based Long Term 10.79 10.79 [ICRA]BBB+ - [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+
– Term (Stable) (Stable) (Stable) (Stable)
Loans rating
watch with
developing
implication
2 Fund Based Long term 18.00 [ICRA]BBB+ - [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+
– Cash (Stable) (Stable) (Stable) (Stable)
Credit rating
Limits watch with
developing
implication
3 Non Fund Short term 6.50 [ICRA]A2 - [ICRA]A2 [ICRA]A2 [ICRA]A2
Based rating
Limits watch with
developing
4 Unallocated Long Term/ 0.71 [ICRA]BBB+ - [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+
Limits Short term (Stable)/ (Stable)/ (Stable)/A2 (Stable)/
[ICRA]A2 [ICRA]A2 rating [ICRA]A2
watch with
developing
implication
Complexity level of the rated instrument
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in
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Annexure-1: Instrument details
Amount
Date of Rated
Issuance / Coupon Maturity (Rs.
ISIN No Instrument Name Sanction Rate Date crore) Current Rating and Outlook
NA Term Loans Feb-2018 Sep-2023 10.79 [ICRA]BBB+(Stable)
NA Cash Credit 18.00 [ICRA]BBB+(Stable)
NA Non Fund Based Limits 6.50 [ICRA]A2
NA Unallocated Limits 0.71 [ICRA]BBB+(Stable)/[ICRA]A2
Source: NCL VEKA Limited
Annexure-2: List of entities considered for consolidated analysis
Company Name Ownership Consolidation Approach
Plastone uPVC Profiles Private Limited 100% Full Consolidation
Source: NCL VEKA Limited
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ANALYST CONTACTS
K. Ravichandran R Srinivasan
+91 44 4596 4301 +91 44 4596 4315
[email protected] [email protected]
Vinay Kumar G Kushal Kumar B
+91 40 4067 6533 +91 40 4067 6521
[email protected] [email protected]RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
[email protected]
MEDIA AND PUBLIC RELATIONS CONTACT
Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]Helpline for business queries:
+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)
[email protected]
About ICRA Limited:
ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.
Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.
For more information, visit www.icra.in
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