CRISIL’s ratings on the bank facilities of Vipul Chemicals (India) Pvt Ltd (Vipul; part of the Alpha-Vipul combine) continue to reflect the Alpha-Vipul combine’s above-average financial risk profile, marked by healthy net worth, comfortable gearing, and moderate debt protection metrics, benefits arising out of synergies within the group, and the extensive industry experience of its promoters. These rating strengths are partially offset by product concentration in the Alpha-Vipul combine’s revenue profile and its small scale of operations.  
 
For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Vipul and Alpha Carbonless Paper Manufacturing Co Pvt Ltd (Alpha), together referred to as the Alpha-Vipul combine. This is because both the companies have operational and financial synergies between them. The paper manufactured by Vipul (about 40 per cent of Vipul’s output) is used as raw material by Alpha.  
 
Outlook: Positive
 
CRISIL believes that the Alpha-Vipul combine’s business and financial risk profiles will improve over the medium term post stabilisation of its enhanced capacities. The rating may be upgraded if the Alpha-Vipul combine scales up its operations as envisaged, while maintaining its profitability and capital structure. Conversely, the outlook may be revised to ‘Stable’ if the combine is not able to scale up its operations, resulting in low utilisation of enhanced capacities, or in case of a large debt-funded capital expenditure (capex) programme, or in case of stretched working capital cycle.  
 
Update
 
The Alpha-Vipul combine’s performance was more or less in line with earlier projections for 2011-12 (refers to financial year, April 1 to March 31); it is estimated to report a turnover of over Rs.700 million in 2011-12 and a profit after tax (PAT) of over Rs.24 million. About 60 per cent of the combine’s revenues are contributed by the paper segment and the rest by its chemical segment. The Alpha-Vipul combine is likely to witness a healthy year-on-year growth of over 30 per cent over the medium term, supported by the commercialisation of its enhanced capacities. The combine recently set up a facility for paper coating with capacity of around 10,000 tonnes per annum (tpa) in Vipul. The coating machine with advance technology was imported from Germany. Though this was expected to commence operations from April 2011, it was delayed by almost a year owing to delays in obtaining approvals from the government. Also, setting up the large number of required peripherals as well as its modification to suit Indian working conditions delayed commencement of operations. The operations have commenced partly from February 2012. Vipul has started utilising about 40 per cent of its capacities; the output is being supplied to Alpha, which further processes it to manufacture carbonless paper and heat-sensitive thermal paper and sells it in the open market. The remaining capacities will be utilised for manufacturing chromo paper, which is used in magazines, calendars, and posters. It will also be catering to the requirement for fax paper rolls. With the increase in operational facility, the combine would be equipped to handle larger orders, which it was losing out on.  
 
Though large working capital requirements have resulted in high utilisation of its bank lines at an average of about 90 per cent for the past nine months ended December 31, 2011, the Alpha-Vipul combine’s net cash accruals of about Rs.45 million annually (estimated over the medium term) are sufficient to meet annual repayments of about Rs.30 million. The combine continues to remain vulnerable to volatility in paper prices as it does not have any price escalation clause with its customers. The combine does not have any major capex plans over the medium term.  
 
For 2010-11, Alpha, on a standalone basis, reported a PAT of Rs.14.3 million on revenues of Rs.389.7 million. The company reported revenues and a PAT of Rs.22.3 million and Rs.417.2 million, respectively, in 2009-10.  
 
For 2010-11, Vipul, on a standalone basis, reported a PAT of Rs.7 million on revenues of Rs.186.9 million. The company reported revenues and a PAT of Rs.14.7 million and Rs.167.8 million, respectively, in 2009-10.