CRISIL has downgraded its ratings on the bank facilities of VVF India Ltd (VVFIL; part of the VVF group) to 'CRISIL D/CRISIL D' from 'CRISIL BB+/Negative/CRISIL A4+'.
 
The downgrade reflects instances of delay by VVFIL in servicing its term debt. The company's performance remains under pressure due to a slump in its oleochemicals business. The continued subdued performance has resulted in a strain in its cash flows. CRISIL understands that the company has flexibility in the form of unutilised bank lines towards meeting its interest dues.
 
The VVF group also has a leveraged capital structure and weakening debt protection metrics. VVFIL had planned to avail of an export promotion bank guarantee (EPBG) facility of Rs.4 billion to manage its stressed liquidity, however, the company could avail EPBG of only Rs.570 million. Further, the company is exposed to risks related to the highly competitive and commoditised oleochemicals business. The group benefits from its moderate business risk profile supported by its leadership position in the domestic oleochemicals business, and stability offered by its contract manufacturing business.
 
For arriving at its ratings, CRISIL has combined the business and financial risk profiles of VVFIL, its subsidiaries (VVF Singapore Pte Ltd and PT VVF Indonesia), VVF Ltd, and VVF Ltd's overseas subsidiaries. This is because VVFIL and VVF Ltd have common promoters and are in similar businesses. VVFIL's bank facilities are secured by a corporate guarantee from VVF Ltd, and a charge on VVF Ltd's assets in addition to personal guarantees from the promoters. Furthermore, CRISIL believes that VVFIL will receive need-based financial support from VVF Ltd's subsidiaries. During 2013-14 (refers to financial year, April 1 to March 31) and 2014-15, VVF Ltd extended financial support of Rs.800 million to VVFIL. VVF Ltd is likely to extend further support of around Rs.200 million to VVFIL over the near term. All these companies have been together referred to as the VVF group.

Promoted by Mr. Godrej Pallonji Joshi, the VVF group commenced operations in 1939 with The Vegetable Vitamin Foods Co Pvt Ltd. The group is currently owned by the second generation of promoters: Mr. Rustom Joshi, Ms. Shanaz Diwan, and Mr. Faraz Joshi.
 
In 2011-12, the oleochemicals, domestic contract manufacturing, and branded manufacturing businesses of VVF Ltd were transferred to a new company, VVFIL, which received private equity infusion of Rs.1.35 billion.
 
VVFIL manufactures fatty oils, fatty alcohols, and glycerine, which account for around 60 per cent of its revenue. Exports comprise around 50 per cent of revenue in the oleochemicals segment. Its oleochemicals plant is in Taloja (Maharashtra). The company also undertakes contract manufacturing of personal care products (PCPs) at its plants in Baddi (Himachal Pradesh), Kolkata, and Daman; this business contributes around 25 per cent to its revenue. VVFIL derives a small portion of revenue from marketing its own brands: Doycare, Jo, and Shiff.
 
VVF Ltd is the holding company for the group's entities engaged in contract manufacturing of PCPs overseas. VVF Ltd also has land holdings in Mumbai. Major subsidiaries and step-down subsidiaries of VVF Ltd are VVF Intervest LLC (holding company for US-based operations), Green Planet Industrial LLC (Dubai), and VVF S.P.Z.O.O (Poland).
 
For the nine months ended December 31, 2014, VVFIL, on a standalone basis, reported a net loss of Rs.1.12 billion on an operating income of Rs.13.8 billion. For 2013-14, the company reported a net profit of Rs.394 million on an operating income of Rs.21.4 billion.
 
For the nine months ended December 31, 2014, the VVF group reported a net loss of Rs.967 million on an operating income of Rs.27.2 billion. For 2013-14, the group reported a net profit of Rs.679 million on an operating income of Rs.38.0 billion.