Rationale

 ICRA has taken a consolidated view of VLCC Health Care Limited (VLHC) and its subsidiaries, VLCC Personal Care Limited (VLPC) and VLCC International Inc., collectively referred to as the Group, while assigning the ratings, given the common management as well as strong operational and financial linkages among the entities. The reaffirmation of the ratings factors in the sustained financial performance of the Group, supported by its track record of more than two decades in the domestic wellness industry. In addition, its established brand as well as presence across segments (slimming & beauty, products business and education institutes) in India as well as few other geographies (Middle East etc) facilitate cross-selling opportunities for the Group’s offerings. The Group’s revenues rose 19% on a YoY basis in FY2024 to ~Rs. 958 crore (as per the provisional estimates shared by the company). The same was driven by 19 net centre additions and a 20% growth in same store sales for the slimming and beauty business. Resumption in discretionary spending post the pandemic with inclination towards health-based slimming and other activities resulted in increased revenue per centre. The Group's operating profit margin (OPM), in spite of 40 bps moderation in FY2024 to 23.3% (as per provisional estimates), remains healthy. The moderation was driven by a significant increase in marketing spend, which is expected to continue in the near term. Overall, the VLCC Group’s credit profile remains modest, as reflected in Total Debt/ OPBDITA of 1.8 times and interest coverage of 3.7 times as on March 31, 2024. The Group’s liquidity position is also adequate, with free cash and bank balance and liquid investments of ~Rs. 60 crore as on March 31, 2024, in addition to unutilised fund-based working capital facilities of Rs. 78 crore on an average during FY2024. ICRA expects the Group to continue to witness low double-digit growth in revenues in the near term, supported by new centre additions. However, the OPM may moderate further until the new centres stabilise operations. ICRA further notes VLHC’s acquisition of men's grooming brand, Ustraa, from Happily Unmarried Private Limited (HUMPL) for a total consideration of Rs. 192 crore in June 2023, funded through a mix of cash and share swap. While this has resulted in a moderation in the liquidity position of the company, the management believes that they will be able to leverage Ustraa’s online presence to cross sell VLCC’s products and VLCC’s offline presence to cross sell Ustraa’s products. ICRA also understands that the Group has been able to significantly curtail the losses from Ustraa in FY2024 through stringent cost control measures. The ratings remain constrained by the significant competition across the Group’s business segments, both in the wellness services as well as products business. The advent of various new age brands has intensified competition in this space. VLCC’s ability to sustain its market position will be key for maintaining its comfortable credit profile. Further, the company’s ability to consistently focus on new product development will be critical, going forward, amid the stringent competition in the products vertical. Moreover, retaining a talented workforce is crucial for the services business.

The Stable outlook on the long-term rating reflects ICRA’s opinion that the VLCC Group will continue to maintain its comfortable credit and liquidity profile, supported by its established brand presence and diversified business offerings.