Visaka Industries Ltd - Research Report

Private Client Research

Rating

Buy

Sector

Cement & Construction Materials

Company

Visaka Industries Ltd

Cement & Construction Materials


August 02, 2017

Sensex: 32476.74


CNX Nifty: 10081.50

NSE: VISAKAIND


BSE: 509055

Reco Price
Rs. 483.50
Price Target (1.5 - 2 Years)
Rs. 968.00
Upside
100.21%

Date

August 02, 2017

Sensex

32476.74

CNX Nifty

10081.50

Exchange

Code

NSE

VISAKAIND

BSE

509055

Stock Data

CMP (Rs)
485.40
Face value (Rs)
10
52 Week Range (Rs)
569.70 - 150.00
Market cap (Rs Crores)
771.66
Price To Book Value (x)
1.92
P/E Ratio (x)
16.73
EV/EBIDTA (x)
7.54

One Year indexed Stock Performance

Visaka Industries Ltd Sensex
Visaka Industries Ltd
Return (%)
1m
3m
12m
36m
Absolute
-5.46
134.49
209.86
305.51
Sensex
4.02
15.06
16.06
26.25

Shareholders

(in %)
30-Jun
Promoter
41.23
Public
58.77
Others
0.00
Total
100

+91 22 6639 3000

research@stockaxis.com

V-next could be the next big thing.

Expanding capacity; optimum capacity utilization; brand building:
Visaka Industries (VI) plans to expand its V-board capacity by 50000 tons and reach full capacity utilization during FY18. The company’s domestic sales of yarn are expected to pick up this year. The company also expects volume growth in its fibre cement segment and cement sheet business this year. VI has increased its advertisement spend to build its brand in the domestic market.

Growth Potential in V-Board:
Plywood demand is currently estimated at Rs. 20,000 crores. This product is expected to make significant inroads resulting in potential for exponential growth. The company has laid a strong foundation in this segment and is ready to capitalize on this emerging opportunity. These products can be used for nearly any application in a building construction.

V-board – capacity expansion and optimum utilization:
V-board is a cement-based product (fibre cement board), which is fire, termite and water resistant. V-boards can sustain fire up to 2.5 hours; this has been approved by Fire rating Agency. Fibre cement board is catching up in both domestic and international markets due to its strength (stronger than cement) and durability (a better product than wood). Fibre cement boards also have a wider usage than plywood.

Using V-board in construction is 2-3 times quicker than using conventional methods, while offering uniform quality. Since V-boards are thinner than convention material, they provide the advantage of extra floor space with the additional advantage of better acoustic properties.

The V-board segment is currently running at 70% capacity utilization and is expected to reach full capacity utilization in the current financial year. The company proposes to add 5,0000 tons of capacity to its current capacity of 1.20 lakh tons for a total outlay of Rs. 69 crores; this additional capacity will give the company additional revenues of Rs. 50-60 crores per year. The company can add further capacity of 15,000 tons by debottlenecking its Pune plant. We expect the total capacity by FY2020 to reach to 4 lakh tons. This will offer the company immense opportunity for growth resulting in an EBITDA margin of 12-14%.

Capacity expansion of yarn:
VI manufactures yarn using Twin Air Jet Spinning technology from Murata, Japan. With its current capacity of 41 MTS machines equivalent to 82,560 spindles, it produces over 12,500 metric tons of yarn per year and exports about 3,000 tons to countries around the globe. The company is a niche player in its space and has a range of products which includes Melange yarns, High Twist yarn and specialty yarns with different blends. The company has earned recognition as the largest MTS installation in the world with highest productivity, efficiency and quality. VI has added capacity at a cost of ~Rs. 70 crores, resulting in a 26% increase in its total capacity. Domestic business from this segment is expected to pick up and the total capacity utilization would reach to 100%.

Cement sheet – volume growth:
The company is the second largest cement sheet manufacturer in India. It has 8 factories spread across the country with a total capacity of about 8 lakh tons and is currently running at 80-82% capacity utilization; we expect utilization to shoot up to 90% due to higher demand for the product. The asbestos sheet cycle is picking up after 4 years of slack. Expected volume growth in the fibre cement segment is about 6% in FY18; better capacity utilization will lead to better operating leverage and thus a healthy margin of 12%.

Brand Building:
The company is building its brand in the domestic market through advertisement campaigns on television and radio; it incurred Rs. 3.5 crores as advertisement expenses in the last financial year. The benefit of this initiative would be visible in the current financial year. The company also plans to increase its distribution reach and is incentivizing the distributors to hold inventory of its products for sale.

Change in Mix:
The company has been concentrating more on value-added business which is clearly visible in its concentration of revenue flow in the last 5 years. The cement asbestos business has decreased from 75% to 67% in the last 5 years and during the same period, the V-board business has grown from 7% to 15%. The textile business has shown no change in contribution and stood at 18% of total revenues. We expect revenues from the V-board segment to grow in the future.

Strong business economics:
Total cash generation during FY17 was Rs. 183 crores compared to Rs. 77 crores in FY16. With the V-board business on a growth trajectory, the company started generating healthy cash flows which helped reduce debt by Rs. 115 crores and also add capacity worth Rs. 65 crores in FY17 without significantly impacting the cash balance. We expect this operational efficiency to continue going forward.

Better Capital Allocation:
VI plans to concentrate more on non-asbestos V-board branded business going forward due to its huge growth potential. The company will henceforth deploy additional expansion only in its V-board business and retain the same capacity in its textile and traditional asbestos sheet business, thus ensuring better capital allocation.

 

Industry

The Indian construction industry, being an important part of the economy, is expected to grow on account of rising standard of living, industrialization and urbanization. The sector is responsible for propelling India’s overall development and enjoys intense focus from the government to achieve time-bound creation of world class infrastructure in the country. Products like cement-based boards are expected to witness an increased market share as they are low maintenance and safer than conventional methods of construction.

Profile

Visaka Industries Ltd. (VI), established in 1981, commenced manufacture of corrugated cement fibre sheets in 1985 with an initial production capacity of 36,000 tons per year at Patancheru, Telangana. The company diversified into manufacturing synthetic yarn in 1992. VI opted for the latest Airjet spinning technology and successfully set up a factory in Nagpur to produce about 2,000 tons of man-made yarns per annum. The company is the second largest cement sheet manufacturer in India with an annual capacity of about 8 lakh tons of corrugated sheets per year.

Having established itself as a significant player in two industries, the company forayed into fibre-cement boards and panels in the year 2009 to cater to the needs of modern construction designs. The first factory was established in Miryalaguda, Telangana and the second factory was established in the year 2013 in Daund, Maharashtra. This division has a capacity of 130,000 MT of fibre cement boards per year. This division also produces innovative dry-wall panels of 2 feet width and 11 feet height with thickness of 50 MM, 75 MM and 100 MM to assemble partition walls.

For the last 29 years, VI has been steadily growing and consistently paying dividends to its shareholders. The company has been prompt in repaying its debts to all the banks.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Particulars Mar-14 Mar-15 Mar-16 Mar-17 Mar-18E Mar-19E
Net Sales 892.10 1021.13 1004.85 966.73 1105.00 1190.00
Growth (%) - 14.46 -1.59 -3.79 14.30 7.69
Total Expenditure 834.81 925.23 909.62 851.98 977.00 1041.00
EBITDA 57.29 95.91 95.24 114.75 128.00 149.00
EBITDA (Margin %) 6.42 9.39 9.48 11.87 11.58 12.52
Other Income 5.36 2.42 2.73 3.77 2.50 2.50
Operating Profit 62.65 98.33 97.96 118.52 130.50 151.50
Interest 21.40 22.03 21.29 18.05 20.00 21.50
PBDT 41.25 76.30 76.68 100.47 110.50 130.00
Depreciation 22.46 43.09 36.30 34.08 36.00 40.00
Profit Before Taxation & Exceptional Items 18.80 33.21 40.37 66.40 74.50 90.00
Exceptional Income / Expenses 0.0 0.0 0.0 0.0 0.0 0.0
Tax 6.83 11.97 15.94 25.59 26.08 31.50
Profit After Tax 11.97 21.24 24.44 40.80 48.43 58.50
Adjusted EPS 7.54 13.37 15.39 25.69 30.49 36.84
Source: Stockaxis Research, Company Data

Valuation

Visaka Industries has a strong product porfoilio and with the ongoing capacity expansion the company is expected to post good growth in near future.

We Initiate ‘BUY’ on attractive valuations with Target Price of Rs 968 based on 26.30x FY19E EPS. The stock trades at 15.85x FY18E and 13.10x FY19E EPS.