Sample  Research Report  
 Visaka Industries   
Vol. No. : 22    Issue No. : 27                             Friday, May 13, 2016

Built-well for good monsoon

Pick up in rural demand and lower raw material prices should auger well for the company

Related Tables
4Visaka Industries: Financials
4Visaka Industries: Results
4Visaka Industries: Segment Results

Buy Visaka Industries
BSE Code 509055
BSE Group B
NSE Code VISAKAIND
ISIN Demat INE392A01013
Bloomberg VSKI@IN
Reuters VSKI.BO
Par Value Rs 10
52-week High/Low Rs 189 / Rs 89
Current Price Rs 128 (as on 13th May 2016)

Established in 1981, Visaka Industries is engaged in business of Building Products and Synthetic Yarns for Textile sector. Building Products contribute 83% of the revenues while Textile Division contributes 18% of the revenues of the company.

The company was the 7th largest cement asbestos product manufacturer in India in 1996 and today has reached to the 2nd spot, with a 17% market share at all India level. The Company’s Visaka and Shakti brands enjoyed favorable recall across India’s organized cement asbestos market. It has 11 manufacturing facilities in India with a total of 8.5 lakh tonnes of cement asbestos sheets and around 1.35 lakh tonnes of cement flat board.

Unique business model for Building Product segment

Visaka’s building products division manufactures Asbestos Cement Sheet (ACS) and V-Boards. ACS finds extensive usage in urban and semi-urban interiors, while cement asbestos products largely address rural markets, allowing adequate geographic de-risking.

V-Boards and Panels come under the Premium category of fibre sheets which are sold through institutional channels and real estate players in the market. Visaka’s customers for V-Panels & Boards comprise GMR Group, Punj Loyd, Shapoorji Pallonji, Soma Enterprises, TCS, Gujarat Ambuja port, Eenadu Group, Uranium Corporation of India and Larsen & Toubro India, among others.

ACS product manufacturing locations are nationally dispersed to address regional needs – 4 in Southern India, 1 in Northern India, 2 in Eastern India and 1 in Western India. The Company’s Paramathi, Midnapore and Pune units are proximate to ports, making it convenient to procure raw materials.

The Company’s building products are marketed directly to retailers as opposed to the conventional company distributor-retailer model, resulting in a better marketplace understanding. It enjoys enduring relationships with an extensive network of agents and retailers. It possesses a strong distribution network comprising more than 6,000 retailers (rural and suburban markets). It derived 85% of its sales from these markets; the rest derived from institutional sales to governmental agencies, construction industry and poultry farms. Visaka also enjoys a marketing presence in more than 30 countries; exports accounted for around 8-10% of total Building product segment sales.

Outlook for Building Product segment is improving and sales as well as margins expected to improve

The Asbestos Cement Sheet (ACS) sector as a whole was flat for the past 4 years. Lower monsoon, uncertain rupee, Chinese imports etc were major reasons for the same. The industry as a whole was around 39 lakh tons remained around that level for the past 4 years. No major new capacities were added during these years and most of the players were struggling to operate beyond 75% of installed capacity.

The Crysotile fiber which accounts for around 65-70% of total raw material costs is by and large imported from countries like Russia. Due to the severe economic crisis in Russia and lower commodity price trend, the price of Crysotile fibre is also coming down. For entire FY’16, while the prices were lower by around 10% on YoY basis, currency fluctuations have resulted in loss of most of the gains expected from lower raw material prices. This together with a back to back rainfall below normal led the industry as a whole to struggle in FY’16 as well.

However, with economic conditions continue to deteriorate worldwide, Crysotile fibre prices fell further in Jan’16. Currently, the prices are hovering around further 10% lower than the FY’16 prices. So the raw material benefit is expected to continue to remain in FY’17 as well.

After 2 years of back to back below normal monsoon, IMD and Skymet have expected an above normal monsoon for FY’17. This will result in pickup in demand from the rural and semi-rural segment.

Visaka is carrying an inventory of less than 2 months of Crysotile fibre and any fall in the prices, will continue to help the company. Further any pickup in demand will result in company increasing the prices of ACS and V Boards, as the industry have not increased the prices of the finished products for the past 14 months due to lower demand from rural and semi urban markets.

Cement asbestos products are considered good alternative over plywood’s & particle boards as they have low maintenance, higher durability & greater safety. Further any pickup in demand from infrastructure and initiatives like Swachh Bharat and Make in India will also auger well for the sector.

The company produced around 7 lakh tons in FY’16 vis a vis 7.2 lakh tons of ACS in Mar'15. The company produced around 91000 tons of V Boards in FY'16. The company does not require any additional capex and has sufficient capacities. If the demand improves, the company will be able to gain the economies of scale advantage which will also drive in higher margins to the company.

Within Building product segment of the company, EBIDT margins of ACS business was around 7.6% in FY 2016 vis a vis 9% for FY 2015. V Boards saw a significant turnaround with EBIDT margin of 11.25% for FY 2016 as compared to a -4% EBIDT margin for FY 2015.

For Mar’16 quarter, the company reported a 3% fall in Building Product revenue to Rs 229.33 crore and PBIT stood at Rs 18.58 crore with PBIT margin at 8.1%. For FY’16, Building Product revenue stood at Rs 817.97 crore, lower by 2% with PBIT margin at 6.5% and PBIT at Rs 53.13 crore up by 9%.

Textiles is expected to continue to grow

Visaka also has diversified into the manufacture of synthetic yarn in 1992. Its textile division manufactures yarns using state-of the- art twin air jet spinning machines (Murata, Japan), 31 MTS machines (equivalent to 55,000 ring spindles). The quality manufactured is superior to conventional ring frame yarn. The company has a spinning plant in Nagpur, Maharashtra, capable of producing 9000 tonnes of yarn p.a.

Visaka’s domestic textile clients comprise industry heavyweights like Grasim Industries, Siyaram Silk, S. Kumar Nationwide, Shreekar Polyester, Puneet Syntex, Anand Silk Mills, G.M. Knitting Industries, D.C. Textiles.

The Textile division of the company primarily consists of Technical textiles. Due to fall in crude oil prices, sales were impacted, but the segment sailed through due to lower raw material prices. For Mar’16 quarter, the company reported a flat revenue for Synthetic blended yarn segment at Rs 44.55 crore and PBIT stood at Rs 6 crore, up by 2% with PBIT margin at 13.5%. For FY’16, the revenue stood at Rs 171.58 crore, lower by 4% with PBIT margin at 15.3% and PBIT at Rs 26.24 crore up by 21%.

Around Rs 70 crore of investments is planned in this division which will expand the capacity by around 26%. The capacity will be operational from Sep'16 onwards. The entire capex is towards premium quality of yarn which has higher realization and better demand outlook.

Financials

For the quarter ended Mar’16, net sales were lower by 3% to Rs 275.70 crore. OPM was up by 60 bps to 10%, resulting in a 3% rise in OP to Rs 27.64 crore. Other income was up by 110% to Rs 0.44 crore. Depreciation was lower by 13% to Rs 8.31 crore. After providing total tax of Rs 5.26 crore, PAT for Mar’16 quarter stood at Rs 14.51 crore, up by 39% YoY.

For the year ended Mar’16, net sales were lower by 2% to Rs 1004.86 crore. OPM stood at 9.5% resulting in a 1% lower OP to Rs 95.23 crore. Other income was up by 13% to Rs 2.73 crore. Interest cost was lower by 3% to Rs 21.29 crore. Depreciation was lower by 16% to Rs 36.30 crore. After providing total tax of Rs 15.94 crore, up by 33%, PAT stood at Rs 24.43 crore, up by 15%.

Valuation

For FY’17, we expect volume as well as price realization growth for building products segment, which will be accompanied by higher margins due to lower raw material costs and better economies of scale.

For FY’17, we expect the company to report net sales and PAT of Rs 1083.86 crore and Rs 32.73 crore. This gives an EPS of Rs 20.6 Current market price of Rs 128 discounts FY’17 projected earnings by around 6.2 times.

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Visaka Industries: Financials
 
  1203 (12) 1303(12) 1403(12) 1503(12) 1603(12) 1703 (12P)
Sales 750.45 915.6 892.1 1021.13 1004.86 1083.36
OPM (%) 10.4% 11.6% 6.4% 9.4% 9.5% 10.2%
OP 78.33 106.66 57.29 95.91 95.23 110.86
Other inc. 4.72 2.56 5.36 2.42 2.73 3.00
PBIDT 83.05 109.22 62.65 98.33 97.96 113.86
Interest 14.17 15.01 21.4 22.03 21.29 21.00
PBDT 68.88 94.21 41.25 76.3 76.68 92.86
Dep. 17.64 19.58 22.46 43.09 36.30 39.20
PBT 51.24 74.64 18.8 33.21 40.37 53.65
Tax 16.90 23.95 6.83 11.97 15.94 20.93
PAT 34.34 50.69 11.97 21.24 24.43 32.73
EPS (Rs)* 21.6 31.9 7.5 13.4 15.4 20.6
* Annualised on current equity of Rs 15.88 crore; face value of Rs 10 each
(P): Projections
Figures in Rs crore
Source: Capitaline Corporate Databases

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Visaka Industries: Results
 
  1603(03) 1503(03) Var. (%) 1603(12) 1503(12) Var. (%)
Total Operating Income 275.70 285.04 -3% 1004.86 1021.13 -2%
OPM(%) 10.0% 9.4%   9.5% 9.4%  
OP 27.64 26.87 3% 95.23 95.91 -1%
Other Income 0.44 0.21 110% 2.73 2.42 13%
PBIDT 28.08 27.08 4% 97.96 98.33 0%
Interest 0.00 0.00 0% 21.29 22.03 -3%
PBDT 28.08 27.08 4% 76.68 76.3 0%
Depreciation 8.31 9.50 -13% 36.3 43.09 -16%
PBT before EO 19.77 17.58 12% 40.37 33.21 22%
Total Tax 5.26 7.17 -27% 15.94 11.97 33%
PAT 14.51 10.41 39% 24.43 21.24 15%
EPS* # #   15.4 13.4  
* Annualized On Current Equity Of Rs 15.88 Crore of face value of Rs 10 each
#EPS not annualized due to seasonality of business
EPS Is Calculated After Excluding EO And Relevant Tax
Figures In Rs Crore
Source: Capitaline Databases

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Visaka Industries: Segment Results
 
  1603(03) 1503(03) Var % % to Total 1603 (12) 1503 (12) Var % % to Total
Building Products 229.33 237.16 -3 84 817.97 833.46 -2 83
Synthetic blended yarn 44.55 44.56 0 16 171.58 179.64 -4 17
Total 273.88 281.72 -3 100 989.55 1013.10 -2 100
Segment Result                
Building Products 18.58 16.30 14 76 53.13 48.63 9 67
Synthetic blended yarn 6.00 5.86 2 24 26.24 21.63 21 33
Total 24.58 22.16 11 100 79.37 70.26 13 100
Less: Interest 5.26 7.17 -27   21.29 22.03 -3  
Less: Other Unallocable Items 4.81 4.58 5   17.71 15.04 18  
PBT 14.51 10.41 39   40.37 33.19 22  
Capital Employed                
Building Products 578.73 608.61 -5   578.73 608.61 -5  
Synthetic blended yarn 60.46 55.88 8   60.46 55.88 8  
Unallocated including Investments -292.13 -332.30 -12   -292.13 -332.30 -12  
Total 347.06 332.19 4   347.06 332.19 4  
Figures In Rs Crore
Source: Capitaline Databases

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