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Visaka Industries Ltd (Visaka) is India’s second largest manufacturer (by
capacity) of asbestos cement sheets (ACS). It also manufactures synthetic
yarn. We assign Visaka a fundamental grade of ‘3/5’, indicating that its
fundamentals are ‘good’ relative to other listed securities in India.
Second largest ACS player in a concentrated industry
Of the four industry players comprising 70% of the business, Visaka has a
market share of ~16%. The concentration has helped Visaka earn higher
realisations despite a rise in raw material costs, an indication that players are
collaborating to adjust prices.
Higher volumes to drive growth
We expect Visaka’s revenues from ACS to grow at a CAGR of 11%, mainly
driven by higher volumes from increased demand for rural housing and a shift
to ACS from other roofing alternatives. Visaka is setting up a 1.1 lakh tonne
capacity in Orissa’s Sambalpur, expected to be commissioned by H2FY12.
Margins to moderate
Higher competition - Capacity addition of ~5 lakh tonnes in the industry,
expected over the next two years, could increase pressure on realisations and
margins.
Higher raw material costs - An increase in the price of asbestos fibre, a key
raw material, will also impact margins till FY13.
Key risks: Higher material cost, restriction on asbestos use
Owing to mining restrictions, only a few countries like Canada, Brazil, Russia,
Zimbabwe and Kazakhstan can supply asbestos fibre. Any price control by
producing countries or regulatory directives banning asbestos mining can
affect profitability and disrupt supply. Further, regulations restricting the usage
of asbestos in India, due to perceived ill effects on health, though not an
imminent threat, will be a key monitorable over the longer term.
Expect three-year revenue CAGR of 10%
We expect revenues to register a three-year CAGR of 10% to Rs 8 bn in FY13,
largely driven by 11% growth in the ACS segment and approximately 5%
growth in the synthetic yarn segment. We expect EBITDA margins to fall by
~360 bps and be under pressure at ~14%. We expect EPS to decline from Rs
37.7 in FY10 to Rs 29.7 in FY11 and then move up to Rs 35.6 in FY13.
Valuations – the market price has ‘strong upside’ from current levels
CRISIL Equities has used the discounted cash flow method to value Visaka and
arrived at a fair value of Rs 151 per share. The stock is currently trading at Rs
119 per share. The fair value implies P/E multiples of 4.7x FY12 EPS of Rs 31.9
and 4.2x FY13 EPS of Rs 35.6. We initiate coverage on Visaka with a valuation
grade of ‘5/5’.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Visaka Industries Ltd (Visaka) is India’s second largest manufacturer (by
capacity) of asbestos cement sheets (ACS). It also manufactures synthetic
yarn. We assign Visaka a fundamental grade of ‘3/5’, indicating that its
fundamentals are ‘good’ relative to other listed securities in India.
Second largest ACS player in a concentrated industry
Of the four industry players comprising 70% of the business, Visaka has a
market share of ~16%. The concentration has helped Visaka earn higher
realisations despite a rise in raw material costs, an indication that players are
collaborating to adjust prices.
Higher volumes to drive growth
We expect Visaka’s revenues from ACS to grow at a CAGR of 11%, mainly
driven by higher volumes from increased demand for rural housing and a shift
to ACS from other roofing alternatives. Visaka is setting up a 1.1 lakh tonne
capacity in Orissa’s Sambalpur, expected to be commissioned by H2FY12.
Margins to moderate
Higher competition - Capacity addition of ~5 lakh tonnes in the industry,
expected over the next two years, could increase pressure on realisations and
margins.
Higher raw material costs - An increase in the price of asbestos fibre, a key
raw material, will also impact margins till FY13.
Key risks: Higher material cost, restriction on asbestos use
Owing to mining restrictions, only a few countries like Canada, Brazil, Russia,
Zimbabwe and Kazakhstan can supply asbestos fibre. Any price control by
producing countries or regulatory directives banning asbestos mining can
affect profitability and disrupt supply. Further, regulations restricting the usage
of asbestos in India, due to perceived ill effects on health, though not an
imminent threat, will be a key monitorable over the longer term.
Expect three-year revenue CAGR of 10%
We expect revenues to register a three-year CAGR of 10% to Rs 8 bn in FY13,
largely driven by 11% growth in the ACS segment and approximately 5%
growth in the synthetic yarn segment. We expect EBITDA margins to fall by
~360 bps and be under pressure at ~14%. We expect EPS to decline from Rs
37.7 in FY10 to Rs 29.7 in FY11 and then move up to Rs 35.6 in FY13.
Valuations – the market price has ‘strong upside’ from current levels
CRISIL Equities has used the discounted cash flow method to value Visaka and
arrived at a fair value of Rs 151 per share. The stock is currently trading at Rs
119 per share. The fair value implies P/E multiples of 4.7x FY12 EPS of Rs 31.9
and 4.2x FY13 EPS of Rs 35.6. We initiate coverage on Visaka with a valuation
grade of ‘5/5’.
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