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Company Description
Visa Steel Ltd (VISA) is a part of the VISA Group founded in 1994 by Mr. Vishambhar Saran and Mrs. Saroj Agarwal. The company is engaged in the manufacturing of pig iron, lam coke, Ferro Chrome, sponge iron, steel and power generation. Apart from India the group has its strong presence in China, Australia, Indonesia, UK, South Africa and Singapore. The company has two subsidiaries, Ghotaringa Minerals Ltd and Visa Bao Ltd.
We initiate coverage on VISA steel with "BUY" recommendation at INR 59 with a target price of INR 75. Going forward, we believe that company's recent foray in to the high end product line (Billets & Rolled products) would enhance the earnings as well as help the company to de-risk its balance sheet from high leverage which has been a major concern.
Investment Rationale
Ø Strategic expansion with better product mix to drive growth
Ø Joint Venture VISA BAO to boost the Ferro chrome business
Ø Backward Integration to strengthen margins
Outlook & Valuation
At CMP of INR 59, the stock is available at EV/EBITDA of 3.5x its FY13e and PE of 3.7x of its FY13e earnings. At this valuation VISA seems to be cheaper compared to its peers, which are available at higher multiple (EV/EBITDA of 4.5x). Considering the volume growth, increase in margins due to integration and additional revenues from the JV with Bao Steel, we recommend "BUY" on Visa with a price target of INR 75
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