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Tuesday, August 23, 2011

VISAKA INDUSTRIES LTD: A strong rural play with strong fundamentals !!!!


Scrip Code: 509055 VISAKAIND
CMP:  Rs. 87.15; Buy at current levels.
Short term Target: Rs. 100, 6 month Target – Rs. 150; 
STOP LOSS – Rs. 78.00; Market Cap: Rs. 138.40 cr; 52 Week High/Low: Rs. 173.70 / Rs. 82.55
Total Shares: 1,58,80,952 shares; Promoters : 59,87,530 shares –37.70 %; Total Public holding : 98,93,422 shares – 62.30 %; Book Value: Rs. 164.54; Face Value: Rs. 10.00; EPS: Rs. 25.24; Div: 50 % ; P/E: 3.45 times; Ind. P/E: 5.73; EV/EBITDA: 3.37.
Total Debt: Rs. 188.85 cr; Enterprise Value: Rs. 323.74 cr.

VISAKA INDUSTRIES LTD: was incorporated in 1981 in Secunderabad, India. Visaka Industries Limited manufactures and sells corrugated cement fiber sheets in India and internationally. It operates in two segments, Building Products and Textile Synthetic Yarn. The Building Products segment produces asbestos sheets, accessories, and non asbestos flat sheets that are used as roofing materials and interiors. Its accessories include close fitting adjustable ridges, apron piece, north light ridges, barge boards, north light curve, serrated adjustable ridges, roof lights, and ridge finials. This segment also offers V Boards and V Panels, which are used for false ceiling, wall partitions, wall paneling, door panels, mezzanine flooring, back liners, structural glazing back lining, prefabricated buildings, and roofing, as well as for fixed furniture, such as computer tables, black boards, dressing tables, shoe racks, A.C. duct covers, photo frames, and office tables. The Textile Synthetic Yarn segment manufactures yarns out of the blends of polyester, viscose, and other materials to produce various fabrics, including shirting, suiting, fashion fabrics, upholstery, and embroidery laces. This segment also exports its products to Italy, Belgium, the United Kingdom, the United States, Spain, Germany, Australia, Mexico, and Turkey. Visaka Industries markets its products through dealers for the retail market, and directly for projects and government departments.

Investment Rationale:
Visaka industries limited is the second largest manufacturer of fiber cement sheets in India with an estimated market share of more than 15 % by sales. VIL’s high-tech Fiber Cement plant is fully automated factory with the latest sophisticated technology.  The Cement Asbestos segment produces asbestos sheets and accessories used primarily for as roofing material. Visaka industries is a rural sector player which holds tremendous potential for its asbestos division as whenever economic conditions of the rural populations improves, their spending in durable products like asbestos cement sheets is likely to be increased. VIL is growing at a CAGR of 29% for past five years, highest in the industry. Company is making continuous efforts to increase production capacity through new and existing plants. Company’s new product in Reinforced Building Product is accepted in the market as it is preferred over wood/gypsum based products. Company has commenced the commercial production of V-Panel unit from January 01, 2010. V-Panel is a revolutionary building product, which is being manufactured with technical collaboration from M/s Dantotech of Australia. Company has its asbestos cement sheets unit at pune. Visaka industries commenced the commercial production in Reinforced Building Boards division on 1st May 2008. This unit is situated in Miryalguda Taluq, Nalgonda District, in the state of Andhra Pradesh. The product from this unit is branded as “V-Board”. The company exports its products to the countries likes of Srilanka, Bangladesh, and Middle East. VIL has through a special purpose vehicle Visaka Thermal Power Ltd ventured into Coal- based power of 1050 MW at an estimated cost of Rs. 5000 crores in Orissa. The project implementation is spread over a period of 9 years in 3 stages of 350 MW each. Also VIL has Synthetic yarn business, engaged in the manufacturing of yarn using state-of-the-art Twin Air Jet Spinning technology from Murata, Japan, with 28 MTS machines equivalent to 60,000 spindles Visaka has earned recognition as the largest Unit in the world with MTS installation. As of now company produces 10000 MT of yarn per year and exports around 4000 tons across the world.

Outlook and Valuation:
Real estate and construction and infrastructure dominate the growth for Cement product industry. With the initiatives made by the government in various infrastructure projects, road networks and housing facilities the cement product industry especially the asbestos cement manufacturers cheer on the importance given to rural infrastructure in the union budget especially on the thrust given on rural housing by the government through Indira Awaas Yojana and increased allocation to rural housing is a positive sign. Fiber cement sheets are gaining popularity because of their strong physical properties as compared other roofing materials. Asbestos cement industry is growing at 10- 12%, at this growth VIL can significantly be able to service its debts. In my view VIL could report EPS in FY11 FY12E of Rs. 28.30/sh and Rs. 22.70/sh, respectively. I would buy VISAKA INDUSTRIES LTD which is currently available at a discount to its Book Value of Rs. 164.54; I would buy VIL for the long term with a price target of Rs. 15o and for the SHORT TERM PLAYERS it would be Rs.100.00 

KEY FINANCIALS FY10 FY11 FY12E FY13E
SALES (Rs. Crs) 600.90 653.40 712.90 823.60
NET PROFIT (Rs. Crs) 60.00 45.10 36.10 46.90
EPS (Rs.) 37.70 28.30 22.70 29.50
PE (x) 3.50 3.70 4.60 3.50
P/BV (x) 0.90 0.60 0.60 0.50
EV/EBITDA (x) 2.60 3.50 3.00 2.40
ROCE (%) 28.30 18.10 13.10 15.30
RONW (%) 26.50 16.90 15.50 18.00

I would buy VISAKA INDUSTRIES LTD with a price target of Rs. 100 for the short term and Rs. 150 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 78.00 on your purchase.

11 comments :

  1. Hi Bhavikk,
    Good post. I am silent visitor of your blog.
    Visaka looks extremely good as a value buy.
    But I have one doubt. Means the basis of investing at least as per Warren Buffett is you should think as a owner of the business that you are planning to purchase.
    And say if I become owner of Visaka, I will never give out such high dividend when my debt is nearly 5 times yearly net profit. Once I pay out the dividend the money is gone. So instead I would love if Visaka reduces its dividend and use that money to reduce its debt.
    I have seen many value traps like this for ex. SRF, PSL Ltd and in fact so many Tata stocks also.

    Again my personal opinion.

    Regards,
    Vikas

    ReplyDelete
  2. HI VIKAS,
    It is nice to know that you are a silent admirer of the blog. Thanks!!
    I thank the readers like you who give their honest & experienced opinions which motivate me to work more on the subject sincerely & honestly!!
    VISAKA has Debt/Equity ratio of 0.72 which is best among its industry and enough to service its debts of Rs. 188 cr (This is a long term debts). Visaka pays out good dividend shows promoters commitment towards its shareholders. If I were to be the owner of the VISAKA I would repay debts in parts and not fully as there are capital expenditure commitments also I would be giving out hefty dividends to my shareholders from the NETPROFIT as my commitment towards them. JUST what Visaka is doing it is repaying a part of its debts and paying dividends which gives VISAKA a dividend payout ratio of 16.2 % and dividend yield of 4.4% for FY10. Now remember debts are repaid not after net profits but paid or partly repaid after gross profit, this may take few quarters but the main point here is to see whether the company can repay its debts or not & Visaka is in strong position to repay its debts with D/E ratio of 0.72 . RIL has debts of nearly Rs.67,396.68 crs with cash of nearly Rs.33,897 Cr with D/E ratio of 0.46 if Mr. Ambani desires it pay half of RIL’s debts or make RIL fully debt free by selling just few lakhs shares of its treasuries stocks, but Companies have some capex plans which is why we see debts on their books. Take SESAGOA it was debt free before the cairn Vedanta deal but had to take debts of around 2,000 crs to invest in Cairn India , so due to capex activities companies has to keep loans on its books but we as an long term investors should see that whether the company is capable to repay its debts in long run or not..
    I hope this will make my point of view clear….I would like to know more from you if you have some more views on this….
    You are always free to mail me on this….do send me your mailing address.
    THANKS ONCE AGAIN, DO VISIT AGAIN
    HAPPY INVESTING
    YOUR FRIEND
    BHAVIKK.

    ReplyDelete
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