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Our Take

Visaka Industries, for the last 4 decades, has been one of the leaders in cement asbestos based roofing solutions in India. Its flagship brands ‘Visaka”& “Shakti” command a strong brand patronage in Southern India and is mainly used in rural housing. It is No.2 player in this segment with a capacity of 802k MT (scaled-up its capacity by 22x in last 3.5 decades) commanding a Pan-India market share of 18%. Along with this on the building material side, it has enriched its product offerings with a launch of non-asbestos based fiber cement boards and panels in 2009 under its brand “V-Next”. Over last decade, this segment has been one of the key growth drivers for the company. “V-next” has been one of the prominent brands across India with one the largest capacity (170kMT of Fiber Boards & 9750MT for Panels) with dominant PanIndia market share of 32% which is majorly used in urban and commercial buildings. Apart from its building material portfolio, the company also presence in a synthetic yarn spinning facility which has been impacted the most due to pandemic and is likely to recover FY22 onwards

Going forward, the company aims to further expand its capacity in margin accretive, value-add V-Next segment. The on-going 50k MT capacity is likely to commence operations in FY22. The company aims to reach sales in the V-Next products category of Rs. 600Cr over next 5-7 year from Rs.198Cr as on FY20 translating into a revenue growth CAGR of ~20%.

Valuations & Recommendation:

Visaka’s earnings grew at a CAGR 18% during FY15-20. Going forward, we are positive on the future growth prospects of rural housing and building material segment apart from this a revival in the synthetic yarn segment provides good visibility of growth. In the building material space, we expect, Visaka Industries to be ahead of the industry performance. In our view, Visaka’s revenue and PAT is likely to record a growth of 8.7% and 36% CAGR over FY20-23E along with consistent FCF generation, stable working capital & up-tick in ROE’s from 10% in FY20 to 18% by FY23E. Segment-wise, we expect, V-Next and Cement asbestos revenue to grow at CAGR 15.6% and 9.5% respectively over the same period.

The stock is currently trading at valuation of 6x FY23E earnings. We feel the base case fair value of the stock is Rs. 555 (7x FY23E) and bull case fair value is Rs. 635 (8x FY23E). Investors willing to take risk can buy the stock at current levels of Rs. 482 and add on dips at the price of Rs 432.

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