Visaka Industries Ltd: Near-term cost pressure persist; retaining a Buy - Anand Rathi Share and Stock Brokers
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Buy Visaka Industries Ltd For Target Rs . 665
Near-term cost pressure persist; retaining a Buy
Geo-political tensions continued to pile pressure (high input costs) on Visaka’s operating performance. Consistent demand in Q2, however, helped revenue grow 24% y/y though EBITDA fell 41% y/y. While nearterm cost pressures would persist, greater focus on the non asbestos share, expected market-share gains in AC sheets and the firm B/S are key positives. We retain our Buy rating, at a TP of Rs.665 (earlier Rs.672)
High input cost ate into margins. Geopolitical tensions leading to supplychain disruptions and high input costs, and a seasonally weak quarter curtailed the operating performance where the BP division margins declined 893bps to 4.5%. Operating at 78% capacity (AC sheets) and 92% (V Next), the 17% y/y volume growth and price hikes aided the BP division’s topline to grow 18.5% y/y to Rs2.4bn. The yarn division’s revenue grew 50% y/y with a 15.6% EBIT margin (up 76 bps y/y).
Sharply focused on expanding non-asbestos proportion. Aiming at 35- 40% revenue growth for V Next, Visaka will be setting up a unit every 1.5-2 years. The announced 72,000-ton V-Next board plant in WB will commence in FY24, diversifying operations to the East and taking it across India. The Rs1bn capex will be funded via debt and internal accruals. The intent is to raise the share of non-asbestos revenue to 50%+ (now 40%) in the next few years.
Business outlook, Valuation. On the uncertain geo-political situation, cost pressures are expected to persist in the near term. The AC sheet industry is expected to grow 5-10%. The new AC sheet unit in Rae Bareli will help cater to new markets (Bihar/Jharkhand) and to gain market-share. The rising use of alternative products (yarn) may prune margins due to price competitiveness. We expect revenue/EBITDA to clock 12%/8% CAGRs over FY22-25. We introduce FY25e and retain our Buy rating, with a TP of Rs.665, assigning a 7x multiple to FY25e EPS. Risks: Rise in input costs, demand slowdown
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