Visaka Industries Ltd (VSKI IN): Demand pickup seen from the beginning of 2Q

Dated:- 14th August 2019

Visaka Industries Ltd (VSKI IN): Demand pickup seen from the beginning of 2Q   

1QFY20 Results

·       Visaka Industries Ltd reported ~2% YoY growth in revenues at Rs 3,528 mn in 1QFY20. The Building Products (BP) segment revenues remained stable YoY at Rs 2,960/- and the Synthetic Yarn (Yarn) segment revenues grew ~13% YoY to Rs 568 mn.

·       The EBITDA margins declined YoY to 13.8% v/s 15.4% in 1QFY19 impacted by an increase in material costs by ~200 bps YoY to 49%.

·       The segmental EBIT margins in BP declined by ~340 bps YoY to ~13.7% while in Yarn; the margins increased by ~225 bps to ~11%.

·       VSKI reported a YoY decline in other income at Rs 15 mn v/s Rs 69 mn in 1QFY19; which included a one-time income from an insurance claim. This resulted in a decline of ~24% YoY in PAT at Rs 231 mn v/s Rs 303 mn in 1QFY19.

Management Commentary

·       The BP segment performance was impacted due to lower sales of cement asbestos sheets in May 2019. The long span of general elections and adverse weather conditions led to lower demand. The cement asbestos sheets reported a 4% YoY volume decline and 150 bps margin decline in 1QFY20.

·       The roofing industry volumes reported a decline of ~5.6% YoY in 1QFY20 while VSKI dropped by 2% YoY.

·       The volumes of the boards and panel products grew by ~28% YoY. The Jhajjar plant is operating at ~45% capacity and is expected to scale up to ~70-80% utilisation level in FY20E.

·       The ATUM roofs reported ~Rs 8.4 mn revenues in 1QFY20. Management expects to close orders of ~Rs 35 mn in 2QFY20 which will scale up subsequently.

·       The Yarn segment volumes grew by 6.6% YoY and the effective price increase was ~7% YoY for 1QFY20.     

·       Management guides for a recovery in all the segments in the rest of FY20E. As per their commentary; the cement asbestos roofs reported better volumes June 2019 onwards while the boards and panels and Yarn products continued to grow.

Consensus Estimate (Source: market screener website)

·       The closing price of VSKI was Rs 311/- as of 14-Aug-2019. It traded at 7x / 6x the consensus EPS for 20E /21E EPS of Rs 45.1/ 51.8 respectively.

·       Consensus target price of Rs 487.5/- implies a PE of 9x on FY21E EPS of Rs 51.8/-