H E A L T H Y Q2F Y 13 R E S U L T S

BUY

V IS A KA I N DU S TR I ES
ROBUST BUSINESS MODEL Retail Desk
19 December 2012 Company Description: VIL established in 1985, is a well diversified company with sizeable presence in asbestos cement, fibre cement sheets, yarn and building products. With focus on growth plan, VIL has now grown to the position of second largest cement sheet manufacturer in India. VIL has 7 factories spread across the country. Cement Products: VILs cement asbestos products plants with a total capacity of 7, 52, 000 tpa are located at Patancheru (Andhra Pradesh), Paramathi (Tamil Nadu), Midnapur (West Bengal), Vijayawada (Andhra Pradesh), Tumkur (Karnataka), Rae Bareli (Uttar Pradesh), Pune (Maharashtra) and Sambalpur (Odisha). The flat products (V-Boards) plant having capacity of 48, 000 tpa is situated at Miryalguda (Andhra Pradesh) and textile mill is located at Nagpur in Maharashtra. Textile: VIL diversified into textile yarn manufacturing in 1992. Visaka took the unknown Airjet spinning technology as a challenge & successfully established the factory in Nagpur to produce about 2000 tons of man-made fibre yarns per annum. The spinning plant, with 28 MURATA Twinjet spinning machines, is the world's largest installation of its kind, producing about 9,000 tonnes of yarns per annum. Strong Marketing Network: VIL has strong network of 5000 stockists/dealers throughout India. This apart VIL has depots in 36 major cities and towns, country-wide to ensure smooth supply of its products. Favorable industry developments, diversified portfolio and rich expertise in tapping the potential opportunities are going to mark a remarkable business for VIL in the coming years. Expansion: VIL commissioned a `47 crore, 1,00,000 tpa cement sheet asbestos product plant in Sambalpur (Orissa) in June 2011 funded largely through internal accruals. This strengthened its regional penetration and increased VILs cement asbestos sheet production capacity from 6,52,000 lakh tpa to 7,52,000 lakh tpa. The 48,000 tonnes of sheets per year non-asbestos fiber board & panel division was established in 2009 to cater to the needs of modern construction designs. The further expansion of V-Boards is underway. Key Financial:

Rating

CMP (`)

Target Price (`) Upside (%)

Key Data BSE Code NSE Code Reuters code Bloomberg Code Sensex Face Value (`) Mcap (` Cr.) 52 week H/L (`) 2 Wk Avg Qty Share holding, September 12 Promoters Foreign DIs Corporates Public Performance (%) Stock-VIL BSE 200 BSE 500

CORP.
126 30 165 509055 VISAKAIND VSKI.BO VSKI IN 19364 10 200 141/57 4315 Holding % 37.7 3.2 1.3 21.4 36.4

Buy

Price Chart: (One-Year)

LTD
3M 0 7.2 7.5 6M 32.3 18.2 18.0 12M 104.8 30.3 30.6
Year-March

(GMDV)
H1FY12A FY11A

(` crore)
FY12A FY13E FY14E

H1FY13A

http:// www.visaka.org Vijay Dave vijaydave@sunidhi.com Ph: 91-22-6760 7700

Sales PBIDT Interest PBDT Depreciation PBT Tax PAT Equity Reserves Book Value (`) EPS (`) OP Margin (%) NP Margin (%) P/E

474.11 72.82 4.68 68.14 9.93 58.21 18.94 39.27

358.95 40.83 5.79 35.04 8.40 26.64 8.77 17.87

24.7 15.4 8.3

11.3 11.4 5.0

650.30 94.91 10.22 84.69 16.40 68.29 23.22 45.07 15.9 245.43 164.3 28.3 14.6 6.9

744.72 83.05 14.17 68.88 17.64 51.24 16.90 34.34 15.9 270.56 180.0 21.6 11.2 4.6 5.8

953.0 133.4 10.5 122.9 19.0 103.9 35.3 68.6 15.9 339.2 223.3 43.1 14.0 7.2 2.9

1160.0 160.0 11.0 149.0 20.0 129.0 43.9 85.1 15.9 424.3 276.8 53.5 13.8 7.3 2.4

Visaka Industries
FY12, Q2FY13 & H1FY13 Results During FY12, VIL registered 15 percent increased sales of `745 crore. Net profit however fell 24 per cent to `34.3 crore mainly due to adverse working of the textile division. OPM and NPM stood at 11.2% and 4.6% Vs 14.6% and 6.9% in FY11. During Q2FY13, net profit rose 315 per cent to `9 crore on 30 per cent higher sales of `194 crore. OPM and NPM stood at 10.5% and 4.6% Vs 7.0% and 1.5% in Q2FY12. During H1FY13, net profit rose 120% to `39.3 crore on 32 per cent higher sales of `474 crore. OPM and NPM stood at 15.4% and 8.3% Vs 11.4% and 5.0% in H1FY12. H1FY13 EPS works out to `24.7 Vs `11.3 in H1FY12. Operation The lower profitability in FY12 was attributed to the economy downturn and volatile movement in Indias exchange rate along with an increase in the raw material costs (especially asbestos fibre). These costs could not be immediately passed on to consumers. Besides, there was a significant decline in the profit of its textiles division (18% of sales) one of the lowest in years - on account of the adverse market conditions. The position has since improved and VIL is now on higher profitable growth chart. It has been observed that the AprilJune quarter is usually the best for the sale of cement asbestos products (followed by the January-March quarter). On the other hand, the July-September quarter is usually the weakest as construction is generally deferred to after the monsoons. V-Boards The production of this non asbestos product (4000 tpm) went on stream in 2008. The offtake of cement bonded boards grew following enhanced product awareness, shift from timber products (due to advantages of fire, water and termite resistance over plywood and particle boards), higher affordability, maintenance-free, a low erection cost, functional use by carpenters, easy transportability (rather than be mixed on site) and safety in seismic zones. Following this, VIL decided to establish a second unit of 72,000 tpa near Pune, which is expected to be commissioned in April 2013, reinforcing VILs position as one the largest producers of the product in India. This non-asbestos product is ideal for use in interiors as it is created from cement, fly ash and polystyrene beads and positioned as dry wall substitute. The product is ideal for disaster-prone areas, is low on maintenance, enhances interior living area on account of its thinness and is ideal where real estate is expensive. Its weight is lower than bricks, quicker to erect, matches wall strength and axial load. The product is preferred on account of its weight ratio and dry wall concept. It is labour-efficient as it can be erected by a few of individuals. It can be reused at different locations. VIL possesses an installed capacity of 500 panels a day. VILs customers for V-Panels comprise GMR Group, Punj Loyd, Shapoorji Pallonji, Soma Enterprises, TCS, Gujarat Ambuja Port, Eenadu Group, Coastal Projects, Uranium Corporation and Larsen & Toubro, among others. This division reported modest net revenue of around `7.4 crore with a negligible loss in 2011-12. Financial Equity capital is `10.7 crore. With reserves of `221 crore, the book value of the share works out to `149. Investments in asset creation represent a significant part of VILs employed capital. For instance, VILs gross block accounted for 87% of its capital employed in 2011-12. VILs gross block increased from `345 crore as at 31 March 2011 to `401 crore as at 31 March 2012. Cash on hand was `54 crore. The DER stood at 0.56:1 despite major expansions initiated in earlier years and ongoing expansion at Pune. 2

V-Panels

Sunidhi Research |

Visaka Industries
Prospects The asbestos and fibre cement sheet industry is estimated to grow at about 8-10 per cent in financial year 2012-13 on account of increased income in rural areas coupled with various initiatives by Government by way of lowcost/affordable housing schemes like Indira Awas Yojna. The Indian economy continues to be robust, GDP growing 6-7% in 2010-13 on the back of higher rural incomes, rising agricultural production and stronger government support. VIL is attractively placed to capitalise on this improvement through a higher capacity, high asset utilisation, dispersed national presence and stronger brand building. The global demand for textile fibres is forecast to grow by 3.4% per annum over the 10 years to 2020 to a size of 98.6 million tonnes. Within the total, cotton demand is expected to grow by 2% per annum but non-cotton fibre demand is expected to grow at over twice that rate by 4.1% per annum. The share of synthetic fibres will grow from 63.4% to 68.7%. The global textile and clothing trade is expected to grow at a CAGR of 6.6% and reach USD 1 trillion by 2020. The construction industry accounts for 8% of Indias GDP. It is a priority on the Governments agenda to increase industrialisation, infrastructure development and inclusive growth. This, as a result, will increase liquidity, rural prosperity and the demand for building products. In Union Budget 201112, government has increased expenditure on rural and infrastructure development. The spending on social sector has been increased to `2,14, 400 crore in 201213. Rapid industrialisation and the need for faster construction techniques are creating an opportunity for modern building products. Deeper penetration into these potential markets while encouraging the adoption of modern construction techniques provides unlimited opportunities to VIL. Outlook VILs cement asbestos product manufacturing facilities are located nationally to address regional needs four in South India, one in North India, two in East India and one in West India. VIL enjoys attractive scale in textile business; it possesses the single largest twin airjet equipment installation in India and one of the highest such installations in the world. Its textile products figure in the top five percentile of Uster standards in the world. VILs domestic textiles clients comprise brand enhancing names like Siyaram, Pantaloons, Harrys Collection, Grasim, Donear and Raymond among others. Valuation & Recommendation The quantum of fibre used in India is minimal (8%). The free floating asbestos used by VIL is well below the 0.1 fibres/standard fixed by Ministry of Environment. VIL uses white fibre whereas it is the carcinogenic blue fibre that is banned. An ongoing audit ensures a safe workplace for employees. VIL was the seventh largest cement asbestos product manufacturer in India in 1996; it is the second largest today. Its manufacturing plants consume the lowest electricity per tonne in the sectors of its presence. VILs rich engineering competence is reflected in an ability to design and fabricate cement asbestos manufacturing equipment (for five of its eight plants), reducing the overall cost when compared with the industry benchmarks by 20% and shrinking commissioning time. VIL demonstrated the commissioning of cement asbestos product capacity (100,000 TPA) within nine months of ground breaking, leading to rated capacity utilization within four months of start-up. At the CMP of `126, the share is trading at a P/E of 2.9x on FY13E & 2.4x on FY14E. We recommend BUY with a target price of `165 in the medium term. Sunidhi Research | 3

Visaka Industries

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