Company Update Superior Product Mix & New Age Markets to Aid Growth New investments to aid growth: Visaka continues to give a good set of numbers. YoY EPS grew at 142% aided by a revenue growth of 1.5% and an EBITDA expansion of 412 bps and we expect the margins to grow and EBITDA margin to reach 14.8% levels along with net profit margin reaching 6.6% levels by FY2E. We expect the investments made by the firm for expansion of capacities and new product launches to start paying off by FY2E. We expect improving capacity utilization levels to aid margins further. We retain BUY rating with a target price of Rs. 9 with an upside of 34%. On account of new investments made in expanding V-board capacities coupled with new roofing product launch called ATUM along with the company s focus in improving the non- asbestos revenue contribution, we expect the revenue to grow at 12% CAGR during FY17-FY2E and the margins to improve to 14.8% EBITDA & 6.6% net profit margin levels by FY2E. Enhance capacities coupled with de-risked in product mix: Visaka s brown-field expansion project to increase the fibre board capacities by 4% is expected to improve the profitability margins due to reduced lead time. The capacity at the new plant can further be increased to 75K MT from the current 5K MT. The outlook for asbestos sheets remains robust, in addition Visaka is planning to increase its non-asbestos revenue contribution to ~5% levels from the current 33% in next couple of years, which further adds to revenue with mitigated regulatory risk. New product launches along with strong reach: Visaka has launched an innovative solar roofing product, ATUM- a new age eco-friendly, energy efficient and energy generating roof and we expect a good amount of traction from industrial roofing segment for the product. We believe ATUM would become an upside catalyst in years to come. The company possesses a strong distribution network of more than 6, retailers mainly in rural and semi-urban markets; which aids in improved reach and increased sales. Valuation and Risks While continuing to remain positive about the company performance, we have upwardly revised the EPS by 8.2% for FY2E. We value the company at 18x (3 year average forward PE) to FY2E EPS and retain our BUY rating with a target price of Rs. 9 with an upside potential of 34%. Competition from alternate products along with potential ban on asbestos products may pose threat to the call. Exhibit 1: Valuation Summary Materials - Construction Materials Visaka Industries td Bloomberg Code: VSKI IN India Research - Stock Broking YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY2E Net Sales 149 9667 113 196 12145 EBITDA 952 1148 1479 1577 1799 EBITDA Margin (%) 9.5 11.9 14.6 14.4 14.8 Adj. Net Profit 244 48 642 688 8 EPS (Rs.) 15.4 25.7 4.4 43.3 5.4 RoE (%) 7. 1.5 14.3 13.4 13.6 PE (x) 6.9 1.5 16.7 15.5 13.4, *Represents multiples for FY16 & FY17 are based on historic market price For private circulation only. For important information about Karvy s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, Thomson Publishers & Reuters Recommendation (Rs.) Feb 2, 218 Visaka Industries td CMP (as on Feb 2, 218) 67 Target Price 9 Previous Target Price 8 Upside (%) 34 Stock Information Mkt Cap (Rs.mn/US$ mn) 1638 / 164 52-wk High/ow (Rs.) 839 / 217 3M Avg. daily volume (mn).1 Beta (x) 1.4 Sensex/Nifty 3374 / 136 O/S Shares(mn) 15.9 Face Value (Rs.) 1. Shareholding Pattern (%) Promoters 41.3 FIIs 6.9 DIIs 1.4 Others 5.4 Stock Performance (%) 1M 3M 6M 12M Absolute 13 5 34 27 Relative to Sensex 8 4 26 161 Source: Bloomberg Relative Performance* 39 29 19 9 Mar-17 Apr-17 May-17 Source: Bloomberg; *Index 1 Earnings Revision (%) Analyst Contact Arvind Vinjamoori 4-3321 6275 arvind.vinjamoori@karvy.com BUY YE Mar FY18E FY19E FY2E Sales (%)... EBITDA (%) 18.6 8.8 9.4 PAT (%) 47.3 16.2 8.2 Source: Karvy Research Jun-17 Visaka Talbros Jul-17 Sep-17 Oct-17 Nov-17 Dec-17 Sensex Jan-18 1
Exhibit 2: Q3FY18 Feb 2, 218 Visaka Industries td YE Mar (Rs. Mn) Q3FY18 Q2FY18 QoQ % Q3FY18 YoY % YTD FY18 YTD FY17 YoY % Turnover 2418 211 2.3 2188 1.5 7836 7754 1.1 Expenditure 274 1678 23.6 1967 5.4 6692 6892 (2.9) EBIDTA 344 333 3.3 221 55.5 1145 862 32.8 Depreciation 87 86.4 87 (.8) 263 25 5.5 Interest 49 4 22.1 51 (4.8) 128 141 (9.1) Other Income 1 1 (2.7) 1 (3.5) 36 49 (26.5) PBT 219 217.7 93 135.3 789 519 51.8 Tax 76 76.6 34 124. 275 196 4.5 Adj PAT 143 141.8 59 142 514 324 58.7 EBITDA Margin (%) 14.2 16.6 (234) bps 1.1 412 bps 14.6 11.1 349 bps EBIT Margin (%) 1.7 12.3 (163) bps 6.1 453 bps 11.2 7.9 335 bps Net Profit Margin (%) 5.9 7. (114) bps 2.7 32 bps 6.6 4.2 238 bps Exhibit 3: Margin Analysis YE Mar Q3FY18 Q2FY18 QoQ % Q3FY18 YoY % YTD FY18 YTD FY17 YoY % Material Expenses as % of Net Sales 53.5 53.8 (25) bps 59.2 (562) bps 52.5 58.7 (612) bps Employee Expenses as % of Net Sales 9.6 1.4 (83) bps 8.1 146 bps 8.9 7.1 183 bps Other Expenses as % of Net Sales 31.3 3.3 96 bps 28.9 237 bps 25.5 26.2 (74) bps EBITDA Margin (%) 14.2 16.6 (234) bps 1.1 412 bps 14.6 11.1 349 bps Tax Rate (%) 34.8 34.9 (6) bps 36.6 (176) bps 34.9 37.7 (282) bps Net Profit Margin (%) 5.9 7. (114) bps 2.7 32 bps 6.6 4.2 238 bps Exhibit 4: Segment-wise Financials YE Mar (Rs. Mn) Q3FY18 Q2FY18 QoQ % Q3FY18 YoY % YTD FY18 YTD FY17 YoY % Segment-wise revenues Building Products 197 1694 16.3 1743 13. 6585 6373 3.3 Synthetic Blended Yarn 449 317 41.5 446.7 1251 1381 (9.4) Segment-wise EBITDA Building Products 311 317 (1.9) 188 65.4 186 743 46.2 Synthetic Blended Yarn 41 25 64. 43 (4.7) 91 164 (44.5) Segment-wise EBITDA Margin (%) Building Products 15.8 18.7 (293) bps 1.8 5 bps 16.5 11.7 483 bps Synthetic Blended Yarn 9.1 7.9 126 bps 9.6 (51) bps 7.3 11.9 (46) bps Segment-wise EBIT Building Products 298 28 6.5 162 84. 125 696 47.2 Synthetic Blended Yarn 27 6 354.3 36 (25.2) 45 162 (72.2) Segment-wise EBIT Margin (%) Building Products 15.1 16.5 (139) bps 9.3 583 bps 15.6 1.9 464 bps Synthetic Blended Yarn 6.1 1.9 419 bps 8.2 (21) bps 3.6 11.7 (814) bps 2
Feb 2, 218 Visaka Industries td Exhibit 5: Segment-wise Revenue Synthetic Blended Yarn 18.6% Exhibit 6: QoQ Revenue Trend 4 3 2 1 75% 5% 25% % -25% -5% Building Products 81.4% Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Revenue (Rs Mn) QoQ Growth (%) YoY Growth (%) Exhibit 7: QoQ EBITDA & EBITDA Margin Exhibit 8: QoQ PAT & PAT Margin 1 2% 25 8% 8 6 4 2 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 15% 1% 5% % 2 15 1 5 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 6% 4% 2% % EBITDA (Rs Mn) EBITDA Margin (%) PAT (Rs. Mn) PAT Margin (%) Exhibit 9: Change in Earnings Estimates YE Mar (Rs. Mn) FY18E FY19E FY2E Old New % Change Old New % Change Old New % Change Net Sales 113 113. 196 196. 12145 12145. EBITDA 1247 1479 18.6 145 1577 8.8 1645 1799 9.4 EBITDA Margin (%) 12.3 14.6 229 bps 13.2 14.4 116 bps 13.5 14.8 127 bps Adj. PAT 436 642 47.3 592 688 16.2 739 8 8.2 EPS (Rs.) 27.4 4.4 47.3 37.2 43.3 16.2 47 5.4 8.2 Source: Karvy Research Exhibit 1: Visaka Industries 1 year PE Band 25 2 15 1 5 May-8 Aug-8 Nov-8 Feb-9 May-9 Aug-9 Nov-9 Feb-1 May-1 Aug-1 Nov-1 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 May-17 Nov-17 Feb-18 1yr forward PE Average P/E 1 SD 2SD Source: BSE, Karvy Research 3
Feb 2, 218 Visaka Industries td Exhibit 11: Visaka Industries 5 year PE Band 1 8 6 4 2 Source: Bloomberg, Karvy Research Exhibit 12: S&P BSE Industrial Price Index 7 6 5 4 3 2 1 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Apr-17 Jun-17 Oct-17 Dec-17 Feb-18 Price 25.4x 18.5x 11.6x 4.7x Price (Rs.) 45.2x 39.2x 33.2x 27.2x 21.2x Source: Bloomberg, Karvy Research 4
Feb 2, 218 Visaka Industries td Financials Exhibit 13: Income Statement YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY2E Revenues 149 9667 113 196 12145 Growth (%) (1.6) (3.8) 4.8 8.2 1.8 Operating Expenses 996 852 8651 9383 1346 EBITDA 952 1148 1479 1577 1799 Growth (%) (.7) 2.5 28.9 6.6 14. Depreciation & Amortization 363 341 352 391 43 EBIT 589 87 1127 1186 1369 Other Income 27 38 47 55 49 Interest Expenses 213 18 18 184 188 PBT 44 664 994 158 123 Tax 159 256 352 37 431 Adjusted PAT 244 48 642 688 8 Growth (%) 15.1 67. 57.3 7.1 16.3 Exhibit 14: Balance Sheet YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY2E Cash & Cash Equivalents 75 383 475 1127 1947 Sundry Debtors 147 1562 1526 1652 183 Inventory 232 196 1931 2175 2424 oans & Advances 566 4 426 399 413 Investments 11 Gross Block 5843 657 757 777 797 Net Block 2941 3268 2928 3736 357 CWIP 41 117 117 57 12 Total Assets 8189 7691 833 9147 1132 Current iabilities & Provisions 152 1754 1738 1935 2156 Debt 2995 1844 1873 1873 1878 Other iabilities 222 213 213 213 213 Total iabilities 4719 3812 3824 421 4247 Shareholders Equity 159 159 159 159 159 Reserves & Surplus 3311 3719 432 4967 5726 Total Networth 3471 3879 448 5126 5885 Total Networth & iabilities 8189 7691 833 9147 1132 5
Feb 2, 218 Visaka Industries td Exhibit 15: Cash Flow Statement YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY2E PBT 44 664 994 158 123 Depreciation 363 341 352 391 43 Interest 213 18 18 184 188 Tax Paid (223) (248) (352) (37) (431) Inc/dec in Net WC 9 479 48 (172) (26) Other Income 19 64 (47) (55) (49) Cash flow from operating activities 892 1517 1222 19 1211 Inc/dec in capital expenditure (287) (641) (912) (24) (155) Inc/dec in investments 3 2 Others 27 38 47 55 49 Cash flow from investing activities (284) (639) (912) (24) (155) Inc/dec in borrowings (137) 213 28 2 25 Issuance of equity Dividend paid (15) (41) (41) (41) (41) Interest paid (29) (176) (18) (184) (188) Others 357 (1241) (26) 6 (33) Cash flow from financing activities (139) (1246) (218) (198) (237) Net change in cash 469 (367) 92 652 819 Exhibit 16: Key Ratios YE Mar FY16 FY17 FY18E FY19E FY2E EBITDA Margin (%) 9.5 11.9 14.6 14.4 14.8 EBIT Margin (%) 5.9 8.3 11.1 1.8 11.3 Net Profit Margin (%) 2.4 4.2 6.3 6.3 6.6 Dividend Payout Ratio (%) 32.5 23.4 14.8 13.9 11.9 Net Debt/Equity (x).9.6.5.4.2 RoE (%) 7. 1.5 14.3 13.4 13.6 RoCE (%) 8.1 12.1 15.2 14.5 15. Exhibit 17: Valuation Parameters YE Mar FY16 FY17 FY18E FY19E FY2E EPS (Rs.) 15.4 25.7 4.4 43.3 5.4 DPS (Rs.) 5. 6. 6. 6. 6. BVPS (Rs.) 218.5 244.2 282.1 322.8 37.6 PE (x) 6.9 1.5 16.7 15.5 13.4 P/BV (x).5 1.1 2.4 2.1 1.8 EV/EBITDA (x) 5. 5.8 8.9 8. 6.7 EV/Sales (x).5.7 1.3 1.2 1., *Represents multiples for FY16 & FY17 are based on historic market price 6
Feb 2, 218 Visaka Industries td Stock Ratings Absolute Returns Buy : > 15% Hold : 5-15% Sell : < 5% Connect & Discuss More at 18 419 8283 (Toll Free) research@karvy.com ive Chat f in You Tube Disclaimer y Analyst certification: The following analyst(s), Arvind Vinjamoori, who is (are) primarily responsible for this report and whose name(s) is/are mentioned therein, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. y Disclaimer: Karvy Stock Broking imited [KSB] is registered as a research analyst with SEBI (Registration No INH23265). KSB is also a SEBI registered Stock Broker, Depository Participant, Portfolio Manager and also distributes financial products. 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