VISAKA INDUSTRIES LTD Rs 124: Undervalued Investment Idea

Rationale for Recommendation:

• Consistent Dividend paying for 28 years
• Book Value Rs 209
• Diversified Product Range
• 11 manufacturing plants
• 2nd Largest producer of Asbestos Sheets in India
• Strong focus on emerging generation products (V-Board, V-Panel)
• Interest cost  2.16% of Total Revenue, Gearing at 1.00 and Interest
• coverage at 2.50 provides great fiscal comfort
• Brighter Industry prospects due to planned big expenditure on
• affordable housing and creation of Telangana state
• Trading at 4.28xFY16Eeps and 3.33xFY17Eeps
• Market cap 0.20xFY15 Sales
• Cmp @ 124/ substantially lower than 52 week high of Rs 189 gives buying comfort

PRODUCTS AND FINANCIALS:

VIL has 3 product divisions:

1. Asbestos Sheets: With installed capacity of 8.02 lac tonnes, VIL is second largest producer of Asbestos Sheets in India. In 1996, VIL was 6th largest producer which shows that its efficient and visionary management has made big strides in the industry. This division contributes around 71% of total revenues.

2. Fibre Cement Flat Products (V-Next division): Comprising of V-Board and V-Panels and called as emerging generation products division, VIL with installed capacity of 1.30 lac tonnes has emerged as the largest

producer in India. This division contributed 11% to company's total revenues. V-Board and V-Panels are substitute for Plywood and Gypsum Boards. These panels are not only cost competitive but also environment friendly and are used for: Acoustic Partition,Roof Underlays,Gate Cladding,False Ceiling,Wall Panelling,Kitchen cabinets,Mezzanine flooring,Garden fencing,Wall partition.

These products have huge potential and management has strong focus for big growth of this division in coming years

3. Textile: VIL is producing synthetic yarn through air-jet spinning with capacity to produce 9000 tonnes yarn annually and contributes 18% to its topline.

 

VIL paid Rs 5 per share dividend for FY15.

CURRENT PERFORMANCE AND FUTURE:
                              Q1/FY16         Q4/FY15

Sales                       321                 285
Depreciation             9.50               9.50
Interest                    5.47               7.17
PAT                       13.61               6.06
Eps Rs                     8.57               3.82


VIL has performed extremely well in Q1 of current year with PAT jumping 224% and Q1 alone has Eps of Rs 8.57

VIL has strong professional management in place with diversified product portfolio having 11 manufacturing facilities. Co's V-Next division has been operating at 60-70% capacity. Management is confident of running this division at optimum capacity due to increasing demand. Currently non-asbestos sheet products contribute 29% to its topline. Management is confident of increasing it to 40% in next 3 years.

                          2015-16E        2016-17E

Sales                   1130               1250

PAT                        46                  58

Eps Rs                    29                 36.50

VIL appears an excellent buy in smallcap space considering the following;
1. Stock is trading at 4.28xFY16Eeps and 3.33xFY17Eeps. Such valuations are screamingly low
2. Consistent Dividend for 28 years
3. Book Value Rs 209
4. Current market cap is just 20% of FY15 sales
5. Much better industry prospects
6. 52 week high share price Rs 189 and Low Rs 85, One month high Rs 161 and Low Rs 114. Hence, buying comfort at current price Rs 124

We feel that asbestos sheet industry is due for re-rating and VIL offers an excellent investment opportunity with perspective of 6-24 months.  If broader indices do not slide substantially and remain range bound, VIL should provide OUTPERFORMER appreciation and stock has potential to be Rs 350 in 18-30 months (depending on market conditions). A safe bet with bright chances of substantial appreciation for genuine investors