Vesuvius India - Company Update - Angel Broking

Vesuvius India Ltd. (VIL) reported 15.8% yoy top-line growth to Rs.139cr in 1QCY2012 compared to Rs.120cr in 1QCY2011. The increase in raw-material prices and other expenses led to contraction of EBITDA margin by 376bp yoy to 14.9%. Consequently, net profit declined by 11.4% yoy to Rs.12cr in 1QCY2012 from Rs.13cr in 1QCY2011. We recommend an Accumulate on the stock.

Rupee depreciation - an opportunity for import substitution: Import constituted ~28% of Indian refractory market in CY2011. Rupee has witnessed a downward trend reaching its all-time low of 56.1 against USD in My 2012. This is expected to lead to decrease in import of refractories, thus increasing domestic demand. Moreover, VIL completed its expansion of Kolkata plant during the quarter. These factors would aid in better volume sales resulting in topline growth of the company.

Outlook and valuation: We expect VIL to post a 15.1% CAGR in its revenue over CY2011-13E to Rs.716cr in CY2013E, aided by better volume sales from import substitution and commencement of new capacity. However, the company's EBITDA margin is expected to contract by 95bp over CY2011-13E from 17.4% in CY2011 to 16.4% in CY2013E, while net profit is likely to report a 12.4% CAGR over the same period to Rs.70cr in CY2013E. At the CMP, the stock is trading at PE of 10.8x its CY2013E earnings and P/B of 1.9x for CY2013E. We recommend an Accumulate view on the stock with a target price of Rs.413, based on a target PE of 12x for CY2013E.

Source : Equity Bulls

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