Vesuvius India - 2QCY2012 Result Update - Angel Broking

For 1QCY2011, Vesuvius India Ltd. (VIL) reported muted set of numbers. Revenue grew by a mere 1.9% yoy from Rs.137cr in 2QCY2011 to Rs.139cr in 2QCY2012. EBITDA margin contracted by 216bp to 16.% on account of increase in operating expenses, however, on a sequential basis, EBITDA margin expanded by 149bp owing to decline in raw material cost. Net profit declined by 12.4% yoy to Rs.13cr from Rs.14cr in 2QCY2011.

Demand outlook bleak, operating performance improves: We expect the company to face short term pressures on volume front due to a weak demand. Raw material costs witnessed some relief during the quarter after impacting the EBITDA margin for past two quarters, thus leading to an expansion in margin sequentially by 149bp. We expect raw material prices to remain stable at these levels, helping improve operating performance. Net profit is expected to see a dip in CY2012E and then recover in CY2013E.

Outlook and valuation: We expect VIL to post a 6.3% CAGR revenue growth over CY2011-13E due to weak demand while EBITDA margin is expected to contract marginally by 37bp over CY2011-13E from 17.4% in CY2011 to 17.0% in CY2013E, owing to relatively higher operating expenses. Net profit is expected to decline in CY2012E to Rs.50cr from Rs.55cr in CY2011 and recover to Rs.58cr by CY2013E. At CMP, the stock is trading at PE of 12.5x its CY2013E earnings and P/B of 1.9x for CY2013E. Considering higher valuations, we recommend a neutral view on the stock.

Source : Equity Bulls

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