Vesuvius India - 3QCY2012 Result Update - Angel Broking

For 3QCY2012, Vesuvius India Ltd (VIL) reported a 4.5% yoy decline in its revenue to Rs.132cr. The EBITDA margin expanded marginally by 45bp yoy to 18.6% on account of decline in raw material expense, while on a sequential basis, the EBITDA margin expanded by 243bp from 16.1% in 2QCY2012 owing to a 16% decline in other expenses. The net profit declined a tad by 4.0% yoy to Rs.14cr from Rs.15cr in 3QCY2011.

Demand outlook bleak, operating performance improves: We expect the company to face short-term pressures on the volume front due to weak demand. Raw material cost continues to show some relief, which coupled with decreased other expenses lead to a sequential improvement in operating performance. We expect raw material prices to remain stable at these levels; however employee expense (as percentage of net sales) is expected to increase. The net profit is expected to see a dip in CY2012E and then recover in CY2013E.

Outlook and valuation: We expect VIL to post a 4.3% CAGR revenue growth over CY2011-13E due to weak demand while the EBITDA margin is expected to contract marginally by 41bp over CY2011-13E from 17.4% in CY2011 to 17.0% in CY2013E, owing to relatively higher operating expenses. The net profit is expected to decline in CY2012E to Rs.51cr from Rs.55cr in CY2011 and recover to Rs.56cr by CY2013E. At the current market price, the stock is trading at a PE of 12.4x its CY2013E earnings and P/BV of 1.8x for CY2013E. Considering higher valuations, we recommend a Neutral view on the stock.

Source : Equity Bulls

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