Visaka Industries - Impressive beat on all fronts - ICICI Securities

Visaka Industries (VSKI) reported a 36% beat in PAT at Rs223mn (I-Sec: Rs164mn), up 68.6% YoY. Performance was largely driven by: a) sharp recovery in Vnext (FCB) revenues (up 10.2% YoY) driving significant improvement in segmental EBITDA margin to 14.7% (all-time high) on the back of operating leverage and YoY decline in input costs; and b) continued strong operational performance in asbestos cement sheet (ACS) segment (+17.8% YoY) led by sustained higher pricing. With demand and pricing tailwinds for ACS/Vnext segments likely to sustain in the near term, we expect the company to maintain its growth momentum over the next few quarters. Also, increasing promoter stake (through preferential allotments and warrants) and expected paring of debt in the current fiscal would aid further rerating of the stock. Maintain BUY.

- Valuation and outlook: Factoring-in the Q2FY21 performance, we increase FY21E/FY22E PAT estimates by 15.5%/11.6% respectively. We now expect revenue and PAT CAGRs of 6.2% and 34.3% over FY20-FY22E. Higher FCF generation in FY21E and lower debt despite incremental capex would help improve RoCEs from 9.7% in FY20 to 15.9% in FY22E. Maintain BUY with a revised target price of Rs617 (earlier: Rs552), implying an exit P/E multiple of 12x FY22E earnings.

- Sharp recovery in Vnext demand and sustained demand/pricing in ACS aids outperformance: VSKI reported its Q2FY21 revenues at Rs2.26bn (I-Sec: Rs2.20bn), down 0.9% YoY, led by sharp recovery in Vnext segment (up 10.2% YoY) and sustained robust demand for ACS (+17.8% YoY). ACS realisation (+15.2% YoY) remained firm despite the season being lean. However, synthetic yarn revenues continued their weak performance with 54% YoY decline due to intermittent lockdowns in urban India during the quarter. With urban markets expected to open up soon, we expect performance to improve across segments over the next few quarters. We thus expect VSKI to exhibit overall revenue CAGR of 6.2% over FY20-FY22E.

- EBITDA margin at 17.9% (I-Sec: 15.5%) led by strong performance in building products: EBITDA margin came in at 17.9% (I-Sec: 15.5%), up 990bps YoY. The beat was driven by strong EBITDA margin improvement in both ACS (led by sustained higher pricing) and Vnext (led by higher pricing and lower input costs). Synthetic yarn segment however reported muted EBITDA margin (1%) led by operating deleverage. We expect the pricing trend to remain firm in both ACS and Vnext, which would help VSKI maintain stable EBITDA margin in the near term. We expect overall EBITDA margin to improve from 10.4% in FY20 to 14% in FY22E.

- Reported PBT up almost 4x YoY at Rs299mn (I-Sec: Rs219mn): VSKI's PBT was up 4x YoY largely due to the stellar performance of ACS and Vnext segments. Higher tax on YoY basis restricted PAT at Rs223mn (I-Sec: Rs164mn), up 69% YoY.

Shares of VISAKA INDUSTRIES LTD. was last trading in BSE at Rs.353 as compared to the previous close of Rs. 362.9. The total number of shares traded during the day was 17350 in over 1825 trades.

The stock hit an intraday high of Rs. 370.75 and intraday low of 341.45. The net turnover during the day was Rs. 6228375.

Source : Equity Bulls

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