Visaka Industries - Stellar performance in a lean quarter - ICICI Securities

Visaka Industries (VSKI) reported a strong beat across parameters while reporting a PAT of Rs231mn (I-Sec: Rs176mn), up 275% YoY. The performance was largely driven by: a) sharp rise in Vnext (FCB) revenues (up 19% YoY) driving significant improvement in its segmental EBITDA margin to ~15% (all-time high) on the back of operating leverage and YoY decline in input costs; and b) sustained strong operational performance in asbestos cement sheet (ACS) segment led by double-digit revenue growth and firm pricing. Management guidance too remained upbeat for FY22: 1) double-digit volume growth and firm margin in ACS and Vnext segment; 2) synthetic yarn segment to return to normalcy; 3) company is likely to become a net cash company next year; and 5) RoCEs are likely to gain further traction. Maintain BUY.

- Valuation and outlook: Factoring-in the Q3FY21 performance, we increase FY21E/FY22E PAT estimates by 24.9%/14.5% respectively. We now expect revenue and PAT CAGRs of 9.5% and 43.8% over FY20-FY22E. Strong FCF generation over FY21E-FY22E despite incremental capex for new Vnext plant would help improve RoCEs from 9.7% in FY20 to 17.8% in FY22E. Maintain BUY with a revised target price of Rs705 (earlier: Rs617), implying P/E multiple of 12x FY22E earnings. Key risks: 1) slowdown in rural demand for ACS and 2) slower recovery in synthetic yarn segment in FY22.

- Sustained demand/pricing tailwinds in ACS/FCB aid outperformance: VSKI reported its Q3FY21 revenues at Rs2.81bn (I-Sec: Rs2.55bn), up 16.3% YoY, led by sharp rise in Vnext revenues (up 19% YoY) and robust demand for ACS (+29% YoY). ACS realisation (+13.8% YoY) also remained firm despite the lean season. Synthetic yarn revenues too recovered sharply reaching 85% of last year's revenues. Strong rural demand and expected sharp recovery in urban India is likely to drive sustained growth momentum in ACS and Vnext into FY22E as well. We thus expect VSKI to exhibit an overall revenue CAGR of 9.5% over FY20-FY22E.

- EBITDA margin at 14.9% (I-Sec: 14%) led by strong performance in building products and sharp recovery in synthetic yarn segment: EBITDA margin came in at 14.9% (I-Sec: 14%), up 600bps YoY. The beat was largely 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 margin too recovered sharply QoQ to 9%. We expect higher EBITDA margins in Vnext and synthetic yarn segment to offset the likely normalisation of margins in the ACS segment in FY22E. We expect the company's overall margins to improve to 14.6% in FY22E from 10.4% in FY20.

- Balance sheet to strengthen further; VSKI to become net cash company by end-FY22E: With higher FCF generation and consequent reduction in debt, VSKI is likely to become a net cash company by end-FY22E. With expected improvement in profitability of its Vnext segment and likely sharp recovery in the synthetic yarn segment, we expect its RoCE to gain further traction in FY22E.

Shares of VISAKA INDUSTRIES LTD. was last trading in BSE at Rs.431.25 as compared to the previous close of Rs. 423.6. The total number of shares traded during the day was 7120 in over 579 trades.

The stock hit an intraday high of Rs. 437.45 and intraday low of 415.55. The net turnover during the day was Rs. 3039143.

Source : Equity Bulls

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