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CRISIL assigns valuation grade 5/5 to Visaka Industries

Published on Tue, Dec 13, 2011 at 12:04 | Source : Moneycontrol.com

Updated at Tue, Dec 13, 2011 at 12:22

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Visaka Ind

BSE | NSE 31/05/12

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CRISIL Research has come out with its report on Visaka Industries . The research firm has maintained the valuation grade 5/5 to the company in its December 12, 2011 report.

Visaka Industries Ltd's (Visaka's) Q2FY12 earnings were lower than CRISIL Research's expectations due to lower operating profitability. Higher asbestos cement fibre prices were only partially passed on, leading to constrained margins in the asbestos cement sheets (ACS) division (70% of Q2FY12 revenues). The synthetic yarn division also recorded lower profits. While we expect ACS realisations and volumes to improve in the subsequent quarters, since Q2 is a seasonally weak quarter, we believe higher fibre prices will continue to pressurise margins, leading to a gradual y-o-y decline in EBITDA margin over FY12-13. We lower our FY12 and FY13 earnings estimates. While the outlook on margins appears constrained, we believe Visaka, like other major ACS players, will adjust production to maintain realisations and achieve sales growth. Further, Visaka's dominant position as the second largest player in the ACS industry leads us to maintain our fundamental grade of 3/5.

Q2FY12 result analysis:

Visaka's Q2FY12 revenues increased by 12.7% y-o-y to Rs 1,510 mn mainly due to increase in revenues from the ACS segment (classified under "building products" which is 77% of revenues; ACS is 90% of the building products segment). This segment registered 14.9% y-o-y growth to Rs 1,152 mn. Revenue growth from the synthetic yarn segment was lower at 3.5% to Rs 344 mn due to lower realisations.
EBITDA margin fell by 478 bps y-o-y to 6.1%, due to lower margins in both building products and synthetic yarn divisions. Consequently, EBITDA declined 37% to Rs 92 mn. We expect margins to continue to be under pressure in the subsequent quarters. However, given the expected improvement in ACS realisations, absolute EBITDA will likely increase y-oy in FY13. We also expect pressure on synthetic yarn margins to remain.
Lower operating profitability weighed heavily on PAT, which declined to Rs 22 mn from Rs 68 mn in Q2FY11. Accordingly, EPS was Rs 1.4 vis-a-vis Rs 4.3 in Q2FY11.

Valuations: Current market price has strong upside We continue to use the discounted cash flow method to value Visaka and due to downward revision in estimates, lower our fair value to Rs 101 per share. At the current market price of Rs 67, the valuation grade is '5/5'.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.