Wednesday, January 21, 2009

Stock Idea: Visaka Industries Ltd. (VIL)

Visaka Industries Ltd. (VIL) (Code: 509055) (Rs.39.90) is a large player in cement products and synthetic yarn and is poised for a jump in profitability on the back of further expansion. VIL was originally incorporated as Visaka Asbestos Cement Products in June 1981 and acquired its present name in August 1990. The other group companies are Visaka Cement Industry, Venus Tobacco Company and VST Natural Products. In 1997-98, its asbestos unit at Paramathi Velur in Tamil Nadu commenced commercial production. Its present capacity of asbestos cement products is 5,44,000 TPA. Employing state-of-the-art Twin Air-jet technology from Murata, Japan, VIL's spinning mill strategically utilises German and Indian technology. VIL was promoted by Dr. G Vivekanand. By adhering to stringent quality control and adhering to quality systems, VIL won the ISO 9002 certificate in 1995 and Export House status in 2001. Its Asbestos Cement Division contributes 80% of the total revenue and reported an operating profit of Rs.41 cr. During H1FY09 as against Rs.13.5 cr. in H1FY08 and Rs.29 cr. for FY08. Its Synthetic Yarn Division contributes nearly 20% of sales. Despite the sustained stress in the industry, this division continues to do well. It reported an operating profit of Rs.7.2 cr. during H1FY09 as against Rs.8.1 cr. in H1FY08 and Rs.10.4 cr. in FY08.

VIL has already disposed off its loss making Garment Division and wrote off Rs.7.3 cr. in FY08. During FY08, Shakti Roofings Pvt. Ltd. was merged with VIL w.e.f. 1 April 2006. Accordingly, VIL allotted 20,07,995 shares to the shareholders of Shakti Roofings, as per the agreed swap ratio of 2.29:1 on 19 June 2007. During FY08, VIL's sales moved up by 3% to Rs.433 cr. but net profit declined by 67% to Rs.7.7 cr. over FY07. During Q2FY09, sales advanced by 27% to Rs.121 cr. while net profit jumped to Rs.7 cr. from net loss of Rs.2.7 cr. over Q2FY08. During H1FY09, VIL's sales rose by 31% to Rs.294 cr. and net profit by 558% to Rs.21.7 cr. In textiles, VIL has been a focused synthetic blended yarn player, supplying to customers in the UK, France, Germany, Spain, Italy and Turkey. Its exports in FY08 amounted to Rs.48 cr. VIL started the commercial production of reinforced building boards from its newly commissioned unit in Miryalaguda having a capacity of 48,000 TPA from May 2008.This unit was set up at a cost of Rs.36 cr. and for which the funds were partly raised through a QIP placement in January 2007. It is also setting up another 48,000 TPA a month Reinforced Building Board Sandwiched Panel Unit in Miryalguda, Andhra Pradesh. VIL had allotted 3 lakh equity shares and 9 lakh convertible equity share warrants in 2007 at Rs.135 per share to Sandadi Homes Pvt. Ltd., which were subscribed into an equivalent number of equity shares of Rs.10 each, for cash at Rs.136 per share. This was for funding its asbestos cement expansion. VIL's equity capital is Rs.15.9 cr. and with reserves of Rs.143 cr., the book value of its share works out to Rs.100. Its debt:equity ratio is 1.2 and the value of its gross block is Rs.307 cr. Promoters hold 36.7% in the equity capital, foreign holding is 3.7%, Andhra Pradesh government holds 4.1%, PCBs hold 25.4%, institutions hold 1.3% leaving 28.8% with the investing public. Sandwiched panels are in demand for use as partition material. The Reinforced Building Board Sandwiched Panels are made of two fibre-reinforced cement sheets enclosing a lightweight core. These panels are cheaper than masonary/wood partitions, easier to fix and take lesser time for installation.

VIL has entered into an agreement with an Australian company for technology transfer for, Reinforced Building Board Sandwiched Panels. The government's thrust on rural development is likely to heighten activity in the rural housing sector, which will lead to higher demand for asbestos-based roofing sheets. Its demand has been growing considerably and grew by 16.5% in FY08. Asbestos sheets are a cheaper alternative to galvanized steel sheets, which are also used in housing. Based on the current going and with user industries doing well, VIL is all set to post 33% higher sales of Rs.575 cr. In FY09. Net profit, too, will rise to Rs.35 cr., which would give an EPS of Rs.22. With major expansion in cement sheets and the commencement of its sandwiched panel unit, VIL is expected to post a

turnover of Rs.750 cr. by 2010 with net profit of Rs.45 cr., which would give an EPS of Rs.28. The shares of VIL are currently traded at Rs.40 discounting the estimated EPS of Rs.22 for FY09 by 1.9 times and projected FY10 EPS of Rs.28 by only 1.5 times. Applying a conservative P/E of 3 on its estimated FY09 EPS of Rs.22, the share is likely to cross the Rs.66 in the short-term and Rs.84 in the medium-to-long-term. The 52-week high/low of the share has been Rs.118/40.

Source: Internet (moneytimes)

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