Visaka Industries posted a good set of numbers for 4QFY2016. Although the top-line
declined, the performance on the operating and bottom-line fronts was favorable.
The top-line declined by 3.3% yoy to Rs276cr. On the operating front the EBITDA grew
by 6.6% yoy to Rs29cr and the EBITDA margin improved by 96bp yoy to 10.4%. There
was an exceptional expense related to diminution in value of investment during the
quarter amounting to Rs1cr, adjusting for which, other expenses declined by 192bp
yoy to 24.6% of sales. Raw material and employee expenses remained flat as a
proportion of sales, thus resulting in EBITDA margin expansion. Aided by lower
interest and depreciation, the adjusted net profit grew by 58.6% yoy to Rs10cr.
Overall long term prospects intact: The company’s performance in FY2016 was
impacted on account of drop in volumes and realizations for its main business, ie
Asbestos Cement Sheets (ACS). However, the company is aiming at growing its
Boards and Synthethic yarn business in order to lower its dependence on the ACS
business. While the long term prospects of ACS are intact the outlook for the Boards
and Synthetic yarn business also looks favorable which should drive growth for the
company going forward. The Yarn business has better margins while the Boards
business has shown significant improvement in profitability which should only improve
once the business scales up.
Outlook and Valuations: We have introduced our FY2018E estimates for the
company and have lowered our expectation for FY2017E on account of near term
dampness in the ACS division. At the current market price of Rs135, the stock is trading
at a valuation of 5.9x its FY2018E EPS, which is attractive. We continue to maintain
our Buy rating on the stock with a revised price target of Rs162, valuing the stock at
7.0x its FY2018E earnings.

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