Centrum Broking

Visaka Industries (Buy)

CMP: ₹342

Target: ₹730

Key takeaways:

a) Segmental revenue grew 14 per cent y-o-y on good demand. This along with better pricing boosted segmental EBITDA by 57 per cent y-o-y, thus moderating the negative impact of 36 per cent BP EBITDA decline, on total EBITDA.

b) Visaka Industries remains confident that ACS volume will rebound in Q4, thus moderating the impact of the Q3 dip. While the industry could not raise prices in Q3 to offset the impact of INR depreciation, there is scope for some ACS price increase in Q4. The Jhajjar plant should drive CBP volume growth during FY20/21E and will also reduce segmental lead distance, thus helping margin expansion. In the yarn segment, management remains confident of operating at 90 per cent utilisation in FY19 versus 77 per cent y-o-y.

Valuation: We reduce FY19/20E EPS by 13 per cent/17 per cent factoring in earnings decline seen in Q3, delays in Jhajjar plant commissioning and slower-than-estimated cost pass through in the ACS segment. We also introduce FY21E financials. Despite the earnings cut, we estimate VIL to sustain 11 per cent/14 per cent RoCE/RoE during FY19-21E, with net D:E trending below 0.5x going forward.

Risks: Lower-than-estimated demand offtake across all businesses, spike in fibre and cement prices, and further depreciation in rupee versus dollar.

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