Mutual Fund Advisor

Mutual Fund Advisor

Visaka Industries Ltd

Visaka Industries Ltd (Visaka) has a diversified product portfolio offering of building products and textile product (synthetic blended yarn).

The company has recently completed its capex in the textile segment by increasing the production capacity in FY17. Further, the company has also undertaken capacity expansion of its V-Next product by investing in a greenfield facility of 50,000 TPA in Haryana.

While the building segment has experienced secular growth, the textiles segment was impacted by the inverted tax structure under GST. However, with this being addressed, growth is likely to continue. On the back of the above, we expect overall revenues to grow at a CAGR of 8.3% to Rs. 1,228.6 crore by FY20. 

EBITDA is expected to grow to Rs. 178.1 crore (CAGR of 15.8%) over the same period. While the margins of the textile segment are expected to remain resilient, the building segment margins are expected to improve by 642bps to 15.5% with the improved capacity utilization and an increase in theshare of V-Next products. The ROE and ROCE are also expected to improve by 461 bps to 15.7% and 672bps to 20%, respectively, by FY20.

We initiate coverage on Visaka as a BUY with a price objective of Rs 986, representing a potential upside of 28% over a period of 18 months. We have arrived at the price target by applying SOTP

valuation. Our optimism stems from the following-

• Government initiatives like “Housing for All by 2022”, “Smart City Mission” and “Pradhan Mantri Awas Yojana” are expected to give momentum to the building material industry.

• Visaka is undertaking capacity expansion in the boards and panels segment. The current capacity of 129750 MT will be expanded to 179750 MT by end of FY18 which will lead to strong revenue growth of 27.6% CAGR over FY17-FY20.

• The implementation of GST has improved the competitiveness of its Building products. The tax incidence on the competingproducts has remained the same whereas the tax incidence on Visaka’s products has been reduced from 28% to 18%.

Sensex 35,511

Mutual Fund Advisor

MR.K.P.PRABHAGHARAN,

KKP CAPITAL, 9894333189

Mutual Fund Advisor