Analysts upgrade Visaka Industries to a 'Buy'

ANALYSTS and equity research experts upgraded the rating of Visaka Industries following the expansion to a "Buy" with a target price of Rs 572 (earlier Rs 356) assigning an 8x multiple to FY23e EPS.

The BP divisions continued strong performance and the improving yarn division's performance aided Visaka's revenue/EBITDA/PAT grow 16 per cent/ 95 per cent/275 per cent YoY, according to an analytical report by the Anand Rathi Equity Research group.

The company announced V-panel capacity expansion along with the ongoing V-board expansion to cater to rising demand. Despite the capex, with the better performance and working-capital management, the balance sheet is likely to strengthen further.

BP's strong performance continues; yarn catching up. Backed by higher rural demand, firm realisations and the rising VNext contribution, the BP division's revenue grew 25 per cent YoY and the EBIT margin rose 988bps to 16.6 per cent. With markets opening up, the yarn division's performance continues to improve: revenue slid 15 per cent YoY (but QoQ grew 85 per cent) and the EBIT margin came at 7 per cent, (12.3 per cent a year ago, -6.9 per cent the previous quarter).

The ongoing expansion at the 50,000-ton V-Board plant is expected to be complete by December 21. Further, the company announced setting up a 10,000-ton V-panel plant at Udumalpeta,Tamil Nadu. The expansion would cater to rising demand and bring high margins and a higher non-asbestos share. V-Board margins are expected at 15-18 per cent.

The company management expects demand for building products to be backed by housing schemes, Swatch Bharat and rising exports (VNext). It talked of double-digit growth. The yarn division would return to normal, generating double-digit margins on the re-opening of markets. Input costs are expected to be constant, except for pulp prices which would rise with swelling demand. On greater collections and fewer inventory days, the working capital improved. The management talked of being net cash by FY22.

The perceived risks are: Rise in input costs, demand slowdown, the report added.

(Source: Anand Rathi Equity Research)