Visaka Industries Rating ‘Buy’; A beat across all parameters in Q3FY21

Visaka Industries (VSKI) reported a strong beat across parameters while reporting a PAT of Rs 231 mn , up 275% y-o-y. The performance was largely driven by: a) sharp rise in Vnext (FCB) revenues (up 19% y-o-y) driving significant improvement in its segmental Ebitda margin to ~15% (all-time high) on the back of operating leverage and y-o-y decline in input costs; and b) sustained strong operational performance in asbestos cement sheet (ACS) segment led by double-digit revenue growth and firm pricing.

Mgmt guidance remained upbeat for FY22: 1) double-digit volume growth and firm margin in ACS and Vnext segment; 2) synthetic yarn segment to return to normalcy; 3) company is likely to become a net cash company next year; and 5) RoCEs are likely to gain further traction. Maintain Buy.

Sustained demand/pricing tailwinds in ACS/FCB aid outperformance: VSKI reported its Q3FY21 revenues at 2.81 bn, up 16.3% y-o-y, led by sharp rise in Vnext revenues (up 19% y-o-y) and robust demand for ACS (+29% y-o-y). Synthetic yarn revenues too recovered sharply reaching 85% of last year’s revenues. Ebitda margin came in at 14.9%, up 600bps y-o-y. The beat was largely driven by strong Ebitda margin improvement in both ACS and Vnext. Synthetic yarn segment margin too recovered sharply q-o-q to 9%.

Valuation and outlook: Factoring in the Q3FY21 performance, we increase FY21e/FY22e PAT estimates by 24.9%/ 14.5% respectively. We now expect revenue and PAT CAGRs of 9.5% and 43.8% over FY20-FY22E. Strong FCF generation over FY21E-FY22E despite incremental capex for new Vnext plant would help improve RoCEs from 9.7% in FY20 to 17.8% in FY22E. Maintain Buy with a revised TP of Rs 705 (earlier: Rs 617), implying P/E multiple of 12x FY22E earnings.