Company Description: Andhra Pradesh-based VIL was incorporated in the name of Visaka Asbestos Cement Products in Jun 81 and acquired its present name in Aug 1990. It came out with a rights issue in 1992 aggregating Rs.5 crore (29.85 lakh equity shares at a premium of Rs 7) to part-finance the Rs.23 crore expansion project at it’s synthetic yarn facility at Nagpur. During FY2006-07, it made preferential issue of shares, which raised its equity capital to Rs 15.9 crore. It manufactures asbestos cement sheet and synthetic blended yarn. The cement sheet division contributes 80% of the total revenue with 20% coming from yarn division.
Highlights: During the year, Shakti Roofings was merged with VIL effective from 01.04.2006. Accordingly, VIL allotted 20,07,995 shares to the shareholders of Shakti Roofings Private Limited, as per the agreed swap ratio of 2.29:1, on the 19th day of June, 2007. VIL had allotted 3 lakh equity shares and 9 lakh convertible equity share warrants in 2007 at the rate of Rs.135 per share to Sandadi Homes Pvt Ltd, which were subscribed into an equivalent number of equity shares of Rs 10 each, for cash at Rs 136 per share. The Rs 4.5 crores were also raised from the private placement for funding its asbestos cement expansion. VIL started commercial production of reinforced building boards from the newly commissioned unit in Miryalaguda (Capacity 4000 tonnes a month) from May 2008.The unit was set up at a cost of Rs 36 crore for which the funds were partly raised through a QIP placement in January 2007. VIL is also setting up a 4, 000 tonnes a month ‘Reinforced Building Board Sandwiched Panel Unit’ in Miryalguda, Andhra Pradesh at a cost of around Rs.9.4 crore, within the same premises where the ‘Reinforced Building Board’ project of VIL is located. Commercial production in the said unit is likely to start from Q4FY09. VIL has already disposed off the loss making garment division and wrote off Rs 7.3 crore in FY08.
Valuation & Recommendation: During Q2FY09, sales have gone up by 27 per cent to Rs 121 crore on whereas net profit was placed at Rs 7 crore against net loss of Rs 2.7 crore in Q2FY08.
During H1FY09 whereas sales have advanced by 29 per cent to Rs 294 crore, net profit has surged by 558 per cent to Rs 21.7 crore. OP & NP margin during H1FY09 stood at 17.1% and 7.4% respectively against 9.4 and 1.5% in H1FY08.OP and NP margins during H1FY09 have been considered after taking into account one time expense of Rs 3.9 crore.
Asbestos Cement Products continue to be in demand because of the industry’s effort in making in roads into rural markets, its affordability, and other qualities such as corrosion resistance, weather and fire proof nature.
The government’s focus on rural development is likely to heighten activity in the rural housing sector, which will lead to higher demand for asbestos-based roofing sheets. The industry demand as measured by the total sales of the industry has been growing considerably over the years, the growth for the last year being 16.5%.
Asbestos cement sheets are emerging as a cheaper alternative to galvanized steel sheets. Galvanized steel sheets are also used in housing, as an alternative to asbestos-based products. But the rising steel prices have made galvanized steel sheets more expensive, thereby increasing the gap between the prices of the two products.
VIL mainly focuses on a very specialized market and deals in synthetic yarn, which is not replaceable by natural fibres, and demand for synthetic yarn is growing globally.
Asbestos Cement Sheets are gaining popularity as they are inexpensive; need no maintenance and last long when compared to competing products such as thatched roofs, tiled roofs and galvanized iron sheets.
According to the information gathered by us almost 80-85% of rural people use thatched roof/tiles for the shelter. Thatched roof need regular replacement and tiled roof needs continued maintenance.
Therefore whenever the economic conditions improve the first choice of the rural poor to replace the roof over their head is the affordable and relatively durable product asbestos cement sheets. As such, there is increased potential for usage of asbestos cement sheets in rural areas.
The Company has commenced commercial production in the Reinforced Building Boards Division, situated in Miryalguda, Andhra Pradesh, with effect from May 2008. This would enhance its revenue and profitability in the coming years. At the CMP of Rs 36, the share is trading at a P/E of 1.8x on FY09E and 1.5x on FY10E. We recommend BUY with a medium to- long term target of Rs 55.