Visaka industries: Buy

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AN investment in the stock of Visaka Industries can be considered. At the current price of Rs 159, the stock trades at about 10 times its expected FY06 earnings. Consistent operating margins, robust growth in top line and expansion plans in building products and textile segment offer scope for appreciation.

Visaka Industries is a Hyderabad-based company manufacturing asbestos cement products and textiles yarn. The company has seen a 42-per cent jump in its revenues for the quarter-ended June 2005 on a year-on-year basis. Operating margins have been in the 15-16 per cent range over the last three years.

Increase in Government's budget outlay for housing in rural areas is likely to enable further growth in its building products segment.

The company has traditionally derived a majority of its earnings from building products. Its recent expansion plans to evolve as a textile player with control over the entire chain of production may see increased revenue contribution from this segment. The garment-manufacturing unit in Chennai, likely to be operational by the end of the current year, would also enjoy a 10-year income tax benefit and help boost bottom line.

The company has planned expansion to its asbestos cement division to the extent of Rs 28 crore and about Rs 155 crore in cotton spinning and weaving facility over the next three years. It has already established itself in the yarn sector with superior technology in double yarn manufacturing. The expansion plans are to be partly funded through FCCBs, its current debt equity ratio being favourable. It also plans to avail itself of the subsidy given by the Government through the Textile Upgradation Fund.

Vidya Bala

(This article was published in the Business Line print edition dated August 7, 2005)
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