My discussion on Visaka Industries Limited

This is discussion with few analyst on stock- Visaka Industries on valueinvestor forum on facebook.
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Vishwa Sharan: Hi, Thanx for the analysis. Hope you’ll agree on the point that looking at financials it is available at the cost of dust. The controversy is on business dynamics on which I slightly differ from your view point.

It is difficult to conclude ......that Visaka Industries or Hyderabad industries took a hit because of inflation alone until and unless we have a long regression analysis. The inflation during the year FY 2007-08 was actually around 4-5% which any developing economy would have and is not high rather moderate. Besides, the Pune facility of Visaka closed for few months as it was undergoing capacity expansion. [However, I’m not sure of the time period.]

THREAT

Now Visaka deals in asbestos which allegedly causes cancer. There is a huge protest against banning it in several countries including India. After going through the excerpts of the Supreme Court ruling and BIS and several articles I came to conclusion that the blue asbestos is completely banned while regulated use of white asbestos was allowed in India. Around 80-85% of business comes from this segment therefore any government decision on banning asbestos completely will hit the company badly.

OPPORTUNITY

The company deals in V-board and V-panel where I see the future. If I remember correctly last year this segment grew by 69%. These boards are fire, termite and water proof. Recently, I’ve observed that it is widely used in corporate because of being cost effective and decreases the time of construction. I forsee a huge market for such boards which is used as false ceiling in building. The uniqueness of product with lot of utility will bound to have demand.

Disclaimer: This is my personal view point. I'm neither a professional stock analyst nor attached any way to broking community rather work independently. the view point is based on limited articles and financials available to me. I strongly recommend not to follow my viewpoints, these are merely for discussion purpose.

Valueinvestorindia thats true ..its a multitude of factors. however 2008 saw a rise in inflation. so that was one of the contributing factor. also there are indirect effects from inflation, such as increase in interest rates, slow down in real estate due to t...hat etc.
on opportunity, yes there is a lot of growth, but it remains to be seen if the companies will money off it. if there is consolidation, then yes, otherwise we can have the situation of a cement or sugar industry where the return on capital over a business cycle is not great

Vishwa Sharan Thanx for the analysis and response. Actually I recently “invested” in Visaka Inds. therefore just re-confirming my analysis. For my part I wanted to enter into infra, realty where I see huge growth but couldn't find a single company meetin...g my criteria. Visaka's growth came mostly from rural India. I personally believe any company whose (export/sales) ratio is less i.e depended on india's growth story would do well. What do you...???

I do not 've a perfect answer on inflation front but Raw material/ total cost has hardly changed in last 5 years. However indirect impact of inflation mentioned by you cannot be ruled out. Further, I believe if Visaka develops V-board and V-panel as big brand in the industry there can be two benefits. Branded product demands premium on price and secondly increased cost by inflation could easily be passed on to the customers.

You were absolutely right in stating that if they can money off it. if i remember correctly management expects break even in this segment in next year. I’ll observe how the segment performs in coming quarters and will decide the future course.

Thanx once again would like to hear more of analysis from your side.

Samir Arora I had hyderabad industries and had bought at 391 in 2009, held it right through 2010 , not selling at it even 700 but was lucky enough to sell it off couple of months back for 491, so not a total loss, it turned out to be.

Question now is, w...hat should be done with hyderabad industries now, with its next technical resistance on the downside at 135 ??? or is it ripe to pick up at 360-370?

Vishwa Sharan Hi Samir,
I've absolutely no idea of technical analysis but surely can share my observation based on fundamental analysis. I don't believe in technical analysis as it is largely speculation.

When I analyzed Visaka vs hydrabad industries I fou...nd Hyd Inds to be a fundamentally good company with management in the able hand of CK Birla group. It's trading at mouth watering valuation at very low PE, high ROE, low D/E ratio. The company has not done well in last two quarters so are other infra based stocks. However, I preferred Visaka Industries bcoz Visaka was trading at much below it's book value per share compared to Hyd indst. Looking at these financial ratios it seems to be good stock but beyond this I've not analyzed Hyd Inds.

Disclaimer: This is my personal view point. I'm neither a professional stock analyst nor attached any way to broking community rather work independently. the view point is based on limited articles and financials available to me. I strongly recommend not to follow my viewpoints, these are merely for discussion purpose.See More