When Rakesh Jhunjhunwala, our friendly neighborhood billionaire investor, announced Visaka Industries as his stock recommendation (see Rakesh Jhunjhunwala is buying Visaka Industries!!), there was great excitement & expectation amongst investors that Visaka Industries would outperform the stock market. While Rakesh Jhunjhunwala‘s stock pick VIP Industries lived up to investors’ expectations and shot up like a rocket stock (see Rakesh Jhunjhunwala & VIP Industries: Best Stock Pick!), Visaka Industries has not. Instead Visaka Industries has, at the CMP of about Rs. 140, lost some ground compared to Rakesh Jhunjhunwala‘s purchase price of Rs. 151 in April 2010. This has created enormous disappointment amongst the investor community.
Now, the fault lies not with Rakesh Jhunjhunwala‘s recommendation but with investors’ expectations. Investors must realize that it is unrealistic and unfair to believe that every stock pick of the legendary Rakesh Jhunjhunwala will instantly become a multibagger or give spectacular returns.
Visaka Industries has underperformed because of a subdued Quarter. Visaka Industries is not alone in its under-performance. Even market leaders Everest Industies and Hyderabad Industries reported subdued results.
In Q1 FY 2011, Visaka Industries had already shown a weakening trend (see Visaka Industries: Poor Q1 FY 2011 results but holds promise!). Visaka Industries has continued this in Q2 FY 2011.
Visaka Industries‘ sales increased from Rs. 120 crores in Q2 FY 2010 to Rs. 134 crores in Q2 FY 2011. However, Visaka Industries‘ EBIDTA plummeted to Rs. 16.18 crores from Rs. 24.01 crores in Q2 FY 2010. Visaka Industries‘ Net Profit fell 37% from Rs. 10.78 crores to Rs. 6.77 crores.
Visaka Industries’ Quarterly Results
| (Rs cr) | Sep 2010 | Sep 2009 | YOY |
|---|---|---|---|
| Operating Income | 133.99 | 120.41 | 11.28 |
| Total Expenses | 119.45 | 96.89 | 23.28 |
| Operating Profit | 14.54 | 23.52 | -38.18 |
| Other Income | 1.64 | 0.49 | 234.69 |
| PBDIT | 16.18 | 24.01 | -32.61 |
| PBT | 10.22 | 13.66 | -25.18 |
| Adjusted Net Profit | 6.77 | 10.78 | -37.20 |
Visaka Industries‘ results were not impressive even on a Q-on-Q basis. In Q1 FY 2011, Visaka Industries‘ sales were higher at Rs. 187.44 crores while the Net Profit was Rs. 20.70 crores.
Rakesh Jhunjhunwala‘s constant advice is that an investor should never obsess over short-term events or pay too much attention to quarterly results (see Rakesh Jhunjhunwala’s investment techniques). Rakesh Jhunjhunwala always reminds investors that all companies have quarterly aberrations and investment decisions should never be taken on that basis.
Visaka Industries‘ business model remains intact and robust. Visaka Industries is involved in the production of cement and asbestos sheets for which there is a market with huge growing demand from the rural and semi-urban masses of this great country. Visaka Industries is a market leader in its field. Visaka Industries is the second largest cement sheet manufacturer in India with the total installed capacity of 6,30,000 tonnes. Visaka Industries is diversified and also engaged in the manufacture of fibre cement products and synthetic blended yarn. Visaka Industries has a presence across India with 6 manufacturing plant for asbestos making plants and two for manufacturing garments.
Visaka Industries has also been growing at a steady pace. Visaka Industries has grown at a 3 year CAGR sales of 13% and Visaka Industries‘ 3 year CAGR Profit grew at 35%. Visaka Industries has a manageable Debt to Equity Ratio of 0.78 and a Return on Equity of about 27%. Visaka Industries‘ Book Value of Rs. 148 is close to its market price. There is also comfort in that Visaka Industries‘ has a low PE of 4.5 and an attractive dividend yield of about 3.1%.
So it may be only a question of time before Visaka Industries returns to its winning ways along with its compatriots Everest Industies and Hyderabad Industries. Investors have to hold tight till then just like the great Rakesh Jhunjhunwala must be doing!!
Leave a Reply