Buy Visakha Industries, it has huge amount of margin of safety: Paras Adenwala

Paras Adenwala, MD & Principal Portfolio Manager, Capital Portfolio Advisors, in an interview with ET Now talks about Visakha Industries.

One of your top picks is Visaka Industries, which is in the asbestos roofing market and trading cheap. But really what’s the big story there and why would you want to go for such a small exposure to the construction space as opposed to going in for some of the bigger infrastructure players, which at this point also are fairly cheap?

My innocent strategy always has been to buy into stocks which have a huge amount of margin of safety and the good trajectory is also kind of improving or is massive going forward.

Visaka is one such name, which is largely into building materials and has a small exposure in textiles. This is a company which has been doing business for more than three decades under the Visaka brand name in asbestos roofing and now gradually they are diversifying into other building materials.

This company has had a price increase of 32% over the last two years. Such a massive price increase in any product is quite unheard of, which indicates the kind of pricing power this company is really enjoying. More than 80% of the market is in rural India and last year the volumes suffered because of poor monsoon in these areas but this year if the monsoon is good, this is one company which will not only have the pricing advantage but will also see a huge amount of draw in terms of volumes and all of that will percolate to the bottom line. S this is a stock which is also a play on rural India, has a very strong brand equity, has a debt equity of just about 0.5 times, has a return on equity of about 24% and has a set of promoters who are deeply committed to the business and finally the valuations.

Today on FY12 basis, it is available at just about four times and my sense is that over a period of time, there are several stocks, which are either illiquid or are small caps but which have the potential of becoming either mid caps or large caps if one holds on for the longer term and I strongly believe that Visaka despite being a small cap today, despite being illiquid today has all the characteristics of being a mid-cap tomorrow.