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EVEREST KANTO CYLINDERS LTD (EKC)
RECOMMENDATION: BUY
TARGET PRICE: RS.111
CONS. FY12E P/E:13.6X
q EKC has reported good set of Q3FY11 results which are above our estimates
on strong revenue and excellent margins. Lower tax outgo also
shored up the profits.
q Dubai operations report sharp jump in profitability due to revival in demand
and sale of jumbo cylinders
q US and China operations continue to report losses
q Volumes up 28.0% YoY to 2.16 lakh cylinders
q The company has reported EPS of Rs 3.6 in 9M FY11. However, we have
built in higher tax outgo in Q4 FY11. As a result, we forecast FY11 EPS of
Rs 5.5 per share.
q Good long term potential on account of increasing gas availability, various
CGD projects and de-regulation of petrol prices
q Due to 37% upside potential from current levels we continue to recommend
BUY on EKC with unchanged DCF based price target of Rs.111.
n On a consolidated basis EKC sold 2.16 lakh cylinders in Q3FY11, which is up
28.4% YoY and up 5.6% on sequential basis. The volume growth was primarily
on account of pick up in demand for CNG cylinders from the Indian and Chinese
operations.
n The average realization per cylinder is down sharply by 10% YoY and 12% on
QoQ basis to Rs.11201 per cylinder primarily due to lower output of jumbo cylinders
in India.
n On a consolidated basis, EKC reported revenues of Rs.1.98 bn in Q3FY11, up
16% YoY and flat on sequential basis. This was primarily due to higher output
from UAE and China operations.
n On YoY basis the revenues of China operations are up 339% and US operation
is down 21.2%. Dubai operations have done well and revenues are up sharply
129% on YoY basis. Dubai unit has picked up due to reemergence of demand
from Iran, Pakistan and Bangladesh and is now operating at peak capacities.
n Revenue from Indian operations remained weak and registered degrowth of
20% yoy on account of slack demand for CNG cyclinders. The management
highlighted that there has been slack demand from the OEMs.
n EKC reported EBIDTA of Rs.378 mn in Q3FY11 up sharply 70% YoY primarily
due to execution of higher margin order of jumbo cylinders.
n PBIT of the Dubai business is up sharply from 6.7% in Q3FY10 to 39.0% in
Q3FY11 primarily due to resumption of supplies to Iran market. PBIT of the Indian
business is up from 3.2% in Q3FY10 to 5.7% in Q3FY11. However, segment
margins in the Indian operations have fallen on a sequential basis.
n The depreciation cost is lower on account of change in method of depreciation
from WDV to SLM to make more appropriate allocation of depreciation over the
expected useful and economic life of the asset.
n The interest cost is down sharply on YoY basis to Rs.18.4 mn as the company has
repaid the high cost loans. The total consolidated debt of the company has been
brought down from Rs.4.7 bn in June 2010 to Rs.3.8 bn in December 2010.
n For Q3FY11 EKC reported PBT of Rs.213 mn v/s PBT loss of Rs.-4.0 mn in Q3
FY10.
n For Q3FY11 the company reported PAT of Rs.230 mn v/s Rs 15 mn in Q3 FY10.
In 9M FY11, the company reported EPS of Rs 3.6 per share. In the Q4 FY11, we
have taken higher tax liability, which has pulled down profits.
Expansions update
The two lakh per annum industrial cylinder plant of EKC in Gujarat with billet piercing
technology and one lakh per annum CNG cylinder plant at Kandla have commenced
commercial production and they are expected to stabilize their production
by December 2010. The three lakh CNG cylinders per annum plant using steel
plates in Kandla SEZ is expected to be operational by March 2011.
Earnings Outlook
n The management expects to deliver revenue growth of 25-30% in FY12. In our
projections, we have built in revenue growth of 22%.
n In view of the strong EBITDA margins exhibited by the company and liquidation
of high cost inventory during the year, we expect margins to improve in FY12.
Valuation & Recommendation
n At the current price of Rs.81, EKC is trading at 1.2x book value, 13.6x earnings
and 6.5x cash earnings based on FY12 estimates.
n We remain positive on the medium to long term growth prospects of the company
primarily on account of expected huge demand of CNG cylinders for the
automobiles in India on account of increasing gas availability, various CGD
projects and de-regulation of petrol prices.
n Due to 37% upside potential from the current levels we continue to recommend
BUY on EKC with unchanged DCF based price target of Rs.111.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EVEREST KANTO CYLINDERS LTD (EKC)
RECOMMENDATION: BUY
TARGET PRICE: RS.111
CONS. FY12E P/E:13.6X
q EKC has reported good set of Q3FY11 results which are above our estimates
on strong revenue and excellent margins. Lower tax outgo also
shored up the profits.
q Dubai operations report sharp jump in profitability due to revival in demand
and sale of jumbo cylinders
q US and China operations continue to report losses
q Volumes up 28.0% YoY to 2.16 lakh cylinders
q The company has reported EPS of Rs 3.6 in 9M FY11. However, we have
built in higher tax outgo in Q4 FY11. As a result, we forecast FY11 EPS of
Rs 5.5 per share.
q Good long term potential on account of increasing gas availability, various
CGD projects and de-regulation of petrol prices
q Due to 37% upside potential from current levels we continue to recommend
BUY on EKC with unchanged DCF based price target of Rs.111.
n On a consolidated basis EKC sold 2.16 lakh cylinders in Q3FY11, which is up
28.4% YoY and up 5.6% on sequential basis. The volume growth was primarily
on account of pick up in demand for CNG cylinders from the Indian and Chinese
operations.
n The average realization per cylinder is down sharply by 10% YoY and 12% on
QoQ basis to Rs.11201 per cylinder primarily due to lower output of jumbo cylinders
in India.
n On a consolidated basis, EKC reported revenues of Rs.1.98 bn in Q3FY11, up
16% YoY and flat on sequential basis. This was primarily due to higher output
from UAE and China operations.
n On YoY basis the revenues of China operations are up 339% and US operation
is down 21.2%. Dubai operations have done well and revenues are up sharply
129% on YoY basis. Dubai unit has picked up due to reemergence of demand
from Iran, Pakistan and Bangladesh and is now operating at peak capacities.
n Revenue from Indian operations remained weak and registered degrowth of
20% yoy on account of slack demand for CNG cyclinders. The management
highlighted that there has been slack demand from the OEMs.
n EKC reported EBIDTA of Rs.378 mn in Q3FY11 up sharply 70% YoY primarily
due to execution of higher margin order of jumbo cylinders.
n PBIT of the Dubai business is up sharply from 6.7% in Q3FY10 to 39.0% in
Q3FY11 primarily due to resumption of supplies to Iran market. PBIT of the Indian
business is up from 3.2% in Q3FY10 to 5.7% in Q3FY11. However, segment
margins in the Indian operations have fallen on a sequential basis.
n The depreciation cost is lower on account of change in method of depreciation
from WDV to SLM to make more appropriate allocation of depreciation over the
expected useful and economic life of the asset.
n The interest cost is down sharply on YoY basis to Rs.18.4 mn as the company has
repaid the high cost loans. The total consolidated debt of the company has been
brought down from Rs.4.7 bn in June 2010 to Rs.3.8 bn in December 2010.
n For Q3FY11 EKC reported PBT of Rs.213 mn v/s PBT loss of Rs.-4.0 mn in Q3
FY10.
n For Q3FY11 the company reported PAT of Rs.230 mn v/s Rs 15 mn in Q3 FY10.
In 9M FY11, the company reported EPS of Rs 3.6 per share. In the Q4 FY11, we
have taken higher tax liability, which has pulled down profits.
Expansions update
The two lakh per annum industrial cylinder plant of EKC in Gujarat with billet piercing
technology and one lakh per annum CNG cylinder plant at Kandla have commenced
commercial production and they are expected to stabilize their production
by December 2010. The three lakh CNG cylinders per annum plant using steel
plates in Kandla SEZ is expected to be operational by March 2011.
Earnings Outlook
n The management expects to deliver revenue growth of 25-30% in FY12. In our
projections, we have built in revenue growth of 22%.
n In view of the strong EBITDA margins exhibited by the company and liquidation
of high cost inventory during the year, we expect margins to improve in FY12.
Valuation & Recommendation
n At the current price of Rs.81, EKC is trading at 1.2x book value, 13.6x earnings
and 6.5x cash earnings based on FY12 estimates.
n We remain positive on the medium to long term growth prospects of the company
primarily on account of expected huge demand of CNG cylinders for the
automobiles in India on account of increasing gas availability, various CGD
projects and de-regulation of petrol prices.
n Due to 37% upside potential from the current levels we continue to recommend
BUY on EKC with unchanged DCF based price target of Rs.111.
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