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EVEREST KANTO CYLINDERS LTD (EKC)
RECOMMENDATION: BUY
TARGET PRICE: RS.103
CONS. FY12E P/E: 11.8X
q EKC has reported good set of Q4FY11 results which are above our estimates
on strong revenue and excellent margins.
q US and China operations report reduction in losses.
q Volumes up 34% YoY to 2.72 lakh cylinders for Q4 FY11.
q Due to 21% upside potential from current levels we continue to recommend
BUY on EKC with unchanged DCF based price target of Rs.103.
q Concerns - The company has FCCB outstanding USD 35 mn convertible at
Rs 271 per share and redeemable at 142% of the principal amount.
n On a consolidated basis EKC sold 2.72 lakh cylinders in Q4FY11, which is up
34% YoY and up 25% on sequential basis. The volume growth was primarily on
account of pick up in demand across all major locations.
n The average realization per cylinder is down marginally on a YoY. On a sequential
basis, realizations were down 11% to Rs.8909 per cylinder primarily due to
decline in realization in Dubai subsidiary.
n On a consolidated basis, EKC reported revenues of Rs.2.4 bn in Q4FY11, up 33%
YoY and 22% on sequential basis. This was primarily due to higher output.
n Dubai operations have done well and revenues are up sharply 65% 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 strong and registered growth of 27%
yoy on account of robust demand for CNG cyclinders.
n EKC reported EBIDTA of Rs.525 mn in Q4FY11 vs loss of Rs 149 mn in Q4 FY10.
The margin expansion has been led by improved profitability at Indian and Dubai
locations combined with reduction in losses at China and US plants.
n The interest cost is down on YoY basis to Rs.14.2 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 Q4FY11 EKC reported PBT of Rs358 mn v/s PBT loss of Rs106 mn in Q4 FY10.
n For Q4FY11 the company reported PAT of Rs373 mn v/s Rs 286 mn in Q4 FY10.
n For FY11, the company has sold 8.8 lac cylinders vs our estimate of 7.7 lac cylinders.
For the current fiscal, the company expects to sell around 1.0 mn cylinders
aided by capacity additions at Kandla and Gandhidham.
Key points
n On the demand side, the company is yet to see visible improvement in demand
for CNG cylinders despite the firming up of retail petrol prices in recent months.
The demand is driven by industrial cylinders and Jumbo cylinders.
n The US operations have been bleeding due to lower throughput (1277 cylinders
in FY10 on installed capacity of 3000 cylinders) from the plant and high value inventory.
In recent months, the US subsidiary (CP Holdings) has shown improvement
in its order backlog aided by an order win of USD 25 mn. With higher
output, the company expects to improve the profitability of the US operations.
n The Aurangabad plant with a capacity of 110000 cylinders is being phased out.
The plant load would be transferred to the Gandhidham plant, which is modern
and has enough room for increasing output. The company is in the process of
completing the 200000 cylinders plant at Gandhidham based on billet piercing
technology.
n The company is in the final stages of completing the Kandla SEZ plant (based on
steel plated). This plant has a capacity of 300000 cylinders. The plant is expected
to get fully stabilized by the H2 of FY12 and ramp-up should happen in FY13.
The company targets to sell just over 100000 cylinders in FY12 from Kandla.
n Iran market is doing well and this augers well for the profitability as this market
enjoys premium realizations compared to other markets. The Dubai plant which
mainly serves the Iran market continues to be fully utilized.
n We project the company to have sold 773000 cylinders in FY11. For the current
fiscal, the company expects to sell around 1.0 mn cylinders aided by capacity additions
at Kandla and Gandhidham.
n The company does not have any serious plans on capital expenditure and expects
to spend around Rs 200-300 mn towards routine plant upgradation.
n The company has a borrowing of Rs 3.8 bn which is at an average cost of 3.3%
being Libor-linked ECB. So far as repayment schedule is concerned, the company
has to repay Rs.600 mn and Rs 2.5 bn in FY12 and FY13 respectively.
Valuation & Recommendation
n At the current price of Rs.85, EKC is trading at 1.1x book value, 11.8x earnings
and 6.1x cash earnings based on FY12E.
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 21% upside potential from the current levels we continue to recommend
BUY on EKC with unchamged DCF based price target of Rs.103.
n Promoters have been increasing stake through market purchases though the increase
in stake is not very significant.
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.103
CONS. FY12E P/E: 11.8X
q EKC has reported good set of Q4FY11 results which are above our estimates
on strong revenue and excellent margins.
q US and China operations report reduction in losses.
q Volumes up 34% YoY to 2.72 lakh cylinders for Q4 FY11.
q Due to 21% upside potential from current levels we continue to recommend
BUY on EKC with unchanged DCF based price target of Rs.103.
q Concerns - The company has FCCB outstanding USD 35 mn convertible at
Rs 271 per share and redeemable at 142% of the principal amount.
n On a consolidated basis EKC sold 2.72 lakh cylinders in Q4FY11, which is up
34% YoY and up 25% on sequential basis. The volume growth was primarily on
account of pick up in demand across all major locations.
n The average realization per cylinder is down marginally on a YoY. On a sequential
basis, realizations were down 11% to Rs.8909 per cylinder primarily due to
decline in realization in Dubai subsidiary.
n On a consolidated basis, EKC reported revenues of Rs.2.4 bn in Q4FY11, up 33%
YoY and 22% on sequential basis. This was primarily due to higher output.
n Dubai operations have done well and revenues are up sharply 65% 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 strong and registered growth of 27%
yoy on account of robust demand for CNG cyclinders.
n EKC reported EBIDTA of Rs.525 mn in Q4FY11 vs loss of Rs 149 mn in Q4 FY10.
The margin expansion has been led by improved profitability at Indian and Dubai
locations combined with reduction in losses at China and US plants.
n The interest cost is down on YoY basis to Rs.14.2 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 Q4FY11 EKC reported PBT of Rs358 mn v/s PBT loss of Rs106 mn in Q4 FY10.
n For Q4FY11 the company reported PAT of Rs373 mn v/s Rs 286 mn in Q4 FY10.
n For FY11, the company has sold 8.8 lac cylinders vs our estimate of 7.7 lac cylinders.
For the current fiscal, the company expects to sell around 1.0 mn cylinders
aided by capacity additions at Kandla and Gandhidham.
Key points
n On the demand side, the company is yet to see visible improvement in demand
for CNG cylinders despite the firming up of retail petrol prices in recent months.
The demand is driven by industrial cylinders and Jumbo cylinders.
n The US operations have been bleeding due to lower throughput (1277 cylinders
in FY10 on installed capacity of 3000 cylinders) from the plant and high value inventory.
In recent months, the US subsidiary (CP Holdings) has shown improvement
in its order backlog aided by an order win of USD 25 mn. With higher
output, the company expects to improve the profitability of the US operations.
n The Aurangabad plant with a capacity of 110000 cylinders is being phased out.
The plant load would be transferred to the Gandhidham plant, which is modern
and has enough room for increasing output. The company is in the process of
completing the 200000 cylinders plant at Gandhidham based on billet piercing
technology.
n The company is in the final stages of completing the Kandla SEZ plant (based on
steel plated). This plant has a capacity of 300000 cylinders. The plant is expected
to get fully stabilized by the H2 of FY12 and ramp-up should happen in FY13.
The company targets to sell just over 100000 cylinders in FY12 from Kandla.
n Iran market is doing well and this augers well for the profitability as this market
enjoys premium realizations compared to other markets. The Dubai plant which
mainly serves the Iran market continues to be fully utilized.
n We project the company to have sold 773000 cylinders in FY11. For the current
fiscal, the company expects to sell around 1.0 mn cylinders aided by capacity additions
at Kandla and Gandhidham.
n The company does not have any serious plans on capital expenditure and expects
to spend around Rs 200-300 mn towards routine plant upgradation.
n The company has a borrowing of Rs 3.8 bn which is at an average cost of 3.3%
being Libor-linked ECB. So far as repayment schedule is concerned, the company
has to repay Rs.600 mn and Rs 2.5 bn in FY12 and FY13 respectively.
Valuation & Recommendation
n At the current price of Rs.85, EKC is trading at 1.1x book value, 11.8x earnings
and 6.1x cash earnings based on FY12E.
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 21% upside potential from the current levels we continue to recommend
BUY on EKC with unchamged DCF based price target of Rs.103.
n Promoters have been increasing stake through market purchases though the increase
in stake is not very significant.
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