Globe:Everest Kanto Cylinder-Fuelling Growth

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About the Company

Everest Kanto is the largest    CNG and industrial cylinder manufacture in India. The company has market leadership position in domestic market and exports to over 20 countries all over the world including Iran and Pakistan which are the largest CNG vehicle market in the world. The company follows highest quality standards and enjoys long standing relationship across its broad customer base of companies around the globe.

Strong under currents for NGV vehicle growth

India has the 5th largest fleet of natural gas vehicles in the world but most importantly holds the highest NGV growth potential in the world with over 220 cities planned for CNG development, a nationwide distribution pipeline by 2012 India’s CNG pipeline will stretch 12,000 km, connect 15 states making it the number one NGV investment opportunity in the world today

Outlook & Valuation

Given the strong cost economics for CNG conversion supported by massive infrastructure build over the next 3 years, we expect Everest Kanto to reap the benefits of strong CNG demand backed by solid Balance Sheet (Debt/Equity-0.5) and strong operating cash flows (even in FY10 where PAT fell by 69%, its operational cash flow jumped by 50% to Rs. 192 cr.) attributable to its excellent working capital management which is crucial given huge current assets. It has constantly used its cash flow to deleverage its balance sheet and for up gradation of existing facility. At the CMP, The stock trades at P/E of 7.27x and 5.55x FY12E and FY13E respectively. We put a BUY rating on the stock with a target price of Rs. 132 (12X EPS FY12E) providing an upside of 65% from the current levels.