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Mr. Puneet Khurana - Director and Mr. Vipin Chandok - CFO of Everest Kanto
Cylinders shared their outlook on the industry and company
Key highlights
n EKC has a consolidated capacity of 1mn units, of which, Indian capacity accounts for
0.7mn units (expected to go up to 0.9mn units). No plans of capacity expansion in US
and China. Also, having second thoughts on planned capacity addition in Dubai of
0.1mn units.
n Kandla plant has an operational capacity of 0.1mn. Of this, ~ 25000 units is for plate
cylinder and rest for steel cylinder. Output from this plant is mainly used for exports
(Pakistan etc). Plate cylinder enjoys better margins. Earlier, plates were imported from
Italy. Going ahead, it plans to procure it from SAIL at a ~25% discount to current import
prices. It expects to break even at ~40% capacity utilization. Company is also planning
to expand the capacity by ~0.2mn units.
n China capacity of 0.2mn is mainly used for exports. Current utilization stands at ~30%
and is expected to go up to ~45%. Operations continue to remain a drag as domestic
demand failed to pick up as expected. EKC started exporting finished cylinders this
year as compared to semi finished cylinders last year.
n EKC also exports ~0.15mn cylinders to Iran (from its Dubai plant). Despite better
realizations and a potential market size of 1mn cylinders in Iran, EKC is restricting its
exposure to ~65% of exports due to the volatile nature of the market and strong
government incentives induced demand. US operations are expected to be cash positive
by end of this quarter. Dubai demand also continues to remain strong.
n In the domestic market, EKC supplies to all OEMs except Maruti. OEM sales accounts
for ~45% of overall sales as compared to ~60% earlier.
n Industrial cylinder capacity stands at 0.26 mn units. However, realizations at Rs 3,000
per cylinder are lowest amongst all categories.
n Capex target of USD 20-25mn for FY12. Total foreign debt is at USD 63 mn, of which,
USD 35 mn is in FCCB and USD 10mn in ECB. FCCB redemption is due by Oct'12 at
120% premium, amounting to USD 50mn. EKC remains adequately capitalized to
meet the debt repayments and working liquidity.
Valuation & View
EKC is expected to benefit from (1) strong CNG demand over the next 3-4 years in both
domestic and international markets and (2) planned capacity addition along with backward
integration resulting in cost savings. At CMP, the stock is trading at 11.3x FY11 earnings of
Rs 6.6. Faster turnaround in Chinese and US operations can act as a big positive trigger
for the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mr. Puneet Khurana - Director and Mr. Vipin Chandok - CFO of Everest Kanto
Cylinders shared their outlook on the industry and company
Key highlights
n EKC has a consolidated capacity of 1mn units, of which, Indian capacity accounts for
0.7mn units (expected to go up to 0.9mn units). No plans of capacity expansion in US
and China. Also, having second thoughts on planned capacity addition in Dubai of
0.1mn units.
n Kandla plant has an operational capacity of 0.1mn. Of this, ~ 25000 units is for plate
cylinder and rest for steel cylinder. Output from this plant is mainly used for exports
(Pakistan etc). Plate cylinder enjoys better margins. Earlier, plates were imported from
Italy. Going ahead, it plans to procure it from SAIL at a ~25% discount to current import
prices. It expects to break even at ~40% capacity utilization. Company is also planning
to expand the capacity by ~0.2mn units.
n China capacity of 0.2mn is mainly used for exports. Current utilization stands at ~30%
and is expected to go up to ~45%. Operations continue to remain a drag as domestic
demand failed to pick up as expected. EKC started exporting finished cylinders this
year as compared to semi finished cylinders last year.
n EKC also exports ~0.15mn cylinders to Iran (from its Dubai plant). Despite better
realizations and a potential market size of 1mn cylinders in Iran, EKC is restricting its
exposure to ~65% of exports due to the volatile nature of the market and strong
government incentives induced demand. US operations are expected to be cash positive
by end of this quarter. Dubai demand also continues to remain strong.
n In the domestic market, EKC supplies to all OEMs except Maruti. OEM sales accounts
for ~45% of overall sales as compared to ~60% earlier.
n Industrial cylinder capacity stands at 0.26 mn units. However, realizations at Rs 3,000
per cylinder are lowest amongst all categories.
n Capex target of USD 20-25mn for FY12. Total foreign debt is at USD 63 mn, of which,
USD 35 mn is in FCCB and USD 10mn in ECB. FCCB redemption is due by Oct'12 at
120% premium, amounting to USD 50mn. EKC remains adequately capitalized to
meet the debt repayments and working liquidity.
Valuation & View
EKC is expected to benefit from (1) strong CNG demand over the next 3-4 years in both
domestic and international markets and (2) planned capacity addition along with backward
integration resulting in cost savings. At CMP, the stock is trading at 11.3x FY11 earnings of
Rs 6.6. Faster turnaround in Chinese and US operations can act as a big positive trigger
for the stock.
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