Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight23032012.pdf
EVEREST KANTO CYLINDER
PRICE: RS.33 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.41 FY13E P/E: 11.7X
q Iran sanctions continue to plague the company's Dubai operations.
q Outlook for US operations has improved but the company continues to
bleed in China. EKC is contemplating on disposing in part or full its Chinese operations.
q The company's FCCB is up for redemption in Oct 2012. The outgo on maturity would be of the order of USD 50 mn (Rs 2.5 bn). The company
plans to repay the FCCB through combination of ECB (around USD 30 mn)
and interal accruals (cash flow from operations of Rs 1.0 bn in FY13).
However, interest outgo would shoot up in FY13 as the FCCB would be
replaced by ECB.
q Valuations are undemanding at 3.6x FY13 cash earnings per share. But
due to near-term pressures on earnings and balance sheet, we prefer to
remain cautious. Maintain ACCUMULATE with a target price of Rs 41 (Rs
43 earlier).
Risks and Concerns
Low return ratios and high working capital.
Business Update
n The main concern for the company's business stems from the disruption in its
supplies to the highly profitable Iran geography. The company indicated that the
demand for gas cylinders is huge due to abundant gas availability. Iran has the
world's second largest gas reserves after Russia but is short in terms of refining
capacity. As a result, while it has surplus gas it is one of the largest of importer
of petrol (gasoline). We understand from the management that the demand for
cylinders is currently unmet by local manufacturers.
n EKC caters to the Iran market from its Dubai manufacturing facility. This is the
most profitable market for the company as it gets higher realization of ~ Rs
13000 per cylinder vs Rs 9000 per CNG cylinder in the Indian market. Consequently, during optimum capacity utilization, the company makes a EBITDA
margin of roughly 30-35% from its sales to Iran.
n However, due to the sanctions on doing business in Iran, the company is having
problems in maintaining payment security as banking channel is almost frozen.
Thus, the company's sales volumes to Iran has dwindled to 20000-22000 cylinder
per quarter compared to 60000 cylinders per quarter. The company has now indicated that the regime in Iran is open to settling part-payments in cash. The
balance could be settled through Rupee trade mechanism.
n In the domestic market, the company caters to the auto CNG (OEM and after
market) and industrial cylinder market. There has been softening of demand for
Auto CNG due to factors like delays in rollout of the CGD network in cities, increase in price of CNG in Ahmedabad and overall decline in auto demand. Price
increases by city gas distribution network (CGD) have also diminished competitiveness of CNG vs Diesel has diminished in the very important Gujarat market.
n Under the Petroleum Ministry's "Vision 2015 document for consumer satisfaction
and beyond", the CNG network will be expanded to 200 cities from the present
coverage in 35 cities. The PNGRB had called for EOI for rolling out CGD networks
in several cities but actual implementation has been dismal partly due to regulatory issues. Hence, despite the advantages of CNG, development of cylinder
market in India has been stymied (penetration substantially lower than even Pakistan).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight23032012.pdf
EVEREST KANTO CYLINDER
PRICE: RS.33 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.41 FY13E P/E: 11.7X
q Iran sanctions continue to plague the company's Dubai operations.
q Outlook for US operations has improved but the company continues to
bleed in China. EKC is contemplating on disposing in part or full its Chinese operations.
q The company's FCCB is up for redemption in Oct 2012. The outgo on maturity would be of the order of USD 50 mn (Rs 2.5 bn). The company
plans to repay the FCCB through combination of ECB (around USD 30 mn)
and interal accruals (cash flow from operations of Rs 1.0 bn in FY13).
However, interest outgo would shoot up in FY13 as the FCCB would be
replaced by ECB.
q Valuations are undemanding at 3.6x FY13 cash earnings per share. But
due to near-term pressures on earnings and balance sheet, we prefer to
remain cautious. Maintain ACCUMULATE with a target price of Rs 41 (Rs
43 earlier).
Risks and Concerns
Low return ratios and high working capital.
Business Update
n The main concern for the company's business stems from the disruption in its
supplies to the highly profitable Iran geography. The company indicated that the
demand for gas cylinders is huge due to abundant gas availability. Iran has the
world's second largest gas reserves after Russia but is short in terms of refining
capacity. As a result, while it has surplus gas it is one of the largest of importer
of petrol (gasoline). We understand from the management that the demand for
cylinders is currently unmet by local manufacturers.
n EKC caters to the Iran market from its Dubai manufacturing facility. This is the
most profitable market for the company as it gets higher realization of ~ Rs
13000 per cylinder vs Rs 9000 per CNG cylinder in the Indian market. Consequently, during optimum capacity utilization, the company makes a EBITDA
margin of roughly 30-35% from its sales to Iran.
n However, due to the sanctions on doing business in Iran, the company is having
problems in maintaining payment security as banking channel is almost frozen.
Thus, the company's sales volumes to Iran has dwindled to 20000-22000 cylinder
per quarter compared to 60000 cylinders per quarter. The company has now indicated that the regime in Iran is open to settling part-payments in cash. The
balance could be settled through Rupee trade mechanism.
n In the domestic market, the company caters to the auto CNG (OEM and after
market) and industrial cylinder market. There has been softening of demand for
Auto CNG due to factors like delays in rollout of the CGD network in cities, increase in price of CNG in Ahmedabad and overall decline in auto demand. Price
increases by city gas distribution network (CGD) have also diminished competitiveness of CNG vs Diesel has diminished in the very important Gujarat market.
n Under the Petroleum Ministry's "Vision 2015 document for consumer satisfaction
and beyond", the CNG network will be expanded to 200 cities from the present
coverage in 35 cities. The PNGRB had called for EOI for rolling out CGD networks
in several cities but actual implementation has been dismal partly due to regulatory issues. Hence, despite the advantages of CNG, development of cylinder
market in India has been stymied (penetration substantially lower than even Pakistan).
No comments:
Post a Comment