Everest Kanto Cylinder Ltd

Everest Kanto Cylinder Ltd
Detailed Report
Enhancing investment decisions
© CRISIL Limited. All Rights Reserved
Explanation of CRISIL Fundamental and Valuation (CFV) matrix
The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process –
Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade
is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade
is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong
downside from the CMP).
CRISIL
Fundamental Grade
Assessment
CRISIL
Valuation Grade
Assessment
5/5
Excellent fundamentals
5/5
Strong upside (>25% from CMP)
4/5
Superior fundamentals
4/5
Upside (10-25% from CMP)
3/5
Good fundamentals
3/5
Align (+-10% from CMP)
2/5
Moderate fundamentals
2/5
Downside (- 10-25% from CMP)
1/5
Poor fundamentals
1/5
Strong downside (<-25% from CMP)
Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that
can bias the grading recommendation of the company.
Disclaimer:
This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL
(Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for
any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without any
prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes
investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold
any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this
Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be reproduced
or redistributed or communicated directly or indirectly in any form to any other person – especially outside India or published or
copied in whole or in part, for any purpose.
© CRISIL Limited. All Rights Reserved.
Polaris Software Limited
Business
Everest
momentum
Kanto
remains
Cylinder
intact
Ltd
Capacity expansion to drive growth
April 29, 2011
(Good
fundamentals)
4/5 3/5
(Strong
fundamentals)
(CMP
is aligned)
5/5 3/5
(CMP
has strong
upside)
Industry
Containers
& Packaging
Information
technology
Fair Value Rs 93
CMP
Rs 85
CFV MATRIX
Excellent
Fundamentals
4
3
2
1
1
Poor
Fundamentals
2
3
4
5
Valuation Grade
Strong
Downside
Capacity expansion and backward integration to support future plans
Everest Kanto plans to increase its capacity by 0.5 mn cylinders to 1.52 mn
cylinders per annum in FY12 to meet the robust demand for high pressure
cylinders and use better technology to backward integrate its production
leading to better margins. For the new additional Gandhidham capacity, it will
use the billet-piercing technology since this is cheaper than the use of
seamless tubes. Further, the Kandla-based plant will use the deep-drawing
technology to make lighter cylinders.
5
Fundamental Grade
Everest Kanto Cylinder Ltd (Everest Kanto) manufactures high-pressure
seamless CNG and industrial cylinders for both domestic and global customers.
The company has an established track record and enjoys leadership position in
the domestic market. But with increasing competition leading to permanent
margin contraction at the industry level and continued underperformance by
Everest Kanto’s US and Chinese operations, we revise our fundamental grade
to ‘3/5’ (from ‘4/5’), which indicates that the company’s fundamentals are
‘good’ relative to other listed securities in India.
Strong
Upside
Fundamental Grade
Valuation Grade
KEY STOCK STATISTICS
Increase in competition to affect pricing power and margins
Although Everest Kanto is the market leader in India with ~60% share, many
players have put up high pressure cylinder manufacturing capacities in India
and China. Thus, despite the robust growth in domestic and global demand, we
expect an overcapacity scenario to persist over the next two years. Besides,
the increasing competition in the CNG cylinder manufacturing business has
resulted in an overall margin contraction at the industry level.
NIFTY/SENSEX
5751/19132
NSE/BSE ticker
EKC
High dependence on a single raw material supplier
Everest Kanto purchases ~40% of its seamless tubes (its key raw material)
from Tenaris. Such high dependence and Everest Kanto’s strategy to hold high
inventory took a huge toll on its margins in H2FY10 and Q1FY11. Although
Everest Kanto is increasingly procuring seamless steel tubes from producers in
China and Japan, we believe that Tenaris will remain the largest supplier.
Beta
Expect three-year revenue CAGR of 19%
We expect revenues to register a three-year CAGR of 19% to Rs 11.0 bn in
FY13 largely driven by a ~18% growth (CAGR) in production and sales during
the same period. EBITDA margin is expected to increase by ~12 pps to ~22%
in FY13 on account of stable operations and increasing contribution to sales
from Everest Kanto’s expanded capacities.
Valuation: Current market price is aligned
CRISIL Equities has used the discounted cash flow method to value Everest
Kanto and arrived at a fair value of Rs 93 per share. This fair value implies P/E
multiples of 10.7x FY12E and 7.7x FY13E earnings.
Face Value (Rs per share)
(Rs mn)
Operating income
EBITDA
Adj PAT
Adj EPS-Rs
EPS growth (%)
Dividend yield
RoCE (%)
RoE (%)
PE (x)
P/BV (x)
EV/EBITDA (x)
FY09
8,585
2,748
1,442
14.3
31.4
1.2
20.9
26.2
8.4
2.0
6.5
FY10
6,564
658
129
1.3
(91.0)
1.2
0.8
2.1
95.0
2.0
25.3
FY11E
7,424
1,358
625
5.8
356.9
1.5
6.4
9.1
14.6
1.2
9.2
FY12E
9,069
1,921
934
8.7
49.5
1.8
10.2
11.9
9.8
1.1
6.2
FY13E
11,037
2,448
1,289
12.0
38.0
2.0
14.3
14.7
7.1
1.0
4.4
107.2
Market cap (Rs mn)/(US$ mn)
9,124/206
Enterprise value (Rs mn)/(US$ mn) 13,541/305
52-week range (Rs) (H/L)
146/63
0.9
Free float (%)
43.0%
Avg daily volumes (30-days)
351,742
Avg daily value (30-days) (Rs mn)
28.9
SHAREHOLDING PATTERN
100%
90%
18.3%
80%
2.3%
70%
19.5%
9.4%
22.5%
23.1%
9.5%
9.3%
14.4%
11.2%
10.6%
59.8%
56.6%
56.8%
57.0%
Mar-10
Jun-10
19.6%
60%
50%
40%
30%
20%
10%
0%
Promoter
KEY FORECAST
10
Shares outstanding (mn)
FII
Sep-10
Dec-10
DII
Others
PERFORMANCE VIS-À-VIS MARKET
Returns
EKCL
1-m
3-m
6-m
12-m
19%
-4%
-32%
-27%
9%
2%
-2%
12%
NIFTY
ANALYTICAL CONTACT
Sudhir Nair (Head)
[email protected]
Suhel Kapur
[email protected]
Client servicing desk
+91 22 3342 3561
[email protected]
CMP: Current Market Price
Source: Company, CRISIL Equities estimate
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 1
Everest Kanto Cylinder Ltd
Grading Rationale
Established market position in high-pressure
seamless cylinder segment
Everest Kanto is the largest CNG and industrial cylinder manufacturer in India.
The company enjoys market leadership in the domestic market with an
estimated ~60% market share and favourable position in international markets
Everest Kanto is the
mainly on account of its long history in business and adherence to the highest
largest CNG and
quality standards. The company exports its cylinders to over 20 countries all
over the world including Iran, Pakistan, Bangladesh, Thailand, Malaysia, Egypt
industrial cylinder
manufacturer in India
and the Commonwealth of Independent States (CIS) countries. The company’s
major exporting destinations include Iran and Pakistan, the largest CNG markets
globally, together accounting for 35% market share in CNG vehicles running
globally.
Increasing consumption of industrial gases to drive
demand for industrial cylinders
The gas industry relies heavily on cylinders to store and transport gases. Everest
Kanto adheres to the most stringent regulations – both at national and
international levels - while manufacturing high-pressure gas cylinders for various
gases such as oxygen, hydrogen, nitrogen, argon, helium, air, etc. The company
provides cylinders with water capacities that range between 1 litre and 280 litres
and also supplies cylinders in customised sizes. Because Everest Kanto is flexible
to meet any specification, it has a broad customer base of companies supplying
industrial gases across the globe.
The demand for cylinders is directly proportional to the demand for industrial
gases. During FY05 to FY10, demand for industrial gases grew at a CAGR of
~11%. CRISIL Research holds a favourable outlook for demand for industrial
Everest Kanto has a
gases over the next five years with an expected recovery in end user sectors like
broad customer base of
steel (main consumer which accounts for over 50% of total demand) and
manufacturing. Growth in new segments such as medical care, food packaging,
and dairy products will also push demand for industrial gases. This is expected
companies supplying
industrial gases across
the globe
to augur well for Everest Kanto, which is all set to increase its manufacturing
capacity of industrial cylinders.
Capacity expansion to drive growth
Global expansion
Everest Kanto entered the global market by setting up plants in Dubai and
China. The Dubai plant commenced production in FY04. The company doubled
its capacity at the Dubai plant in FY08 to 196,000 cylinders per annum. The
Dubai unit, being in a free trade zone, enjoys a tax holiday and is exempted
from duty. Due to these advantages, the Dubai plant enjoys cost savings of
around 5-7%. The company had added a capacity of 200,000 cylinders in China
in FY09. In China, Everest Kanto sources raw material from local suppliers for its
industrial cylinders, which would be 5-10% cheaper than that in India. Also,
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 2
Everest Kanto Cylinder Ltd
Everest Kanto would have some tax incentives (including full exemption from
the State Enterprise Income Tax (‘EIT’) for a period of two years from its initial
profit making fiscal year and a 50% exemption of EIT for three years following
the initial two-year full exemption period).
Driven by robust demand in Iran and other middle-eastern countries, Everest
Kanto’s Dubai plant is currently operating at over 100% capacity utilisation
levels. However, the company’s plant in China is currently operating at a meagre
~30% capacity utilisation level considering a nameplate capacity of 200,000
cylinders per annum. The management has said that they are in the process of
installing some balancing equipment at the Chinese plant which would then
enable them to increase production. We believe that higher production from
Everest Kanto’s China plant will enable the company to efficiently service its
customers in Iran and other middle-eastern countries especially when the Dubai
plant is operating at optimum utilisation rates.
Everest Kanto plans to
Domestic expansion
expand its capacity by
In Gandhidham, Gujarat, Everest Kanto is expanding its industrial cylinder
0.5 mn cylinders in FY12
capacity by another 200,000 cylinders to 545,000 cylinders per annum. This
plant, which is expected to get commissioned in the beginning of FY12, will use
the billet-piercing technology and focus on the growing industrial cylinder
demand.
Besides, the company is setting up a greenfield 300,000 CNG cylinders plant in
the Kandla Special Economic Zone (KASEZ) which is also expected to start
production in early FY12. This plant will use the steel-plate deep drawing
process to produce lighter cylinders and focus mainly on exports to countries
where there is growing demand for lighter cylinders. This capacity expansion
would enable the company to cater to the increasing demand for the highpressure seamless cylinders across the world.
Backward integration to provide better margins…
At the Gandhidham plant, Everest Kanto will use the billet-piercing process for
the new additional facility of 200,000 cylinders. The company had taken this
strategic decision as billets are ~40% cheaper than seamless tubes and can
easily be procured from India itself. This move would also de-risk its greater
Everest Kanto to
manufacture cylinders
from billets at its
Gandhidham (expansion)
dependence on raw material supplier, Tenaris, which accounts for ~40% of its
plant and from steel plates
seamless tube supply. Despite incurring processing cost for billets, the company
at its Kandla plant
will achieve higher margins.
In the Kandla SEZ plant, the company will manufacture cylinders using steelplate deep drawing process. This new technology will enable Everest Kanto to
achieve optimum thickness for the cylinders and thereby obtain cylinders 10%
lighter than seamless tube cylinders. This will, consequently, result in better
mileage for vehicles. As per the company, this technology will be the first of its
kind in India and it will be the second company globally to adopt this technology
(the other one is Faber Industries). The plant will primarily cater to European
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 3
Everest Kanto Cylinder Ltd
markets where users are more concerned about the vehicle’s weight. In
addition, these cylinders are expected to have better realisation than seamless
tube cylinders. Also, higher realisations would result in higher margins in
comparison to cylinders made of seamless tubes
…but vulnerability to project risks persists
As the expansion plans in Gandhidham and Kandla involve new manufacturing
processes, they face technology risks. Until now, Everest Kanto and other high-
Expansion plans in
pressure cylinder manufacturers in India have only manufactured cylinders from
Gandhidham and Kandla
face technology risks as
seamless tubes using the hot spinning manufacturing process. The deep drawing
they involve new
as well as the billet-piercing processes has not been widely adopted globally.
manufacturing processes
The company has already faced time overrun in commissioning its billet-piercing
plant at Gandhidham and the plant has not yet stabilised. The commissioning of
Everest Kanto’s Kandla plant has also been delayed by more than a year, due to
depressed economic conditions in the recent past.
Increasing competition in cylinder manufacturing
Increasing availability of gas, its cost competitiveness compared to alternate
fuels and the government’s increasing focus on developing gas infrastructure
have lead to an increase in natural gas vehicles (NGVs) in India and globally,
resulting in higher demand for CNG cylinders. As a result, many players have
put up high-pressure cylinder manufacturing capacity in India. Besides Everest
Kanto, the key Indian players in the high-pressure cylinder manufacturing are
Rama Cylinders, Nitin Cylinders, Lizer Cylinders and Confidence Petroleum.
Globally, there are many CNG cylinder manufacturers who have put up
capacities in China.
Everest Kanto is the largest domestic…
… and global high-pressure cylinder manufacturer
('000)
('000)
1,200
1,200
1,015
1,015
1,000
1,000
1,000
800
800
800
800
600
500
400
400
300
200
200
350
350
Inflex
600
Cilbras
600
200
180
Rama
Cylinders
Lizer
Cylinders
Confidence
Capacity
Source: Industry, CRISIL Equities
Capacity
ENK
Worthington
Nitin Fire
Prot.
Faber
Everest Kanto
BTIC, China
0
Everest
Kanto
0
Source: Industry, CRISIL Equities
Everest Kanto is the market leader in India and had a ~67% operating rate in
FY10 on its capacity of 1.0 mn cylinders per year. Nitin Cylinders, which has a
0.5 mn cylinders capacity, was estimated to have ~30% operating rate in FY10
while other key Indian players such as Rama cylinders and Lizer also operated at
lower than optimum capacity utilisation rates. Everest Kanto’s established
position in Indian and international markets coupled with its proven track record
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 4
Everest Kanto Cylinder Ltd
to deliver high quality cylinders have enabled it to attain a far impressive
capacity utilisation rate than its peers. However, the increasing competition in
the high-pressure cylinder manufacturing business has restricted Everest
Kanto’s pricing power resulting in a steep margin contraction compared to those
achieved in FY08 and FY09.
Besides, Confidence Petroleum has commissioned a 0.18 mn cylinder capacity in
FY11 and Everest Kanto is further adding 0.5 mn cylinder capacity in FY12.
Thus, despite the robust growth in domestic and global demand for CNG and
industrial cylinders, we expect an overcapacity scenario to persist over the next
Increasing competition
has restricted Everest
Kanto’s pricing power
two years. This is expected to put pressure on Everest Kanto’s overall capacity
resulting in a steep margin
utilisation rate.
contraction
EBITDA margins have contracted from earlier levels
(Rs mn)
3,000
2,500
31%
32%
35%
27%
30%
25%
2,000
18%
1,500
2,748
15%
10%
1,000
10%
1,630
500
20%
1,160
658
958
5%
0%
0
FY07
FY08
FY09
EBITDA
FY10
9MFY11
EBITDA margin (RHS)
Source: Company, CRISIL Equities
US and China expansion yet to be value accretive
In April 2008, Everest Kanto acquired the US-based CP Industries (CPI, the
global market leader in jumbo cylinders) for ~US$ 70 mn, thereby obtaining
access to jumbo cylinder technology and fill up the only gap in its product
offerings. The acquisition was to enable the company to foray into the high
margin jumbo cylinder business and take advantage of CPI’s strong brand value
Everest’s Kanto’s US and
and established presence in more than 22 countries. The strategy was to cater
China operations are
to the global demand for specialty and CNG gas storage systems in the US and
incurring losses at the
the rest of the world. However, post acquisition of CP industries, global
PBIT level and continue to
economies, especially the US, were hit by the worst economic slowdown ever.
Capacity utilisation rates of CP’s US plant fell further - from its levels of ~50% in
be a drag on its overall
profitability
FY09 to ~30% in FY10, a sharp contrast to an expected increase in capacity
utilisation rates. Owing to a slow recovery in the US economy, Everest’s Kanto’s
US operations are incurring losses at the PBIT level and continue to be a drag on
the company’s overall profitability.
In China, Everest Kanto commissioned a 200,000-cylinder plant in FY09.
However, owing to the initial regulatory delay and increasing competition from
local Chinese manufacturers, the plant has operated at capacity utilisation rates
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 5
Everest Kanto Cylinder Ltd
of ~30% and ~20% in FY09 and FY10, respectively. Consequently, the
company’s Chinese operations are also incurring losses at the PBIT level and
continue to be a drag on the company’s overall profitability.
US operations continue to make losses at the PBIT
Chinese operations continue to make losses since
level
the plant was commissioned
(Rs mn)
(Rs mn)
1,750
400
1,500
300
1,250
200
1,000
750
1,503
100
1,384
500
339
299
168
0
-157
-244
-250
FY09
-117
-100
166
0
-57
-74
536
250
FY10
Revenue
-200
FY09
9MFY11
FY10
Revenue
EBIT
Source: Company, CRISIL Equities
9MFY11
EBIT
Source: Company, CRISIL Equities
Highly dependent on one supplier for key raw
material
Everest Kanto purchases ~40% of its seamless steel tubes (its key raw material)
from Tenaris. The company has historically depended on a single source to
almost meet its entire tube requirements as there are only a few seamless
stainless
tube
manufacturers
globally,
which
meet
stringent
quality
specifications. Also, although the company has a long-standing relationship with
Everest Kanto’s high
Tenaris, it has no long-term contracts with it to ensure steady supply. As a
dependence on Tenaris
result, Everest Kanto has to maintain a high level of inventory. Besides, the
and its strategy to hold
company has limited flexibility to negotiate on the prices of raw materials.
high inventory took a huge
Everest Kanto’s high dependence on Tenaris and the company’s strategy to hold
toll on the company’s
high inventory took a huge toll on company’s margins in H2FY10 when steel
prices cooled down and Everest Kanto was holding huge quantities of high cost
margins in H2FY10 and
Q1FY11
inventory. Writing down of high cost inventory in H2FY10 and Q1FY11 took a
huge toll on Everest Kanto’s EBITDA margins.
The company has begun taking several measures to mitigate risks relating to
supplier concentration. It is increasingly procuring seamless steel tubes from
producers in China and Japan. Further, with the commencement of the billet
piercing and deep drawing manufacturing processes, the company’s dependence
on the Tenaris is expected to reduce further. Steel requirements for these
processes are expected to be met through local suppliers.
However, we believe that Tenaris will remain one of the largest suppliers of steel
tubes to Everest Kanto, because of the high quality of its products. As a result,
the company will remain exposed to risks related to supplier concentration over
the medium term.
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 6
Everest Kanto Cylinder Ltd
City gas distribution to boost CNG cylinder sales in
India
Demand for CNG vehicles in India is growing because of the rising cost of
conventional fuels and development of city gas distribution (CGD) facilities in
cities. Although the initial regulatory push led to the increased usage of CNG, it
was ultimately the cost benefit to consumers, which led the growth. Usage of
CNG is beneficial to consumers due to its inherent cost advantage vis-à-vis other
auto fuels. Energy content per kilogramme of CNG is similar to that of
petroleum-based fuels. Usage of CNG in vehicles results in higher mileage per
unit due to its superior compression characteristics. The cost of CNG is also very
competitive to that of petrol and diesel. The initial cost of conversion of a diesel
or petrol vehicle to CNG depends on the vehicle type. Recovery of this
conversion cost varies from about 6 months for auto rickshaws to 2 - 2.5 years
for buses, which is very less considering the life of vehicles.
CNG offers attractive payback period for vehicles
Number of CNG vehicles expected to increase to
running on petrol and diesel
~4.7 mn in April 2016 from ~1 mn in April 2010
4,500
57.4
km/ltr
3 - Wheeler
25
20
18
4 - Wheeler
18
16
14
4
4
-
3-Wheeler 4-Wheeler
Bus
1,500
120
1,000
Running days
Conversion cost
350
20,000
80
500
35,000 300,000
0
Payback (months) - Petrol
5
6
n.a
Payback (months) - Diesel
12
17
32
Source: Industry, CRISIL Equities
1,802
2,000
350
350
2,327
2,500
1,386
250
361
492
721
1,028
FY14E
70
2,958
3,000
FY13E
Avg running per day (kms)
3,500
FY12E
Buses
3,736
4,000
FY16E
42.1
km/ltr
FY15E
31.5
km/kg
Mileage
4,697
5,000
FY11E
Rs/ltr
FY10
Rs/ltr
FY09
Rs/kg
('000 nos)
FY08
Petrol
FY07
Dec-10, Mumbai
Diesel
FY06
Fuel cost per unit
CNG
Source: Industry, CRISIL Equities
CRISIL Research expects the number of cities covered under CGD to increase
from an estimated 48 in FY10 to over 100 by FY15. Consequently, the number of
vehicles running on CNG is expected to increase manifold because of regulatory
push and cost savings from using CNG. The expected growth in demand for
compressed natural gas (CNG) cylinders, over the medium term, will benefit
Everest Kanto.
Growing global demand for NGVs to boost exports
Global demand for the NGVs has been increasing rapidly due to:
•
Availability of gas in many countries such as Pakistan, Iran and Argentina.
•
Rise in demand from developing economies of Asia, Africa, South America
and CIS
•
Rising crude prices, which make CNG even more cost effective
•
The increasing focus on environment - CNG vehicles are preferred as they
are less polluting than vehicles using conventional fuels.
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 7
Everest Kanto Cylinder Ltd
According to the International Association for Natural Gas Vehicles (IANGV), the
number of CNG vehicles globally has increased at a CAGR of 24% during 200409 to 11.5 mn. Global oil consumption has grown at a CAGR of only ~0.5% to
84 mn barrel per day (mbpd) during the same period.
Growth in NGV
('000 No.)
35%
12,000
30%
10,000
30%
28%
25%
25%
8,000
18%
20%
6,000
15%
18%
4,000
10%
2,000
5%
4,626
5,799
7,412
9,612
11,356
2005
2006
2007
2008
2009
0
0%
NGV Population
Growth (y-o-y) (RHS)
Source: Industry, CRISIL Equities
Besides cost savings, CNG consumption is expected to grow mainly due to
concerns about rising green house gas emissions. Conventional fuels like petrol
and diesel emit higher levels of green house gas than CNG (see table below).
Emission by fuel type
Emissions (gm/100 km)
CO2
UHC
CO
NOx
SOx
Petrol
22,000
85
Diesel
21,000
21
LPG
18,200
18
CNG
16,275
5.6
PM
634
78
8.3
1.1
106
108
21
12.5
168
37
0.38
0.29
22.2
25.8
0.15
0.29
Note: CO2 – Carbon dioxide, UHC- Unburned Hydrocarbon, CO- Carbon
Monoxide, NOx- Nitrogen oxides, SOx-Sulphur oxides, PM- Particulate matter
Source: US Energy Department, Mahanagar Gas Ltd
To address the issue of global warming, many countries are taking an initiative
to promote the increased use of CNG instead of conventional fuels. Iran, which
is currently the fourth largest in the world with respect to number of natural gas
vehicles, plans to convert the majority of its cars to CNG. Besides, governments
of countries such as China and Thailand have also initiated plans to increase the
use of the cleaner fuel. Iran, China, India, Egypt, Pakistan, etc. are expected to
witness an increase in the number of natural gas vehicles, given the thrust on
usage of CNG.
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CRISIL EQUITIES | 8
Everest Kanto Cylinder Ltd
CNG vehicles trend - Top 15 countries
Market
Share- Refueling
Rank
1
Country
Pakistan
2003
2004
2005
450,000
550,000
700,000
22%
27%
43%
55%
29%
15%
1,015,960
1,288,462
1,446,183
1,459,236
1,650,000
1,745,677
1,807,186
27%
12%
1%
13%
6%
4%
1,000
1,000
48,029
229,607
315,000
1,000,000
1,665,602
0%
4703%
378%
37%
217%
67%
557,268
850,000
1,052,295
1,324,905
1,511,945
1,588,331
1,632,101
53%
24%
26%
14%
5%
3%
137,000
204,000
222,400
334,658
439,800
650,000
935,000
49%
9%
50%
31%
48%
44%
434,000
434,000
382,000
410,000
432,900
580,000
628,624
0%
-12%
7%
6%
34%
8%
69,300
69,300
97,200
127,100
270,000
400,000
450,000
0%
40%
31%
112%
48%
13%
19,400
37,487
72,136
100,000
204,470
280,340
300,000
93%
92%
39%
104%
37%
7%
42,000
55,000
67,000
120,000
120,000
120,000
200,000
31%
22%
79%
0%
0%
67%
18,030
31,650
41,314
54,715
80,000
150,253
177,555
76%
31%
32%
46%
88%
18%
1,388
4,260
9,000
11,200
55,868
127,735
162,023
207%
111%
24%
399%
129%
27%
10,000
15,486
25,000
57,900
75,000
99,657
121,908
55%
61%
132%
30%
33%
22%
49,668
57,026
63,970
75,796
84,746
101,078
119,679
15%
12%
18%
12%
19%
18%
117,046
121,249
120,447
118,929
117,172
110,000
110,000
4%
-1%
-1%
-1%
-6%
0%
-
12,000
38,100
47,688
81,394
101,352
101,352
218%
25%
71%
25%
0%
% growth y-o-y
2
Argentina
% growth y-o-y
3
Iran
% growth y-o-y
4
Brazil
% growth y-o-y
5
India
% growth y-o-y
6
Italy
% growth y-o-y
7
China
% growth y-o-y
8
Colombia
% growth y-o-y
9
Ukraine
% growth y-o-y
10
Bangladesh
% growth y-o-y
11
Thailand
% growth y-o-y
12
Bolivia
% growth y-o-y
13
Egypt
% growth y-o-y
14
USA
% growth y-o-y
15
Armenia
% growth y-o-y
2006
1,000,000
2007
1,550,000
2008
2,000,000
2009
2009
2,300,000
Stations
20.3%
3,068
15.9%
1,851
14.7%
1,021
14.4%
1,704
8.2%
560
5.5%
730
4.0%
870
2.6%
460
1.8%
285
1.6%
500
1.4%
391
1.1%
128
1.1%
119
1.0%
1,300
0.9%
214
Source: IANGV, CRISIL Equities
According to the International Association for Natural Gas Vehicles, the
population of NGVs is expected to cross 50 mn by 2020. This implies a CAGR of
~15% from 2009-2020. Such robust growth in the number of NGVs is expected
to augur well for Everest Kanto.
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 9
Everest Kanto Cylinder Ltd
Key risks
Project execution
As discussed earlier, expansion plans for the Gandhidham and Kandla facilities
involve new manufacturing processes and therefore face technology risks. The
commissioning of both these plants have been delayed by almost one and a half
year because of the economic slowdown and also because of the challenges
which the company is facing in stabilising production from these plants. The
company now targets to commission both these plants in Q1FY12. Any further
Everest Kanto’s expansion
delay in commissioning would adversely affect the company’s revenues and
plans have already
profits.
experienced delays and
further delay would
Revenue concentration
adversely impact the
In FY09 of the ~691,000 high-pressure cylinders sold by Everest Kanto, ~50%
were exported. Of the total exports, ~73% were to Iran, where cylinders were
company’s expected
performance
sold at higher realisations. In FY10, the sale of cylinders came down marginally
to ~687,000 but the proportion of exports reduced to ~45% due to global
slowdown. Also, due to bankruptcy of one of the major OEMs in Iran, Everest
Kanto’s exports to Iran as a proportion of total exports reduced to ~1% from
73% in FY09. The supply meant for Iran’s market had to be diverted to Pakistan,
Bangladesh and other Eastern countries where the company earned very low
realisations. Lower realisations coupled with high raw material costs resulted in
a sharp margin contraction for Everest Kanto in FY10. In FY11, exports to Iran
have again picked up which are expected to result in better realisations and
profits for Everest Kanto.
Export break-up in FY09
Export break-up in FY10
Pakistan, 16
%
Pakistan,
16%
Pakistan, 14%
Bangladesh,
13%
Colombia, 5%
Iran, 1%
U.A.E., 2%
Others , 4%
Others, 6%
Iran, 73%
Thailand, 45%
Source: Company, CRISIL Equities
© CRISIL Limited. All Rights Reserved.
Source: Company, CRISIL Equities
CRISIL EQUITIES | 10
Everest Kanto Cylinder Ltd
Financial Outlook
Revenues to grow at three-year CAGR of ~19%
Everest Kanto’s revenues are expected to increase at a three-year CAGR of 19%
to Rs 11.0 bn by FY13, driven by an increase in production and sales on the
back of expanded capacities.
Increase in capacity to drive production and sales
Revenues expected to
('000 cyl)
85%
1,600
75%
1,400
65%
production from new
60%
capacities
50%
40%
1,132
1,515
938
1,515
831
1,015
684
1,015
1,010
641
756
460
706
600
756
800
200
FY13 driven by increased
70%
62%
1,000
400
of 19% to Rs 11.0 bn in
80%
75%
67%
1,200
grow at a three-year CAGR
90%
82%
30%
20%
10%
-
0%
FY07
FY08
Capacity
FY09
FY10
FY11E
Production
FY12E
FY13E
Capacity utilisation (RHS)
Source: Company, CRISIL Equities
PAT to grow at a three-year CAGR of ~115%, EPS to
increase from Rs 1.3 in FY10 to Rs 12.0 in FY13
Everest Kanto’s PAT (adjusted) is expected to grow from Rs 129 mn in FY10 to
Rs 1,284 mn in FY13, primarily driven by an improvement in profitability from
FY10 levels and also because of an increase in revenues on the back of higher
sales.
Profitability plunged in FY10 mainly because the company had to write-down
high cost inventory and also because of lower average realisations due to lower
sales to Iran where cylinders command higher realisations.
Raw material costs as a % of sales spiked in FY10
70%
67%
Absence of sales to Iran leads to fall in realisations
(Rs/cyl )
13,000
51%
60%
50%
12,000
65%
40%
11,000
30%
60%
10,000
55%
54%
9,000
20%
2%
12,387
9,453
0%
8,000
50%
50%
7,000
-24%
8,179
6,000
45%
FY08
FY09
Raw amaterial costs as % of sales
Source: Company, CRISIL Equities
© CRISIL Limited. All Rights Reserved.
FY10
10%
-10%
-20%
-30%
FY08
FY09
Average sales realisation
FY10
% change (RHS)
Source: Company, CRISIL Equities
CRISIL EQUITIES | 11
Everest Kanto Cylinder Ltd
Margins plummeted in FY10 because of higher raw
Fall in EBITDA margins adversely affected PAT and
material costs and lower realisations
EPS in FY10
(Rs mn)
(Rs mn)
3,000
2,500
31%
32%
35%
27%
30%
18%
1,500
2,748
14
1,250
10.8
1,000
658
958
0
FY08
7.4
750
8
1,442
4.3
1,097
500
FY09
EBITDA
FY10
5%
250
0%
0
9MFY11
1.3
EBITDA margin (RHS)
FY08
FY09
Adj PAT
Source: Company, CRISIL Equities
462
129
FY07
6
4
718
1,160
FY07
10
20%
10%
1,630
12
1,000
15%
10%
16
14.3
25%
2,000
500
(Rs/share)
1,500
FY10
2
0
9MFY11
Adj EPS (RHS)
Source: Company, CRISIL Equities
FY10 was an aberration when Everest Kanto was hit by writing down of high-
Strong bottom-line
cost inventory and a fall in average realisations. Consequently, we expect
growth led by increased
margins to rebound in FY11 from FY10 levels. Margins are expected to expand
profitability from FY10
further in FY12 as the company had some effect of high cost inventory write-
levels
down in Q1FY11 which is not expected in FY12. Also, Everest Kanto is expected
to have some margin expansion as production commences from its expanded
capacities in Gandhidham and Kandla as cylinders from these plants would have
higher margins compared to cylinders manufactured from seamless tubes.
However, due to increase in competition, we do not believe that Everest Kanto
would be able to get back to its EBITDA margins of ~30% witnessed in FY08 and
FY09.
Margins to expand as business resumes normalcy
3,000
32%
35%
30%
2,500
21%
2,000
1,500
Higher EBITDA to supplement PAT and EPS
(Rs mn)
(Rs mn)
22%
(Rs/share)
14.3
14
1,250
12.0
12
25%
8.7
10%
2,448
1,921
15%
10%
750
1,442
5%
658
0
0%
FY10
FY11E
EBITDA
FY12E
FY13E
EBITDA margin (RHS)
Source: Company, CRISIL Equities
© CRISIL Limited. All Rights Reserved.
8
5.8
500
1,289
934
1,358
FY09
10
20%
1,000
500
16
1,000
18%
2,748
1,500
1.3
250
6
4
625
2
129
0
FY09
FY10
0
FY11E
Adj PAT
FY12E
FY13E
Adj EPS (RHS)
Source: Company, CRISIL Equities
CRISIL EQUITIES | 12
Everest Kanto Cylinder Ltd
Return expected to be subdued compared to FY09
(Times)
(%)
30
Gearing to reduce in the absence of capex
1.2
26.2
1.0
25
1.0
20
0.8
0.8
20.9
14.7
15
9.1
10
0.5
0.6
11.9
14.3
0.4
0.3
0.4
10.2
5
2.1
0.2
6.4
0.8
0
FY09
0.0
FY10
FY11E
RoCE
Source: Company, CRISIL Equities
© CRISIL Limited. All Rights Reserved.
FY12E
ROE
FY13E
FY09
FY10
FY11E
FY12E
FY13E
Gearing
Source: Company, CRISIL Equities
CRISIL EQUITIES | 13
Everest Kanto Cylinder Ltd
Management Overview
CRISIL Equities’ fundamental grading methodology includes a broad assessment
of management quality apart from other key factors such as industry, business
prospects and financial performance. Overall, we believe the management of
Everest Kanto is relatively good.
Strong management with good experience
Everest Kanto has a strong and experienced management headed by Mr PK
Khurana, who has over 30 years of experience in the cylinder manufacturing
business.
Although the Indian government’s thrust on CNG over the past six to seven
years has aided the company significantly, Mr Khurana can be credited with
spotting both organic and inorganic growth opportunities in the domestic and
global markets, resulting in Everest Kanto’s leadership position in both the
markets.
Strong second level
Everest Kanto’s
management has rich
experience in the high
pressure cylinder
manufacturing business
The second line of management, headed by Mr Pushkar Khurana and Mr Puneet
Khurana, is strong. Both of them have been in the business for about 12-15
years. While Mr Pushkar is involved in the Dubai operations, Mr Puneet is
responsible for setting up China operations and marketing in India and South
East Asia.
Acquisition yet to become value accretive
Everest Kanto acquired US-based CP Industries (CPI), the global market leader
in jumbo cylinders, in April 2008, for ~US$ 70 mn, thereby obtaining access to
jumbo cylinder technology and fill up the only gap in its product offerings.
However, owing to the global slowdown post acquisition of CP industries and the
slow recovery in the US economy, Everest Kanto’s US operations are incurring
losses at the PBIT level. Also, Everest Kanto’s decision to set up a plant in China
to benefit from lower raw materials cost and cater to the growing cylinder
demand in China has not yielded the desired results due to increased
competition from local players. The company’s Chinese operations are also
making loses at the PBIT level.
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 14
Everest Kanto Cylinder Ltd
Corporate Governance
CRISIL’s fundamental grading methodology includes a broad assessment of
corporate governance and management quality, apart from other key factors
such as industry and business prospects, and financial performance. In this
context, CRISIL Equities analyses shareholding structure, board composition,
typical board processes, disclosure standards and related-party transactions.
Any qualifications by regulators or auditors also serve as useful inputs while
assessing a company’s corporate governance.
Overall, corporate governance at Everest Kanto presents fairly good practices,
supported by a strong and independent board and board processes which
broadly conform to minimum standards.
Board composition
Everest Kanto’s
practices conforms to
adequate corporate
governance standards
Everest Kanto’s board consists of 12 members, one of whom is an alternate
director. The board is chaired by Mr PK Khurana, who is also the managing
director of the company. Of the 11 active directors, six are independent
directors, which is well above the minimum stipulated in the Securities and
Exchange Board of India (SEBI) listing guidelines. The Board includes several
professionals of repute, experience and sector knowledge.
Board’s processes
Our discussion with the independent directors indicates that the board’s
processes appear to be well structured. Most of the independent directors have
been associated with the company before the IPO in 2005 and therefore have a
significant understanding of the business.
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 15
Everest Kanto Cylinder Ltd
Valuation
Grade: 3/5
We have used the discounted cash flow (DCF) method to value Everest Kanto
and arrived at a fair value of Rs 93 per share. At the current market price of Rs
85 per share, the stock trades at P/E multiples of 9.8x and 7.1x its estimated
FY12 and FY13 EPS of Rs 8.7 and Rs 12.0, respectively. Our fair value of Rs 93
per share gives implied P/Es of 10.7x and 7.7x based on FY12 and FY13
earnings, respectively. We, therefore, assign a valuation grade of 3/5, indicating
that the market price is aligned.
Key DCF assumptions
•
We have made explicit forecasts from FY12 to FY21.
•
We have assumed cost of equity of 17%
We assign a fair value of
•
We have taken terminal growth rate of 3% beyond the explicit forecast
Rs 93 per share to
period.
Everest Kanto and assign
a valuation grade of 3/5
Sensitivity analysis to terminal WACC and terminal growth rate
Terminal growth rate
1.0%
Terminal WACC
2.0%
3.0%
4.0%
5.0%
11.4%
99
105
112
121
133
12.4%
91
96
101
108
116
13.4%
85
88
93
98
104
14.4%
80
83
86
90
94
15.4%
76
78
80
83
87
Source: CRISIL Equities estimates
Factors that can impact the fair value
Upside
•
Higher-than-anticipated capacity utilisation
Downside
Delay in capacity stabilization
One-year forward P/E band
One-year forward EV/EBITDA band
(Rs)
(Rs mn)
450
50,000
400
45,000
350
40,000
35,000
300
30,000
250
25,000
200
EKCL
15x
Source: NSE, Company, CRISIL Equities
© CRISIL Limited. All Rights Reserved.
30x
EV
12x
Apr-11
Dec-10
Apr-10
Aug-10
Dec-09
Apr-09
Aug-09
Dec-08
Apr-08
Aug-08
Dec-07
Apr-07
7x
Aug-07
Dec-06
Apr-06
Aug-06
Apr-05
Jan-11
Apr-11
Jul-10
25x
Oct-10
Jan-10
Apr-10
Jul-09
20x
Oct-09
Jan-09
Apr-09
Jul-08
Oct-08
Jan-08
Apr-08
Jul-07
10x
Oct-07
Jan-07
Apr-07
Jul-06
5x
Oct-06
Jan-06
Apr-06
0
Jul-05
5,000
0
Oct-05
10,000
50
Apr-05
15,000
100
Dec-05
20,000
150
Aug-05
•
17x
Source: NSE, Company, CRISIL Equities
CRISIL EQUITIES | 16
Everest Kanto Cylinder Ltd
P/E – premium / discount to NIFTY
P/E movement
(Times)
800%
120
700%
100
600%
80
500%
400%
60
300%
40
200%
+1 std dev
20
100%
-1 std dev
0
0%
Source: NSE, Company, CRISIL Equities
Jan-11
Apr-11
Jul-10
Oct-10
Jan-10
Apr-10
Jul-09
1yr Fwd PE (x)
Median
Oct-09
Oct-08
Jan-09
Apr-09
Apr-08
Jul-08
Oct-07
Jan-08
Apr-07
Jul-07
Oct-06
Jan-07
Jan-06
Apr-06
Jul-06
Jul-05
Oct-05
Apr-11
Dec-10
Apr-10
Aug-10
Dec-09
Apr-09
Aug-09
Dec-08
Apr-08
Aug-08
Dec-07
Apr-07
Aug-07
Dec-06
Apr-06
Aug-06
Dec-05
Apr-05
Aug-05
Premium/Discount to NIFTY
Apr-05
-20
-100%
Median PE
Source: NSE, Company, CRISIL Equities
Peer comparison
Companies
M.cap
Price/Earnings (x)
(Rs mn) FY10
Confidence
FY11E FY12E
Price/Book (x)
FY10
EV/EBITDA
FY11E FY12E
FY10
RoE (%)
FY11E FY12E
FY10
FY11E FY12E
4,504
12.9
6.9
4.5
2.2
1.7
1.2
7.8
5.1
4.1
18.2
27.5
31.7
Industries
5,801
10.3
9.9
7.9
2.4
nm
nm
9.9
7.8
6.7
20.1
20.0
20.0
Everest Kanto
9,124
95.0
14.6
9.8
2.0
1.2
1.1
25.3
9.2
6.2
2.1
9.1
11.9
Nitin Fire Protection
Source: CRISIL Equities, Bloomberg
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 17
Everest Kanto Cylinder Ltd
Company Overview
Everest Kanto was promoted by Mr PK Khurana as a joint venture with Kanto
Koatsu Yoki Manufacturing Company of Japan in June 1978. Later, Kanto Koatsu
Yoki exited the JV.
Everest
Kanto
cylinders.
The
manufacturers
manufactures
cylinders
(OEMs),
high-pressure
are
used
retrofitters,
by
and
seamless
automobile
gas
CNG
and
original
distribution
industrial
equipment
companies;
the
industrial cylinders are used in healthcare, fire-fighting, and food and beverages
segments. CNG cylinders accounted for around 59% of Everest Kanto’s
consolidated revenues in FY10.
Contribution to consolidated revenue
FY09
FY10
9MFY11
CNG Cylinders
Product
72%
59%
69%
Jumbo Cylinders & cascades
18%
25%
16%
Industrial Cylinders
10%
16%
15%
Source: Company, CRISIL Equities
The group has manufacturing units in India, Dubai, and China, with a total
capacity of 1.02 mn cylinders per annum. In April 2008, the Everest Kanto
group acquired CP Industries Inc, USA, for US$70 mn, thereby entering the
jumbo cylinder segment.
The current corporate structure is as under:
Organisation structure of Everest Kanto
Everest Kanto Cylinder Limited
EKC International FZE,
Wholly Owned Subsidiary
in UAE
EKC Industries (Tianjin)
Co. Ltd., Wholly Owned
Subsidiary in China
EKC Hungary Ltd,
Wholly Owned Subsidiary
in Hungary
Calcutta Compressions &
Liquefaction Private Limited,
Subsidiary in India
(Became a subsidiary on
April 16, 2009)
CP Industries Holdings, Inc,
Wholly Owned
Subsidiary in USA
Source: Company
The group is expanding capacity in its Gandhidham unit: it is adding 200,000
cylinders using the billet piercing technology. The group is also setting up a
300,000-unit plant in the Kandla special economic zone, to manufacture
lightweight CNG cylinders, using the deep draw process; this unit will focus on
the European and Asian OEM markets.
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 18
Everest Kanto Cylinder Ltd
Capacity utilisation of Everest Kanto’s plants
FY09
FY10
Aurangabad
110,000
110,000
82,500
Tarapur
160,000
160,000
120,000
Gandhidham
340,000
345,000*
258,750
Dubai
196,000
196,000
147,000
China
200,000
200,000
150,000
4,000
4,000
3,000
1,010,000
1,015,000
761,250
9mFY11#
Installed capacity
US
Total
Production
Aurangabad
116,211
90,414
53,281
Tarapur
178,418
179,572
141,731
Gandhidham
175,531
216,428
183,994
Dubai
223,917
154,685
161,953
44,657
44,685
China
59,936
US
2,050
-
670
756,081
683,517
630,971
Total
Capacity utilisation rate
Aurangabad
106%
82%
65%
Tarapur
112%
112%
118%
Gandhidham
52%
63%
71%
Dubai
114%
79%
110%
China
30%
21%
30%
US
51%
30%
22%
75%
67%
83%
Total
*Jumbo cylinder capacity of 5000 cylinders commissioned in Q2FY10
# proportionate installed capacity for 9 months taken for calculations.
Source: Company, CRISIL Equities
Everest Kanto – key customer profile
Industrial Cylinders
CNG Cascades
OEMs for CNG Cylinders
Special Cylinders
Praxair
Mahanagar Gas Ltd
Hyundai
Government of India
BOC India Ltd
Indraprashtha Gas Ltd
Toyota
US Government
Inox Air Products Ltd
Bhagyanagar Gas Ltd
Suzuki
Advanced Silicon
Gujarat Adani
Tata Motors Ltd
Air Products
Eicher Motors Ltd
Air Liquide
Ashok Leyland & Co Ltd
Swaraj Mazda
Source: Company, CRISIL Equities
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 19
Everest Kanto Cylinder Ltd
Annexure: Financials
Income statement
(Rs mn)
Operating income
Balance Shee t
FY09
8,585
F Y10
6,564
FY11E
FY12E
7,424
9,069
FY13E
11,037
(Rs mn)
EBITDA
2,748
658
1,358
1,921
2,448
Equity share capital
EBITDA margin
32.0%
10.0%
18.3%
21.2%
22.2%
Reserves
Depreciation
EBIT
Interest
Operating PBT
696
569
636
729
738
2,052
89
721
1,192
1,710
504
1,547
Other income
50
Exceptional inc/(exp)
PBT
(66)
(80)
168
15
286
1,532
469
Tax provision
156
55
Minority interest
-
(1)
PAT (Reported)
1,376
Less: Exceptionals
Adjusted PAT
(66)
1,442
415
286
129
90
135
112
631
1,057
1,598
52
104
-
586
1,161
1,712
68
232
428
(97)
(10)
934
(97)
-
625
FY11E
FY12E
FY13E
Minorities
Net worth
202
214
214
214
6,018
7,276
8,042
9,150
-
(8)
6,196
6,212
(18)
7,472
(23)
8,233
(28)
9,336
-
-
-
-
-
5,015
4,015
3,695
2,695
114
Total de bt
6,219
5,015
4,015
3,695
2,695
-
Deferred tax liability (net)
109
109
109
109
12,409
11,336
11,596
12,037
12,141
Net fixed assets
4,100
4,528
4,691
5,362
4,724
C apital WIP
1,983
1,621
1,521
521
621
6,083
6,149
6,212
5,883
5,345
73
44
44
44
44
4,536
(5)
1,289
1,289
C onvertible debt
202
5,994
6,219
-
934
FY10
Other debt
(5)
527
F Y09
Liabilities
Total liabilities
(6)
Assets
Total fixed assets
Inve stments
Current assets
Ratios
Inventory
FY09
F Y10
FY11E
FY12E
FY13E
Growth
4,885
3,391
3,632
4,188
Sundry debtors
980
928
1,050
1,283
1,531
Loans and advances
824
726
847
1,034
1,259
1,122
Operating income (%)
61.9
(23.5)
13.1
22.2
21.7
C ash & bank balance
393
599
544
776
EBITDA (%)
68.6
(76.1)
106.4
41.5
27.4
Marketable securities
2
21
21
21
21
Adj PAT (%)
31.4
(91.0)
384.0
49.5
38.0
Total curre nt assets
7,084
5,665
6,094
7,302
8,468
Adj EPS (%)
31.4
(91.0)
356.9
49.5
38.0
Total curre nt liabilities
2,056
1,441
1,536
1,856
2,281
Net current assets
5,028
4,224
4,559
5,446
6,187
Intangibles/Misc. expenditure
1,224
919
781
664
564
12,409
11,336
11,596
12,037
12,141
Profitability
EBITDA margin (%)
32.0
10.0
18.3
21.2
22.2
Adj PAT Margin (%)
16.8
2.0
8.4
10.3
11.7
RoE (%)
26.2
2.1
9.1
11.9
14.7
Cash flow
RoC E (%)
20.9
0.8
6.4
10.2
14.3
(Rs mn)
RoIC (%)
21.9
0.6
7.0
10.6
13.7
Pre-tax profit
Valuations
Price-earnings (x)
8.4
95.0
Total assets
Total tax paid
(207)
Depreciation
696
14.6
9.8
7.1
Working capital changes
(1,039)
1,048
Price-book (x)
2.0
2.0
1.2
1.1
1.0
Net cash from operations
EV/EBITDA (x)
6.5
25.3
9.2
6.2
4.4
Cash from investments
EV/Sales (x)
Dividend payout ratio (%)
2.1
2.6
1.7
1.3
1.0
10.3
34.1
26.0
18.0
14.0
1.2
1.2
1.5
1.8
2.0
Dividend yield (%)
F Y09
1,598
C apital expenditure
Investments and others
Net cash from investments
(5,347)
256
(5,091)
FY10
183
60
569
FY11E
683
(68)
FY12E
FY13E
1,161
1,712
(232)
(428)
636
729
738
1,029
(389)
(656)
(395)
1,841
862
(329)
11
(318)
(562)
(562)
1,002
(283)
(283)
1,627
(100)
(100)
Cash from financing
B/S ratios
Equity raised/(repaid)
Inventory days
340
210
C reditors days
113
76
79
81
84
Dividend (incl. tax)
40
51
50
50
49
Others (incl extraordinaries)
Working capital days
175
229
187
174
160
Gross asset turnover (x)
2.2
1.1
1.2
1.2
1.4
C hange in cash position
Net asset turnover (x)
3.0
1.5
1.6
1.8
2.2
C losing cash
Sales/operating assets (x)
2.0
1.1
1.2
1.5
2.0
C urrent ratio (x)
3.4
3.9
4.0
3.9
3.7
Debt-equity (x)
1.0
0.8
0.5
0.4
0.3
(Rs mn)
Net debt/equity (x)
0.9
0.7
0.5
0.4
0.2
Net Sales
Interest coverage
4.1
(1.1)
8.0
8.8
15.3
Debtor days
225
222
200
Debt raised/(repaid)
Net cash from financing
C hange (q-o-q)
C hange (q-o-q)
FY13E
3,792
-
-
(320)
(1,000)
(142)
(137)
(168)
(180)
29
(1,316)
(27)
(355)
(488)
(1,180)
(251)
207
(55)
231
346
393
599
544
776
1,122
EBITDA margin
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
1,704
1,866
1,389
2,052
1,983
16%
222
9%
(106)
-26%
134
48%
447
-3%
378
25%
-148%
n.m.
233%
-15%
13.0%
-5.7%
9.6%
21.8%
19.0%
F Y10
Adj EPS (Rs)
14.3
1.3
5.8
8.7
12.0
PAT
15
286
(115)
247
233
C EPS
21.1
6.9
11.8
15.5
18.9
Adj PAT
15
0
(66)
295
233
Book value
61.3
61.4
69.7
76.8
87.1
1.4
1.4
1.3
1.6
1.7
101.2
101.2
107.2
107.2
107.2
Actual o/s shares (mn)
FY12E
100
810
(1,000)
FY09
Dividend (Rs)
FY11E
(142)
(1,204)
Quarterly financials
EBITDA
Per share
0
3,833
C hange (q-o-q)
Adj PAT margin
Adj EPS
-128%
-98%
n.m.
n.m.
-21%
0.9%
0.0%
-4.8%
14.4%
11.7%
0.1
0.0
(0.6)
2.7
2.2
Note: Interest charges include forex fluctuation
Source: CRISIL Equities
© CRISIL Limited. All Rights Reserved.
CRISIL EQUITIES | 20
Everest Kanto Cylinder Ltd
Focus Charts
Largest domestic…
… and global high-pressure cylinder manufacturer
('000)
('000)
1,200
1,200
1,015
1,015
1,000
1,000
1,000
800
800
800
800
600
500
400
400
300
350
350
Inflex
600
Cilbras
600
200
200
180
200
Rama
Cylinders
Lizer
Cylinders
Confidence
Capacity
Capacity
Worthington
Nitin Fire
Prot.
Faber
Everest Kanto
ENK
0
BTIC, China
Everest
Kanto
0
Source: Company, CRISIL Equities
Source: Company, CRISIL Equities
Increase in capacity to drive production
Margins to expand as business resumes normalcy
(Rs mn)
('000 cyl)
85%
1,600
1,400
82%
90%
75%
75%
67%
65%
60%
200
1,515
1,132
1,015
831
1,015
684
1,010
756
756
641
706
400
460
600
50%
938
1,515
1,000
800
35%
30%
2,500
1,500
30%
18%
2,748
FY08
FY09
FY10
FY11E
Production
FY12E
2,448
1,921
10%
5%
658
0
0%
FY09
FY13E
15%
1,358
500
0%
25%
20%
10%
1,000
10%
Capacity
22%
21%
2,000
40%
20%
FY07
32%
70%
62%
1,200
80%
3,000
FY10
FY11E
EBITDA
Capacity utilisation (RHS)
FY12E
FY13E
EBITDA margin (RHS)
Source: Company, CRISIL Equities
Source: Company, CRISIL Equities
Higher EBITDA to supplement PAT and EPS
Returns expected to be subdued compared to FY09
(Rs mn)
1,500
(Rs/share)
14.3
1,250
(%)
16
30
14
25
12.0
26.2
12
1,000
750
8.7
1,442
5.8
500
10
1,289
934
1.3
250
8
6
10
2
FY09
FY10
0
FY11E
Adj PAT
Source: Company, CRISIL Equities
© CRISIL Limited. All Rights Reserved.
FY12E
20.9
15
14.7
11.9
9.1
FY13E
Adj EPS (RHS)
14.3
10.2
4
625
129
0
20
5
2.1
6.4
0.8
0
FY09
FY10
FY11E
RoCE
FY12E
FY13E
ROE
Source: Company, CRISIL Equities
CRISIL EQUITIES | 21
CRISIL Independent Equity Research Team
Mukesh Agarwal
Director
+91 (22) 3342 3035
[email protected]
Tarun Bhatia
Director, Capital Markets
+91 (22) 3342 3226
[email protected]
Chetan Majithia
Head, Equities
+91 (22) 3342 4148
[email protected]
Sudhir Nair
Head, Equities
+91 (22) 3342 3526
[email protected]
Nagarajan Narasimhan
Director, Research
+91 (22) 3342 3536
[email protected]
Ajay D'Souza
Head, Research
+91 (22) 3342 3567
[email protected]
Aparna Joshi
Head, Research
+91 (22) 3342 3540
[email protected]
Manoj Mohta
Head, Research
+91 (22) 3342 3554
[email protected]
Sridhar C
Head, Research
+91 (22) 3342 3546
[email protected]
CRISIL’s Equity Offerings
The Equity Group at CRISIL Research provides a wide range of services including:
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