Everest Kanto – Firing on all cylinders
We talked about Everest Kanto when it was around Rs 380 – Rs 400. The stock seems to have gone up a bit from there and is presently trading at Rs 437.This Company is another great play on the Indian CNG/LPG market. Earlier we had discussed about Indraprastha Gas and Everest Kanto is a logical extension of that.
The new Supreme court orders and the rising differentials between crude and gas has led to a rapidly expanding CNG & LPG market. Everest is the largest producer of cylinders in India and is also holds the majority market share for cylinders in Pakistan.
The company has launched a capacity expansion. set up a plant at Gandhidham (Gujarat) with a capacity of 340,000 cylinders per annum. This facility shall increase capacity be almost 50%.. The proximity of the plant to the ports and refineries shall provide logistic convenience to the company. The total capacity of the company would thus increase to 706,000 cylinders per annum
The company is setting up greenfield ventures in Dubai and China to take advantage of the demand in the Asian region.
Financial Synopsis |
CMP |
Rs 437 |
Market cap |
Rs 771.22 crores |
Sales Fy 07 (E) |
Rs 360 crores |
EPS Fy 07 {E} |
Rs 24.00 |
Sales Fy 08 (E) |
Rs 540 crores |
EPS Fy 08 (E) |
Rs 36.00 |
PE FY 07 |
18.21 |
RoE |
35.05% |
Post the Gujarat expansion the top line should grow at 50% in Fy 08 and the bottom-line could grow even faster. The high RoE indicates efficient use of capital. General brokerages expect sales to increase by 40% I have been aggressive with my estimates since these companies always surprise investors on the upside. Even if earnings increases come in a little slower the stock would remain a good bet also.
Inspite of being short with CNG gas stations Delhi and the NCR (National capital region) have made a great shift towards that. Initially it was like a chicken and the egg race. Automobiles were not converting because there were no gas stations and there were no gas stations because automobiles were not converting .But these are temporary glitches change very soon as we have seen in other industries as well.
The CNG auto cylinder market is the fastest growing. The scale of opportunity is huge and Everest is already supplying to various countries across the globe. Exports make over a third of the company’s sales. The company is consistently trying to tap the overseas market and growth will come from both the domestic and international markets.
On the other hand the industrial segment which is another consumer of cylinders is showing buoyancy as manufacturing activities increase.
Recommendation: The huge scope of opportunity and the near dominant monopoly status of Everest Kanto makes it a very interesting investment bet. At a market cap of about Rs 771 crores and a price of Rs 437 investors should think of adding this scrip at current prices and declines with a long term perspective.
Edited by basant - 13/Sep/2006 at 10:08am