CRISIL assigns fair value of Rs 74 to Everest Kanto

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CRISIL assigns fair value of Rs 74 to Everest Kanto

CRISIL Research has come out with its report on Everest Kanto Cylinder. The research firm has maintained the valuation grade 5/5 to the company in its December 12, 2011 report.

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CRISIL Research has come out with its report on Everest Kanto Cylinder . The research firm has maintained the valuation grade 5/5 to the company in its December 12, 2011 report.

Everest Kanto Cylinder Ltd's (Everest Kanto's) Q2FY12 revenues and EBITDA were lower than CRISIL Research's estimates. The CNG operations have not taken off as expected in the Indian market (the India operations account for ~40% of revenues, of which CNG cylinders are ~60%). At the same time, the Dubai operations were affected by lower offtake of CNG cylinders by a large client. In the US and China, while sales volumes picked up, profitability remained elusive in Q2FY12. Further, reported PAT turned red due to foreign exchange losses on account of revaluation of FCCBs. We lower our earnings estimates for FY12 and FY13 since we believe traction will not be visible in the near term in the domestic CNG market, which is dependent on the increase in the number of cities under City Gas Distribution (CGD). Given Everest Kanto's leadership position in the domestic market and reputation in international markets, we maintain the fundamental grade of 3/5.

Q2FY12 result analysis:

• Q2FY12 revenues declined by 16.2% y-o-y to Rs 1,720 mn, largely due to lower volumes in the CNG business. Revenues from the Indian operations declined 29% y-o-y to Rs 830 mn and Dubai operations by 26% y-o-y to Rs 533 mn. This was partially offset by more than double revenues from the US operations at Rs 362 mn and 86% higher revenues from China at Rs 227 mn. The Indian operations have not gathered the expected momentum, since inflow of orders from auto OEMs (CNG cylinders are mainly used in commercial vehicles) has been extremely slow. The Dubai operations were affected due to lower off take from a prominent Iran-based client. While we expect off take to improve in H2FY12, overall operations are likely to underperform our earlier expectations.
• EBITDA margin declined 238 bps from 20.3% to 17.9% in Q2FY11 due to lower realisations and higher costs. EBITDA declined 26% to Rs 309 mn. We expect margins to remain subdued for the rest of FY12.
• The company was in the red with net loss of Rs 30 mn. This was mainly due to restating of the company's FCCB amount of US$35mn due to rupee depreciation (the FCCBs were issued in FY08; due for redemption in FY13). Adjusted for this, the company recorded a profit of Rs 205 mn.

Valuations: Current market price has strong upside We continue to use the discounted cash flow method to value Everest Kanto. Due to downward revision in estimates and higher risk perception, we lower the fair value to Rs 74. At the current market price of Rs 36, the valuation grade is 5/5.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The 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. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. 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 of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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