CRISIL maintains fundamental grade of 3/5 to Everest Kanto

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CRISIL maintains fundamental grade of 3/5 to Everest Kanto

CRISIL Research has come out with its report on Everest Kanto Cylinder. The research firm has maintained the fundamental grade of 3/5 to the company in its February 3, 2012 report.

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CRISIL Research has come out with its report on Everest Kanto Cylinder . The research firm has maintained the fundamental grade of 3/5 to the company in its February 3, 2012 report.

Everest Kanto Cylinder Ltd (Everest Kanto) Q3FY12 performance was disappointing, with a 27% y-o-y decline in revenues and significant margin contraction. Offtake of cylinders in its India market was impacted by the slower-than-expected traction in orders for CNG cylinders from OEMs due to policy logjam surrounding the number of cities to be covered under City Gas Distribution. The ongoing political turmoil in Iran (the key market for its Dubai operations) stalled orders from key clients which affected sales. Consequently, the share of Dubai in overall revenues declined to 19% from 39% in Q3FY11. While top-line received some support from the US and China markets, operations in both countries continued to be loss making. Our fundamental view on the company is currently under review. We will lower our earnings estimates post interaction with the management. For now, we maintain our fundamental grade of 3/5.

Q3FY12 result analysis
• Revenues declined by 27% y-o-y to Rs 1,451 mn. Revenues from India declined 26% y-o-y to Rs 600 mn and from Dubai by 64% y-o-y to Rs 282 mn. The decline was partially offset by US revenue increasing by 40% y-o-y to Rs 395 mn and that from China by 15% to Rs 176 mn.

• EBITDA declined 59% to Rs 154 mn due to lower sales and lower operating profitability (due to higher costs). EBITDA margin declined 844 bps to 10.6% from 19% in Q3FY11. At the EBIT level, we were expecting the China and US divisions to be loss-making; but the Indian operations too posted losses, contrary to our expectations.

• The company was in the red with net loss of Rs 221 mn. Apart from lower operating profitability, the loss was compounded by the restating of the company's FCCB 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 46 mn.

Valuation: Current market price has strong upside
We continue to use the discounted cash flow method to value Everest Kanto. Our fair value is currently under review.

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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