Hold Everest Kanto; target of Rs 101: PINC Research

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Hold Everest Kanto; target of Rs 101: PINC Research

PINC Research has recommended hold rating on Everest Kanto Cylinder with a target of Rs 101, in its August 8, 2011 research report.

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PINC Research has recommended hold rating on Everest Kanto Cylinder with a target of Rs 101, in its August 8, 2011 research report.

"Everest Kanto Cylinder Ltd's (EKC) Q1FY12 results were better than our expectation as net sales grew by 54.0% YoY to Rs2.1bn (PINCe Rs2.0bn), mainly driven by Dubai operation. OPM stands at 21.7% (against 5.5% in Q1FY11) on the back of lower raw material cost. Consequently, company posted net profit of Rs278mn (PINCe Rs132mn) against loss of Rs110mn in Q1FY11."

"Sales from Dubai facilities grew at 53% YoY in Q1FY12 and contributed 42% to the topline. Capacity utilisation of this facility is ~120%. PBIT margins for Dubai increased to 30.0% (+530bps). It contributed Rs268mn at PBIT resulting in total PBIT of Rs293mn for EKC in Q1FY12. Chinese and US facilities continue to report a loss at PBIT and dragged down the robust performance from Dubai facility. Margins for Indian facilities are improving sequentially, however, at 9.2% in Q1FY12 are still far below their levels of ~20% in FY08 and FY09. Dubai is expected to remain saviour in the near future. However, we see concerns across other geographies. Delays in development of CNG infrastructure in India has resulted in muted offtake for CNG cylinders. Margins from Indian operations are expected to remain under pressure in near term. USA and China facilities are also expected to remain under pressure for some more quarters due to lower offtake."

"We have increased our estimates for FY12 by 12% on the back of higher volumes and better realisations. At the CMP of Rs83, Everest Kanto is trading at a P/E of 8.8x & 7.4x and EV/EBITDA of 6.3x & 5.0x for FY12E and FY13E respectively. Sequential better performance gives a sign of EKC coming out of woods, however, we maintain our 'HOLD' rating with an increased target price of Rs101 (9x FY13 estimates) till we see sustained robust performance," says PINC Research report.

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