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7. Economies of scale
EKC enjoys economies of scale as the existing
manufacturing facilities are fully geared up to utilize their
capacities thereby leading to greater operational efficiency
which would result in lower cost of production and increased
profitability.
8. Quick delivery to customers
EKC has the ability to manufacture and deliver vessels of
different sizes from its multiple operating units. This results
in quick delivery to the customers.
9. Investment in New Technologies
EKC has made significant investments in newer and
alternate technologies which would ultimately enable it to
reach leadership status globally. Also, it would be the only
company in India to use alternate technologies and raw
materials in its new plants. This would enable EKC to
broadbase its raw material supply chain which would also
lead to lower cost of production and better working capital
management. The new Greenfield project for CNG cylinders
would enable it to cater to the niche OEM segment outside
India through supply of light weight and more value added
cylinders.
10. Investment in Human Talent
All employees are important to the Company and it believes
that its middle management is particularly critical to its
business, as they are responsible for managing teams,
understanding customer expectations, ensuring consistent
and quality service delivery. These middle managers are
essentially the glue that keeps the entire organization
together. The Company intends to continue to invest in
developing and grooming its middle management talent.
CHALLENGES (C)
1. Raw material intensive industry
Seamless steel tubes are the principle raw material used by
EKC. The quality of cylinders produced is directly dependent
on the quality of raw material used. There are only a few
seamless tube manufacturers globally who meet the
stringent quality specifications. Adequate level of raw
material inventory has to be maintained at all times to ensure
quick turnaround time for orders received. Any volatility in
the prices or disruption in availability of raw material can
impact the profitability of the Company.
However, EKC has strong relationships with the raw material
suppliers. Going a step further to reduce supplier risk, EKC
has setup facilities using alternate manufacturing process
and cheaper raw materials such as billets and plates.
EVEREST KANTO CYLINDER LIMITED
2. Integration
EKC faced the challenge of integrating the operations of CP
Industries Holdings, Inc. (CPI) [acquired by EKC in April,
2008] with its own.
EKC has successfully overcome this challenge and the
complementary product portfolio (CPI’s established position
in the Jumbo cylinders vs. EKC’s strong position in relatively
smaller cylinders) gave an impetus to overall global growth.
3. Competition
Although EKC is the market leader in India with around
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, there
might be an overcapacity scenario in the short term.
Besides, the increasing competition in the CNG cylinder
manufacturing business has resulted in an overall margin
contraction at the industry level.
Inspite of the challenge posed by the increase in competition,
EKC would continue to dominate the market place. This
would be on account of EKC’s scale of operations and setting
up of new facilities using alternate technologies and raw
materials.
OPPORTUNITIES (O)
1. Growth in sales of CNG cylinder sales in India and globally
Rising demand in India
Under the Petroleum Ministry’s ‘Vision-2015 document for
consumer satisfaction and Beyond’, the CNG network will
be expanded to 200 cities from the present coverage in 35
cities in India. Apart from the regulatory push which will lead
to the increased usage of CNG, it is ultimately the cost benefit
to consumers, which will propel the growth. Usage of CNG
is beneficial to consumers due to its inherent cost advantage
vis-a-vis other auto fuels. Energy content per kilogram of
CNG is comparable to that of petroleum based fuels. Usage
of CNG in vehicles results in higher mileage per unit due to
its superior combustion characteristics.
Cost benefit analysis of CNG vis-a-vis other fuels
Fuel cost (March, 2011)
CNG : Rs. 31.47 per kg.
Petrol : Rs. 63.08 per ltr.
Diesel : Rs. 42.06 per ltr.
On account of its low price, CNG offers attractive payback
period for conversion of vehicles running on petrol
Fuel Consumption
3 Wheeler 4 Wheeler
CNG / Kg.: 25 Kms 20 Kms
Petrol / Ltr.: 18 Kms 14 Kms
Average running per day (kms) 70 100
Conversion Cost 20,000 30,000
Payback Period (in days) 128 103
Management Discussion & Analysis Annual Report 2010-11
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