ICICI Securities Limited Everest Kanto Cylinders (EVEKAN)

ICICI Securities Limited
Result Update
Rating matrix
Rating : Buy
Target : | 94
Target Period : 12-15 months
Potential Upside : 16 %
Key Financials
| Crore FY09 FY10 FY11E FY12E
Net Sales 856.6 649.7 721.3 771.4
EBITDA 256.2 63.1 142.2 223.1
Net Profit 144.1 12.8 63.1 100.8
EPS (|) 13.6 0.6 6.9 9.4
Valuation summary
FY09 FY10 FY11E FY12E
P/E 5.9 NA 11.7 8.6
Target P/E 8.1 NA 15.9 15.4
EV / EBITDA 5.5 34.5 15.5 9.5
Price to Book Value 1.3 2.8 2.5 2.2
RoNW(%) 23.3 2.1 10.7 12.7
RoCE (%) 12.4 5.6 20.6 19.2
Stock data
Market Capitalization | 1757 crore
Total Debt (FY10) | 510 crore
Cash and Investments (FY10) | 59.9 crore
EV | 2207 crore
52 week H/L (|) 238.1 / 107.8
Equity capital | 20.2 crore
Face value | 2
MF Holding (%) 9.5
FII Holding (%) 11.2
Price movement
175
150
125
100
75
50
Dec-09
Feb-10
Analyst’s name
Apr-10
Jun-10
Aug-10
Oct-10
EKC Nifty(R.H.S.)
Sanjay Manyal
sanjay.manyal@icicisecurities.com
Parineeta Poddar
parineeta.poddar@icicisecurities.com
ICICIdirect.com | Equity Research
Dec-10
Jan-11
6000
5000
4000
3000
2000
WHAT’S CHANGED…
February 2, 2011
PRICE TARGET .....................................................................Changed from |145 to | 94
EPS (FY11E) ........................................................................Changed from | 6.2 to | 6.9
EPS (FY12E) .........................................................................Changed from | 11 to | 9.4
RATING.......................................................................................................... Unchanged
Robust growth in international sales…
Everest Kanto’s Q3FY11 performance was better than our expectations
with the sales growing by ~17% (YoY) to |.197.4 crore against our
expectation of ~8% growth only. Higher growth was led by robust
sales in the international business that grew by ~65% (YoY) during the
quarter. Also, margins improved significantly by 600 bps to 19.1% in
Q3FY11 from 13.1% in Q3FY10. Improvement in EBITDA margins
coupled with lower interest cost and depreciation provisioning led to
the higher earnings of | 23 crore in Q3FY11 against |1.4 crore in
Q3FY10.
� Highlight of the Quarter
The company has expanded its production capacity (Bullet piercing
plant) by ~4,00,000 cylinders per annum (current capacity is
10,11,000 cylinders per year) by setting up manufacturing units in
Kandla and Kandiram (Gujarat). It plans to commence operations
from these units from Q1FY12 and cater to both domestic and
international markets.
Valuation
At the CMP of |81, the stock is trading at 11.7x and 8.6x its FY11 and
FY12 estimated EPS of |6.9 and |9.4, respectively. With the revival in the
demand from Dubai and China, the company has exhibited two
consistent quarter of growth in sales. We believe high CNG cylinder
demand to result in robust revenue growth from India, Dubai and China
going forward. Simultaneously, high crude prices inching at ~$90/barrel
would also to aid demand for CNG cylinders. However, due to recent
macro headwinds and volatility in the markets, the stock witnessed a
sharp correction. We thereby revise our price target to |94 by valuing it at
10x its FY12E EPS of |9.4 and maintain BUY rating on the stock.
Exhibit 1: Financial Performance
(| Crore) Q3FY11 Q3FY11E Q3FY10 Q2FY11 YoY(%) QoQ(%)
Net Sales 197.4 182.4 169.4 203.5 16.6 -3.0
EBITDA margin (%) 19.1 29.8 13.1 20.5 600bps NA
Depreciation 16.1 15.2 20.0 16.6 -19.4 -2.5
Interest 1.8 8.7 2.7 1.9 -32.8 -4.7
Other Income 3.6 3.7 3.9 11.4 -7.4 -68.2
Reported PAT 23.0 22.2 1.4 26.4 1518.3 -12.8
EPS (|) 2.1 2.2 0.1 2.5 1518.3 -12.8
Source: Company, ICICIdirect.com Research
Everest Kanto Cylinders (EVEKAN)
| 81

ICICI Securities Limited
Exceptionally higher realization in Q2FY11 was on the back of
special order received from the Indian Navy. The overall volume
growth of the company has however been maintained.
Demand from India and USA has declined, however, the demand
growth in UAE (Dubai) and China has been robust projecting a
brighter picture for the demand from these countries, going
ahead.
Though sales volume from India has improved, dip in realizations
have pulled down the overall sales. However, the realizations from
Dubai witnessed considerable improvement.
With crude prices inching up to $90/barrel from
$75/barrel in February, 2010; we believe the demand for
CNG cylinders would remain firm. Also, with
environmental concerns been targeted by governments
all across the world, the demand for CNG cylinders
would continue to grow in the coming years.
ICICIdirect.com | Equity Research
Exhibit 2: Sales Volume and average realization (quarterly)
in 1000's
240
220
200
180
160
140
120
100
8859
10084
9349
7534
10318
9024
164 168 140 121 204 216
Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11
Source: Company, ICICIdirect.com Research
Exhibit 3: Geographical break-up of Sales (| crore)
Volumes (LHS) Avg Relization (RHS)
12000
10000
8000
6000
|/cylinder
Q3FY11 Q3FY10
India 80.58 100.76
Dubai 78 34.09
China 15.36 3.5
USA & Hungary
Source: Company, ICICIdirect.com Research
28.32 35.93
Exhibit 4: Quarterly Volumes and Realization from different countries
Volumes (units)
Realisation/cylinder (|)
Q3FY11 Q2FY11 Q3FY11 Q2FY11
India 140518 136664 5650 8528
Dubai 50901 51404 14120 12900
China 24202 17524 6344 6970
USA (Jumbo) 396 195 715000 854000
Source: Company, ICICIdirect.com Research
Exhibit 5: Crude Prices
$/barrel
100
95
90
85
80
75
70
65
Feb-10
Mar-10
Apr-10
May-10
Source: Bloomberg, ICICIdirect.com Research
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Page 2
90.84
Feb-11

ICICI Securities Limited
ICICIdirect.com | Equity Research
Revising Estimates
Though we believe that the demand for CNG cylinders would remain high
in the coming years, higher raw material costs could result in lower
margins. Hence, we have revised our estimates for FY12.
Exhibit 6: Revising Estimates
Particulars
Old New % Change
Revenue 787.8 721.3 (8.4)
EBITDA 235.7 142.2 (39.7)
EBITDA Margin (%) 29.9 19.7 -1020 bps
PAT 111.5 100.8 (9.6)
EPS (|) 11.0 9.4 (14.8)
Source: Company, ICICIdirect.com Research
Exhibit 7: Recommended History
180
160
140
120
100
80
60
40
20
0
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Source: Company, ICICIdirect.com Research
Rating: Buy TP: | 141
Rating: Buy TP: | 141
Mar-10
Apr-10
May-10
Jun-10
FY12E
Jul-10
Aug-10
Rating: Buy TP: | 94
Rating: Buy TP: | 145
Sep-10
Oct-10
Nov-10
Dec-10
Page 3

ICICI Securities Limited
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is 2 years unless specified and the
notional target price is defined as the analysts' valuation for a stock.
Strong Buy: 20% or more;
Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;
ANALYST CERTIFICATION
ICICIdirect.com | Equity Research
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
7 th Floor , Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
We /I, Sanjay Manyal M.B.A. (FINANCE) Parineeta Poddar M.B.A. (FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this
research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to
the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
Disclosures:
ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading
underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of
companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities
generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts
cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and
employees (“ICICI Securities and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities
from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities
policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any
loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.
ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received
compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment
banking or other advisory services in a merger or specific transaction. ICICI Securities and affiliates expect to receive compensation from the companies mentioned in the report within a period of three
months following the date of publication of the research report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific
transaction. It is confirmed that Sanjay Manyal M.B.A. (FINANCE) Parineeta Poddar M.B.A. (FINANCE) research analysts and the authors of this report have not received any compensation from the
companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking
and other business.
ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the
research report.
It is confirmed that Sanjay Manyal M.B.A. (FINANCE) Parineeta Poddar M.B.A. (FINANCE) research analysts and the authors of this report or any of their family members does not serve as an officer,
director or advisory board member of the companies mentioned in the report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use
of information contained in the report prior to the publication thereof.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and
to observe such restriction.