Stock Idea: Everest Kanto Cylinders

Everest kanto cylinders [BSE: 532684|nse: EKC]

CMp: 118.20 | tp: 162 | duration: 12-18 months August 23, 2010

company

Everest Kanto Cylinders (EKC) is engaged in manufacturing of industrial cylinders for oxygen, hydrogen, nitrogen, argon, helium, air, etc. It is also engaged in manufacturing of allied products such as cylinder valves, value protection guards, value protection caps, trolleys, purge bottles and industrial equipment.

EKC has over 1.5 million High Pressure gas cylinders and 5.00,000 CNG cylinders in service and three manufacturing plants in India Aurangabad, Tarapur and Gandhidam and Middle East (UAE) JAFZA in Dubai.

COMPANY DATA

Share Data

Market Cap (Rs)	1268.18 crores
Issued Shares	50,244,642
52 wk High/Low (Rs)	221.80/107.80

Valuation Ratios

To 31 Mar	FY09	FY10	FY11
Sales (Rs in Cr)	357.15	354.44	452
EPS (Rs)	3.68	4	6.5
+/- %	-21.1	8.69	100
P/E (x)	32.56	30.2	14.78

Shareholding Pattern (%) (Quarter ending June,2010)

Promoters	56.62
FIIs	14.44
MFs	9.34
Public	7.75
Others	11.85

positives

1. De-regulation of the fuel prices is a huge boost for EKC. A lot of vehicle manufacturers like Maruti, Tata & Hyundai are beginning to offer CNG variants for their products.

2. Ministry of petroleum and natural gas in its vision-2015 program plans to bring CNG & PNG supplies to 200 cities in India. This will also contribute directly to EKC’s topline. Right now EKC is the only company with such a scale to operate in India.

3. Ex-Delhi, petrol costs 51.43, diesel 37.62 and CNG 27.50 respectively. CNG is significantly cheaper than petrol & diesel and makes a viable fuel alternative.

4. 6.5mn preferential equity to Reliance Capital Asset Management (4mn to Reliance growth fund and 2mn to Reliance Regular savings fund). Significant portion of this money is used to retire debts, which gives more confidence to the investor.

5. EKC has been rewarding its investors with good dividends every year. Management is investor friendly.

concerns

1. Economic recession is a major concern for EKC in overseas markets. China and US segments are underutilized.

2. Any fluctuations in petrol & diesel prices, affects CNG usage and hence may affect EKC business, but this is almost not going to happen.

3. High input cost is a major cause for concern for EKC especially in overseas businesses since the capacity utilization is not up to the mark. Seamless steel tube prices are volatile in nature and could affect the bottom line.

4. Currency fluctuations are also a concern for EKC.

5. Domestic market will prove to be big for EKC. But Indian Government is not known to execute projects at a brisk pace. Any slowness affects the profitably considerably, though this is a short term irritant.

valuations

EKC is a long term play. Invest a good chunk in EKC and forget about it for 5 years and you can be rest assured that you will rewarded in the end. EKC is currently trading at 14.78 PE FY11 and has the potential to move to target of 162 in the next 12-18 months. I recommend a BUY on this counter with a 2+ years perspective and get rewarded.

disclaimer

I am a newbie into equity research. This blog is to start posting my research reports on various stocks. The information and views presented in this report are prepared by me. The information is based on my analysis and on sources available on the public domain. Investors are requested to use this report as guidance and the final decision to be made by the investors themselves. I will not be responsible for any loss incurred by the investor based on this report.Peer Comparison

Stock Idea: XL telecom and energy [BSE: 532788 | NSE: xltl]

CMp: 32.2 | tp: 40-42| duration: 6-12 months August 7, 2010

company

XL Telecom & Energy Limited (XLTL) incorporated in 1985 as a private company head quartered in Hyderabad. Its primary focus was telecom products – CDMA mobile phones, SMPS, Fusion splicers, cable jointing kits etc. In 1990 it became a public limited company and subsequently hit the primary markets in December, 2006 through an IPO.

XLTL’s focus has moved from being primarily a telecom products company to being an energy firm when they first entered the solar energy market. They are into the production of the solar photo voltaic cells. Subsequently the energy subsidiary’s contributions have grown and contributes nearly 80-90% of its revenue these days.

COMPANY DATA

Share Data

Market Cap (Rs)	66.98 crores
Issued Shares	20774950
52 wk High/Low (Rs)	61.8/27.25

Valuation Ratios

To 31 Mar	FY09 (Dec 2009)	FY11
Gross Sales (Rs in Cr)	425.71	525.25
EPS (Rs)	-142.4	-108.2
+/- %	-	24
P/E (x)	-0.23	-0.29
P/B V (x)	2.47	-

Shareholding Pattern (%) (Quarter ending June,2010)

Promoters	21.78
FIIs	10.95
Others	26.16
Public	41.11

positives

1. XLTL has already bagged export orders worth Rs.65.7 crores this fiscal year.

2. It aims for a Rs.500 crores export revenues through its solar division this year

3. Jawaharlal Nehru National Solar Mission, an initiative of the GOI to tap green energy as a part of the India’s energy needs is a big opportunity for XLTL. Phase-1 of this mission aims to commission 1000MW of grid connected solar power projet by 2013. For Phase 1 projects, NVVN proposed for 50:50 allocations towards Solar PV and Solar thermal. Initial guidelines for the solar mission mandated cells and modules for solar PV projects to be manufactured in India. That accounts to over 60% of total system costs. This is a huge opportunity for XLTL and according to executive director K Vasudeva Rao, it’s a $5billion opportunity and he expects a 20% market share in the next two years for XLTL.

concerns

Apart from the general economic recession concerns, the following are the specific concerns:

1. The promoters holding in XLTL is very low at 21.78% and a good part of the holding is also pledged.

2. The management has decided to refer XLTL to the Sick Industrial act, 1985 since its market value has eroded by more than 50% in 4 years. This could be a dampener in the short run, but could prove beneficial in the long run.

3. It has a strong competition with deep pockets like Moser-Baer, Tata BP solar..

valuations

XLTL is a risky investment. If you focus only on one thing – The National Solar Mission, then XLTL is well positioned to march forward. The management has a task in hand to take XLTL to the next level and capture significant market share locally. Consider XLTL for shorter gains of upto 20-25% from here on. But a health check of the company has to be made after FY11, when a long term positions can be considered.

disclaimer

I am a newbie into equity research. This blog is to start posting my research reports on various stocks. The information and views presented in this report are prepared by me. The information is based on my analysis and on sources available on the public domain. Investors are requested to use this report as guidance and the final decision to be made by the investors themselves. I will not be responsible for any loss incurred by the investor based on this report.

Peer Comparison