Everest Kanto Cylinders Ltd. – A long runway ahead!

To summarize, these were the Q4 FY23 concall highlights:

1. CNG Segment contributes 48% to the revenues, Industrial business contributes 26%, whereas jumbo cylinders contribute 19.8% to the revenues.
2. The government has recently approved a recommendation of the Kirit Parikh panel on natural gas pricing, which includes imposition of a gas price cap. This reform has resulted in a decrease in CNG prices across the country.
3. There was inventory holdback at the OEM level, but they have now started placing new orders.
4. The company expects improvement in volumes and margins from Q1 FY24. They should start inching up slowly.
5. The US business is more project based. But the India and Dubai business will further improve from hereon.
6. There was a lot of import of cylinders from China, but management says this will not be the case going forward.
7. In FY23, CNG and diesel prices almost went to par, but the spread between them is increasing (with CNG becoming cheaper). This will help in increasing CNG volumes.
8. The company is making investments to introduce a new product i.e. composite cylinders.
9. Company’s current market share in the CNG cylinders is 40%. The company’s current capacity utilization is 60% and is improving.
10. International natural gas prices are coming down, and this will also be gradually reflecting in domestic prices.
11. The company is in talks of increasing capacity on the PV side, and there could be some breakthrough on this.

Key Risk: A key risk here is that this is a cyclical business as the company’s business prospects are linked to an external factor i.e. gas prices.

A further look at the stock’s technical analysis depicts that the the stock has also rise above all the four Exponential Moving Averages (EMA) with a supply squeeze, which is a bullish signal. These indicators are truly indicating a long runway ahead!