EVEREST KANTO CYLINDERS – Kotak Securities Research Report

Kotak Securities have suggested a Buy on EVEREST KANTO CYLINDERS shares. The investment rationale for the recommendation is as follows:

EVEREST KANTO CYLINDERS has underperformed the markets over past four months as it has declined by 12% as against 5% rise in SENSEX during the same period. We feel this is due to concerns regarding its high cost inventory and lower off take form OEM segment. However now the high cost inventory is almost over and also the supplies to OEM have picked up. Thus we expect the stock of EVEREST KANTO CYLINDERS to get rerated going forward.

At the current price of Rs.116, EVEREST KANTO CYLINDERS is trading at 1.7x book value, 15.5x earnings and 8.5x cash earnings based on FY11E.

We remain positive on the long term growth prospects of EVEREST KANTO CYLINDERS primarily on account of expected huge demand of CNG cylinders for the automobiles in India on account of economical operation, increasing gas availability and various CGD projects.

Due to 16% upside potential form the current levels we upgrade EVEREST KANTO CYLINDERS to BUY with revised price target of Rs.135.

EVEREST KANTO CYLINDERS enjoys market leadership

Despite FY10 being impacted by recession and downturn, EVEREST KANTO CYLINDERS continued to consolidate its position as market leader across Indian as well as key international markets with a varied and diverse product offering which is unmatched in any part of the world. This is due to its wide product range that caters to all segments of the cylinder industry with a wide range of sizes ranging from one liter going upto almost 3000 liters water capacity under one roof and with multiple facilities across the globe. With commissioning of Jumbo cylinders plant in India, EVEREST KANTO CYLINDERS has become the largest jumbo cylinder manufacturer in the world.

EVEREST KANTO CYLINDERS’ Expansions to de-risk its business model

With expansions in India, Dubai, US and China EVEREST KANTO CYLINDERS has plans to de-risk its business model by expanding its presence in South East Asia, South America and USA while maintaining its leadership position in existing operating countries.