Everest Industries Research Report By Edelweiss

Increasing utilization to spur margins across segments

Complete building solutions provider Everest Industries Limited (EIL) was incorporated in 1934 and has over eight decades of expertise in manufacturing Building and Steel Products. The company is the pioneer of fibre cement products in India and manufactures roofing, ceiling, wall, flooring and cladding products besides offering pre-engineered steel buildings (PEBs) for industrial, commercial and residential applications. It is among the largest PEB companies in India with over 2,000 PEB projects designed and erected. It is also among India’s leading building solution providers, offering detailed technical assistance in the form of designs, drawing and implementation for every project. Everest has a capacity of 8,65,000 MT for building material products and 72,000 MT for its steel building plants. It has totally nine manufacturing plants India-wide and serves over 600 cities and 100,000 villages.

Building materials demand: Riding on government initiatives

EIL is focussed on enhancing capacity utilisation, launching new products mainly consumer centric and value added and initiating projects like ‘Pehchan’ to educate the influencer/fabricator — expected to drive healthy volume growth in the building products (BP) segment. Further: (i) GST implementation (18% GST rate will improve size of the market as these products are more affordable for end consumers); and (ii) governmnet initiatives such as ‘Housing for All’ will boost demand for EIL products. The rising demand for boards and panels with its inherent advantages over other similar products, is expected to add to the growth curve of EIL ahead. Sales volume of EIL’s BP segment is expected to register ~7% CAGR over FY17-20E whilst this segment’s revenue will be mostly led by future volumes.

PEB segment: Healthy order book

The PEB sector is poised for growth with rising demand for warehouses on the back of the rise in e-commerce and agricultural enterprises. EIL is well positioned to gain in tandem with industry growth, record a healthy order book of 26,518 MT by end-H1FY18 and is expected to register revenue growth of ~13% led by ~11% sales volume growth.

Outlook and valuation:

Initiate with a trading ‘BUY’ EIL is a key beneficiary of government initiatives such as ‘Housing for All’, migration from ‘kuccha’ to ‘pucca’ roofs and implementation of GST. Further, higher infrastructure spend in India, e-commerce growth, increasing warehousing and improvement in rural markets will likely drive overall growth. EIL is trading at 12.7x/10.3x PER and 7.1x/6.0x EV/EBIDTA FY19E/FY20E, respectively. We initiate a trading BUY with a target price of INR 624, valuing the stock at 26% discount to historical 1-year fwd average multiple of 19x i.e. 14xFY20E earnings.