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Earnings Call Analysis
Q2-2025 Analysis
Everest Kanto Cylinder Ltd
Everest Kanto Cylinder Limited reported impressive financial results for Q2 FY25, with consolidated revenue reaching INR 367 crores, marking a notable year-on-year increase of 22.7%. This growth was largely driven by robust contributions from international operations, particularly in the U.S. market, where the order-based nature of their business led to significant jumps in profitability. The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) rose by 28.7% to INR 53.1 crores, translating to a margin of 14.5%. Additionally, the Profit After Tax (PAT) surged by 47% to INR 38.6 crores, showcasing the company's capacity to enhance its bottom line amidst growing sales.
The U.S. market emerged as a key contributor to Everest Kanto's profitability, indicative of strong demand and a solid order book, currently estimated between $40 million and $50 million, expected to be executable within the next 18 months. The margins in this segment showed remarkable improvements, jumping from 17% in Q1 to an impressive 29% in Q2. However, management advised taking an annual overview of profits, anticipating continued sustainable margins of around 12% to 14% as the business stabilizes.
In the Indian market, the demand for seamless gas cylinders is expected to grow, driven by increased use of CNG vehicles. The government's focus on environmentally friendly alternatives is propelling this trend, reflected in the ongoing expansion of the CNG distribution network. Everest Kanto's management remains confident, forecasting stable sales growth, similar to the 20% growth reflected in H1 performance. For FY26, they project an overall revenue growth of about 10% to 15% as they optimize production and expand market reach.
Everest Kanto is strategically investing in its future, with expansion projects underway in Egypt and Mundra, India. The Egypt facility is projected to begin production around June to July 2025, with peak revenue potential estimated at INR 200 crores. The Mundra plant, expected to become operational in 12 to 14 months, is anticipated to drive revenues of around INR 300 crores at full capacity. An additional CapEx of INR 50 crores has been earmarked for the Mundra project, emphasizing the company's commitment to fulfilling rising energy demands.
Everest Kanto is keenly aware of the global shift towards sustainable energy, particularly the integration of biogas into the energy mix. Multiple biogas-to-CNG plants are being established, enhancing the sustainability of CNG as a cleaner alternative to traditional fuels. Management expressed optimism regarding future opportunities tied to green hydrogen, aligning with India's long-term energy goals. They are positioned to capitalize on emerging demands, particularly in new segments such as biogas and hydrogen solutions.
Margins in the Indian market are currently under pressure, particularly in the Cascade business segment, with a slight decline noticed. However, management is optimistic that adjustments in cost structures will yield margin improvements in upcoming quarters, forecasting a return to margins around 12% to 14%. This improvement hinges on better cost management and efficiencies associated with their operational scale.
Despite the positive outlook, Everest Kanto's operations are not without challenges, particularly in unstable markets like Nigeria, which are subject to volatility. Strategic insights shared during the call suggest careful navigation of risks associated with international expansion due to varying economic conditions and infrastructure concerns. The management recognizes that while opportunities abound, execution adaptability will be crucial for long-term success.
Overall, Everest Kanto appears well-positioned for sustainable growth, bolstered by strong financial performance, focused management strategies, and an expansive view toward sustainable practices. With planned expansions and a keen eye on market dynamics, the company is creating significant long-term value for stakeholders. Investors can look forward to a continuing upward trajectory as they capitalize on present opportunities while managing associated risks.
Ladies and gentlemen, good day, and welcome to the earnings conference call of Everest Kanto Cylinder Limited. [Operator Instructions] I now hand the conference over to Mr. Nitesh Jain from CDR India. Thank you, and over to you, sir.
Thank you, Sagar. Good evening, everyone, and thank you for joining us on Everest Kanto Cylinder Q2 and H1 FY '25 Earnings Conference Call. We have with us Mr. Puneet Khurana, Managing Director; and Mr. Sanjiv Kapur, Chief Financial Officer of the company. We will initiate the call with opening remarks from the management following which, we will have the forum open for a question-and-answer session.
Before we begin, I would like to state that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation shared with you earlier.
I would now request Mr. Puneet Khurana to make his opening remarks. Thank you, and over to you, sir.
Thanks, Nitesh. Good evening, everyone, and thank you for joining us on our earnings conference call. I will begin by sharing an overview of our performance for the second quarter and 6 months ended 30th September 2024, following which we will have the QA session.
We are pleased to report a strong performance in Q2 FY '25 driven by robust contribution from our international operations and a steady uptick in our Indian business. Consolidated revenue for the quarter stood at INR 367 crores, reflecting a year-on-year increase of 22.7%. EBITDA grew by 28.7% year-on-year to INR 53.1 crores, with a margin at 14.5%, while the PAT saw a notable increase of 47% year-on-year to INR 38.6 crores.
Our strong performance in international operations were primarily driven by U.S., which was a key contributor during the quarter. The order based nature of our U.S. business resulted in significant jump in profitability, while we anticipate the fiscal year as a whole to remain strong for the U.S. market.
The second half is expected to deliver steady performance compared to the same period last year. In the Indian market, the outlook of seamless gas cylinder remain highly encouraging. The government's focus on ecofriendly initiatives continue to drive the adoption of CNG vehicles.
The ongoing nationwide expansion of CNG distribution network highlights the growing importance of CNG in India's transportation sector. India's focus on sustainability energy is also gaining traction, supported by private sector plans to establish multiple biogas to CNG plants with CNG already recognized as a cleaner and more efficient alternative to traditional fuels, the integration of biogas into the energy mix will further enhance its sustainability and accessibility.
This aligns with the country's broader green energy goal and positions C&G as a future-ready fuel capable of addressing India's evolving energy needs, while reducing dependence on imported fossil fuels. Contemplating with this achievement -- advancement, green hydrogen is expected to gain prominence as a transformative force in India's clean energy landscape, offering immense opportunity for the growth. The company is already addressing hydrogen demand and anticipate significant potential in emerging in the market in India, with green hydrogen poised to play a pivotal role in decarbonizing industries and transportation, we are well positioned to leverage our expertise in this high potential market.
Coming to an update on expansion plan. We are strengthening our manufacturing capability in developing our facilities in Egypt and Mundra, India. These plans designed to produce high-pressure -- seamless high-pressure CNG hydrogen industrial gas cylinders and progressing as planned and expected to becoming operational in the coming quarters.
At our Mundra project, we have embarked an additional CapEx of INR 50 crores to set up new manufacturing lines with execution plans over the next 12 to 14 months. This move reflects our confidence in the medium- and long-term demand of CNG and sustainable energy solution in India. These expansions will enable us to meet growing market needs and further strengthen our leadership position in the industry.
To conclude, we would establish our leadership position and strong financial foundation. We believe we are well positioned to capitalize on growing opportunities of our seamless cylinders in both domestic and international market, creating a long-term value for all our stakeholders in the years to come.
With that, I conclude my remarks and invite the moderator to open the floor for questions.
[Operator Instructions] Our first question comes from Deepan Sankara Narayanan from TrustLine Holdings Private Limited.
Congratulations for a good set of numbers.
Thank you.
So firstly, from my side, so what is driving India business growth at higher level?
Yes, yes. Yes, sorry...
Deepan, sir, we have lost year audio.
So what is driving India business strong growth performance during this quarter?
Yes. Okay. So mainly the CNG business continues to drive this quarter.
CNG business, this is -- we are referring to the new 2-wheeler CNG launch or our general cylinder business to...
No, no, general cylinder business, the CNG cylinder business.
Okay. But despite having incrementally grown over last year considerably, but our EBITDA has not grown much and margins remain lower at 7%, so what is the reason for it? And when do we expect the margins to improve at the India business level?
So we had a little bit of a drop in our Cascade business margin. Hopefully, that will improve with our bettering the costs on the product.
Okay. And how is our 2-wheeler CNG business doing? We could see the volumes every month going up in the range of 4,000 to 8,000. So are we 100% supplier to the 2-wheeler OEM?
No, no, we're not 100% supplier. So the volumes have just started. So hopefully, they will pick up much going forward.
Okay. So that we will have better margins in double digits in line with our other India business, right?
No, definitely, the margins will be there. The only thing is the cylinder, the product, itself is a low-cost product. So you will -- we'll have the sales, but it may not be as large as the CV business or the PV business.
Okay. It will be lower than PV business, but higher than our industrial business, right?
Yes. Higher not today, maybe in the future, like I said, even in the industrial, lots of the products are very high value-added -- high-value products. The product here is a little bit small -- very small product -- small cylinder. So the value of the product is quite small.
So it will definitely add to the business of the company, but it may not be impactful as -- it may not be so impactful as we're expecting it to be.
Okay. And sir, what is your opinion on this recent CNG price hike which has happened, which has further increased the gap between CNG and diesel prices? So this will impact CNG demand or the CNG conversions happening at CV business, so how do you see the impact going here?
Currently, we don't see much -- it's not affected much because the CV business also continues to -- the order book is there. So a little slight change in the price is not really created too much impact because now the customer is more or less used to this kind of pricing of CNG.
Okay. And how do you see these opportunities from these hydrogen and biogas kind of opportunities? And when it will actually get reflected in our numbers?
So biogas has definitely already started to reflect. There's lots of biogas plants are coming and getting commissioned. So biogas definitely is happening, and we'll continue to see in the next 2 to 3 years, you'll see more and more growth on biogas. So we're already seeing that happening. Biogas traction has already started. And hydrogen, that is -- hydrogen in the country has just started to set up infrastructure. So hydrogen will take some time to happen.
Okay. Sir, understanding this biogas opportunity further, so will it be a cascade kind of an opportunity or our cylinders will be used in biogas...
It's like an opportunity in every way. A CNG station comes up, it gives you all opportunities. It gives you an opportunity in the cascades business, it gives you automobile business, in the auto side, so opportunities will come more CNG stations as the -- we're already at around 7,000 stations.
And the way the biogas is going, maybe we will have -- maybe by the end of next year, maybe 10,000 stations will be there. So as the infrastructure grows, definitely, the demand for people converting into CNG becomes greater because infrastructure is easily available near their home and biogas is just helping -- is giving a big push.
Okay. And this quarter, we have seen U.S. business contributing heavily towards profit, so do we expect this run rate of profit contribution continuing its U.S. business or it will be more lumpy in nature?
No, U.S. business will be profitable. But sometimes what happens is some orders are executed in -- see, the U.S. business is a project business. So you will always have one quarter where you will have orders that are executed in -- because it will start -- you start preparing in quarter 1 and the orders get executed at one time in quarter 2. So in quarter 3, you'll see that maybe the order book is very good. And there may not be what you saw in the last quarter, but definitely, there is a -- the business will be good.
Okay. Sir, lastly, from my side, this incremental CapEx of INR 50 crores at Mundra, so this been done with a reflection of higher demand coming from our 2-wheeler CNG or our normal CNG cylinder for CV business also we are expecting to pick up over time?
So it's a mix of both. It's a mix of what we're expecting from the 2-wheeler, expecting coming from the CNG industrial market also.
The next question comes from Reet Jain from First Water.
Congratulations for the good set of numbers. I wanted to ask you, do we have a decent order book in the U.S.A. subsidiary, like -- what is the order book that we have in the U.S.A. subsidiary?
Okay. Yes. $40 million to $50 million.
Okay. And that is executable in what time period?
Maybe 18 months.
Okay. Got it. And what is the current capacity utilization after the Q2 numbers?
70%.
And this is before capturing the further expansion that we are doing in Egypt and Mundra?
Yes. This is only India we're talking about.
Okay. Got it. And regarding the new facility in Egypt and Mundra, are we going to produce only type 1 cylinder or are we focusing on other value-added products like...
We'll be focusing on the value-added products also.
So that includes composite cylinders also, type 3, type 4?
Yes.
And can you give us the area about the size of the opportunity in Nigeria because a lot of conversions are happening from petrol to CNG?
So Nigeria is just -- it just started the market. And these countries really have a -- is very volatile places because foreign exchange issues. So it's an infrastructure again. Everything comes down to infrastructure. So as we talk a lot about Nigeria and other things, but the markets are just beginning.
So it's just in a very initial stage. And -- but you cannot compare the opportunity to someone like India because we are in a very organized marketplace. We are in a very stable country. Egypt is -- I'm sorry, Nigeria is a very unstable currency related -- currency issues, government decision on how the CNG infrastructure will be laid out. So there is no clear plan or execution of the plan that's come through. So the opportunity is very, I'd say, in a very nascent stage.
Got it. And Reliance has just announced INR 65,000 crore CapEx for biogas plant, so are we seeing any major opportunity there?
Yes, of course. So like I said, in the next 2 to 5 years, you'll see that all these projects that have been announced are coming -- is going to come on stream. So because they're announced today, obviously, the projects will take time to -- but Reliance is already -- they are already -- we are selling to them. So there are projects which are coming today, and there are some projects which are planned in the future.
Okay. So it is very much possible that we are going to supply to them in the future?
We're already supplying to them. And as the opportunity becomes bigger, there is a bigger chance to sell more and more CNG cylinders to them.
Got it. And this is regarding the product development by our Time Technoplast. So they just developed Type 3 cylinders which are the applications in hydrogen, aerospace, drones. So are we working on any such innovation?
No. So we already developed the Type 3. We also have a product -- we also have developed the Type 3 cylinder. So we are also in line with development of these products.
No, but they received the Peso approval. So are we at that stage?
See, anything we do is with Peso approval only. So all the developments that we do is with Peso approval. Without Peso we cannot do anything. Yes, so we have also developed these products. But like the market is just in the beginning stage of growth. So we're going to definitely see a lot of growth coming from this market in the future.
Okay. Because they mentioned in the...
The company is product ready. So we are ready with the product where they also trying to fill in the order book. So definitely, there will be -- you will see some impact in the future from here, some value-add, some sales will be coming from here.
Got it. And last question. Regarding the CapEx in Egypt and Mundra, what could be the peak revenue at 100% capacity utilization, we can expect, like the peak revenue from each plant, Mundra and Egypt?
So Mundra, I think around INR 300 crores.
Okay. And Egypt?
Maybe INR 200 crores?
The next question comes from Ankur Poddar from Svan Investments.
Congrats on a decent set of numbers.
Thanks, Ankur.
My question is just a follow-up on a few questions participants have asked earlier. I wanted to know what was the impact in the Cascade business you explained earlier on which impacted our margins? And when you see the things stabilizing and on a sustainable basis, what should the margin be assumed in near term and few quarters going ahead?
So the margin definitely will improve in the quarters -- coming quarters.
Okay. So sir, we have made earlier margins close to around 13 -- 10%, 11%, 13% in -- 3, 4 quarters back. So can we go back to that number?
12% to 14%, yes, I think it should be okay.
Okay. And sir, we have seen some phenomenal spurt in the margins in U.S. business for last 2 quarters, 17% Q1 and 29% in Q2, so you said that there was some revenue booked in this quarter. So on the cost front [indiscernible] and going forward what is the sustainable margins we expect here?
So U.S. is a project business, whole. So if you -- you cannot be taking the business quarter-to-quarter. You'll have to take an annual overview of the business. So annual overview will give you a 12% to 14% return, they will give it to you. So that is -- you might get a few quarters where things will look very, very good. But overall, this will be the -- should be the trend.
So you see this business can sustain around 12% to 14% margin, is this understanding right?
Yes. Because the order book is good. And the U.S. now with the new regime, definitely, there will be a huge boost in a lot of industry activity.
Okay. And sir, is there any plans to discontinue this business going ahead? Have we canceled that plan or we are...
No, no, we never going to discontinue the business. We have been fighting the cost, trying to find new avenues of growing the business. Definitely, there is a idea to continue the business.
Okay. Great. Last question regarding the Egypt CapEx. When can we see the start of production for this plant? And you said the peak utilization level at a peak utilization level, we can clock around INR 200 odd crores.
In Egypt currently, we have already completed the construction at the site and the equipment ordering has also begun. So I would say somewhere around June-July '25 is when we think we can probably start commercial production.
Okay. And when we see that the peak stabilization can be achieved for this plant?
Maybe in the next 6 months after that. So maybe by December.
Okay. And you said that at a peak utilization, the annualized revenue can be close to around INR 200-odd crores.
Yes.
And which market through this plant, we will be catering?
Locally. They will -- they will sell mainly local market.
The next question comes from [ Hiten Boricha ] from [ Sequent ] Investments.
Sir, actually, you have given us sales break up country wise. Can you highlight what is the cascade -- sales from the cascade business?
No, I don't have those numbers.
Is it significant? Like the cascade business is significant or because that segment seems to be growing quite fast in India?
Yes, it is significant. Yes, it is, of course, it contributes.
Okay. One second, sir. So your total India business is, I think, INR 235 crores. So out of that, what percentage would be the cascade business, if I had to look at it that way?
I don't have the number with me. I don't have the exact numbers with me.
Okay. And where do you see the maximum growth for us? From the commercial vehicles or from the Cascade business or from -- the bike business is too small right now.
Yes. Yes. We may be the CV business is where the growth is going to come.
The CV business is where the growth is.
Yes.
Okay. In India also, we do the cascade business, right? Not only in...
Yes, of course. India is only where we do the cascade business. We don't have any cascade business anywhere else.
[Operator Instructions] The next question comes from [ Darshil Jhaveri ] from Crown Capital.
Congratulations on a great set of numbers. So sir, just wanted to know, I think in the opening comments you meant I think H2 is going to be steady as compared to rest so does that mean we'll have similar revenue or our growth rate of H1 will be maintained?
Sorry, I couldn't hear you. I'm not very clear. Your voice is not very clear.
So hopefully, my voice is better right now.
Yes.
So sir, I think in the opening statements, you mentioned that H1 -- H2 will be stable as compared to last year H2. So I just wanted to know, so our sales growth of like around 20% that you've done in H1 will that continue over for H2 or how would H2 pan out, sir?
Yes, the top line should be remain.
So top line of H1, how our quarterly run rate has been that should remain?
Yes.
Okay. Fair enough, sir. And sir, with regards to FY '26, sir, like Egypt plant will come in, and when will our Mundra plant come in? So what kind of revenue growth can we see for FY '26, sir?
So Mundra plant I think around -- in 12 to 14 months. So there, we can definitely see a growth of around INR 300 crores.
But that will come in FY '27, right, or it will come in FY '26?
Yes, correct.
Okay. So for FY '25, what kind of -- or FY '26 what kind of growth can we look at, sir?
Maybe 10% to 15%.
Okay. Fair enough, sir. And sir, the margins that we are doing currently will remain, right, sir?
So they should improve yes. Margins should improve.
Margins should improve. Okay, fair enough, sir. And just 1 question, sir. I just want to know what should be our effective tax rate because we have U.S. business also, so just wanted to know that what will be our effective tax rate, sir?
25.16% is India.
Yes. But then because of U.S. is on a blended basis, I think we don't have that much tax, right, sir? Or so -- because I think last 2 years, you've not had 25%, right?
Yes. You're right.
The next question comes from Preeti Bhavna, an individual investor.
Congratulations on your good numbers. I have a couple of questions in the series of questions. First question, how many units we are having operational and at what location and what is the overall capacity of all these units?
So we have operations in India. We have a unit operational is in Tarapur outside Mumbai and 1 in Gujarat in Ghandidham. In Dubai, we have 1 unit running, that is in Jebel Ali Free Zone. And in the U.S., we have a unit running.
Okay. What is the capacity -- overall capacity of...
I think it would be around -- I think give you total capacity with India, Dubai should be about 1.2 million. And U.S., usually the number of cylinders is around 4,000 cylinder capacity.
Per annum or per month?
Per annum. This is -- all are per annum.
Okay. And how much cylinders we sold in quarter 2 and quarter 1? On the guidelines of revenue, what are the volumes we sold overall?
So we don't have those figures in hand currently.
Okay. Rough figures?
I don't have them right now with me, but we can always share with you if you are here in the office, we can always...
Okay. No issues, I will mail you, no problem. And on the part of, I have seen like the U.S. business has grown -- like the margins are grown very high. I just want to understand what kind of project work we are doing in U.S.? And is that in U.S. and Hungary, both are the project works or we are supplying the cylinders there?
No. So basically, U.S. is a manufacturing unit and then Hungary is just the company. So U.S., mainly the projects are all government-based projects in aerospace and defense.
Okay. So are we expecting these projects to be like in the future as well or they are time bound only?
We already have an order book of $40 million, $50 million there. The U.S. business is all about projects. So they always have a good order book.
So we are having an order book for next year as well?
Exactly. Yes. Yes. You have an order book, yes. You have an 18-month order book.
Okay. And on the part of like current cascade orders, what are the current cascade orders you are having in hand for India for the next 6 months?
I don't have the order book in my hand, but it's quite -- it's decent. We have a good order book for cascades.
Can you answer in numbers like rough estimation of...
I don't have any numbers with me currently.
The next question comes from [ Hiten Boricha ] from [ Sequent ] Investments.
Yes. My question is on the borrowing, sir. Our borrowing has went up from INR 39 crores to INR 114 crores. So can you throw some light on that?
Yes. So we have been utilizing our CC limits, which was not being utilized earlier. And top line also has grown.
What would be our rate of borrowing, sir?
9%.
You're not audible, sir, sorry.
9%.
9%. Okay. And sir, one more clarification. You mentioned our cascade business is only in India. So what is this collaboration with Nigerian company related to cascades?
No, we have no collaboration with Nigerian company. Yes, we have no collaboration in any Nigerian company with -- for cascades.
Okay. So what exactly we do there?
I mean see, we sell cylinders in Nigeria. And if somebody maybe customer, maybe if they require some cascades, we might have sold some cascades. But there is no such collaboration. And Nigeria is just a very nascent stage, the market. So just starting -- the market is just starting, still early days.
The next follow-up question comes from Reet Jain from First Water.
On the financials, this quarter, we have interest of INR 8 crores. So is there any one-off here? Because the borrowing of close to INR 160 crores should drop the interest rate of around INR 16 crores for the full year, if I assume 10% interest rate. And for 1 quarter, we have expensed INR 8 crore in this Q2. So is there any one-off here?
Can you give us some more details, we are not able to locate the number of one-off that you're talking about. Yes, Sanjiv will talk to you.
Yes, tell me.
Yes. So if you look at the consol P&L, the interest expense is close to INR 8 crores and why is it so high? I mean if we have the borrowings of INR 160 crores per quarter interest rate should be -- per quarter interest expense should be close to INR 3 crores, INR 4 crores, then why it is INR 8 crores?
No, it's just -- it is normal. It is all based on the utilization of the current -- CC accounts. There's utilization then there's probably there will be -- if you take a new limit probably there are other charges processing fees, et cetera, which we have come, it's because of that.
The next follow-up question comes from Ankur Poddar from Svan Investments.
Sir, can you throw some visibility on our UAE business? What is the low visibility we are seeing here on a near-term to long-term basis?
So we -- see, UAE business is traditionally they have a good order book from countries like Egypt, and Europe, South America. So we are continuously exploring new markets here.
Okay. So going forward, what is our order book? And what are we seeing run rate here? How do we proceed here for the next year or in the coming quarters?
No, definitely, the sales will improve, and we have a decent order book. And it's how the whole -- that area is a little bit volatile, so sometimes we do have some disruption in product moving in sales because of some or the other disruption in that area from war or something happens and some kind of disruption happens and then the sales gets hampered and move to the next few months.
Okay. Sir, and regarding the earlier question of interest cost, INR 8 crore interest, I missed what was the answer here?
Yes. One second, I'll give to Sanjiv.
Yes, it was on account of a change in 1 bank to the other. Because of that, U.S. had to bear some additional cost of processing fees.
Okay. So from next quarter, you will see some benefit flowing here?
Yes.
[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you once again for your interest and support. Should you any further clarification or would like to know more about the company, please feel free to contact our Investor Relations team at CDR. Thank you.
Thank you. On behalf of Everest Kanto Cylinder Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.