Business of Everest Kanto Cylinder Ltd.
The company was incorporated in 1978 and manufactures wide range of cylinders for industrial gases, medicalgases, fire fighting equipments, beverage industry, accumulator shells, aerospace, scientific research, CNG-NGV cylinders for automobiles and other applications.
The industry is dominated by a few players like Everest Kanto Cylinder Limited, Maruti Koatsu Cylinders Pvt. Ltd and Bharat Pumps and Compressors Ltd. With an existing combined annual production of around 3 Lacs cylinders, the high pressure seamless steel gas cylinder industry in India commands an approximately 1% of the global market
The industry has surged in the recent past because of the growth in the demand of CNG cylinders due to recent legislation.
So far this new surge in demand is being enjoyed among the few domestic players present as there in negligible presence of foreign players in this market. However imports from China have started albeit in a small manner and there are certain Greenfield projects under way as well.
Financials
The company’s turnover has jumped last year to 139 crores from 78.39 crores the year before and as a result the Profit after tax has also jumped from Rs. 2.2 crores to Rs. 14.27 crores. However the turnover and profits of the company have been erratic over the last five years. In 2001 the profit after tax was Rs.3.28 crores which rose to Rs6.41 crores in fiscal 2002 but cooled down to 4.27 crores in fiscal 2003 before coming down to Rs.2.2 crore last fiscal. This is mainly on the back of erratic turnover that Everest Kanto has had in the said period.
The earning per share last year has been Rs.11.90 which was only Rs.3.72 the year before.
The reason for the tremendous growth last year is that with the Supreme Court’s order that the 28 most polluted Indian cities switch to CNG and because of this the industry is witnessing surging volumes for CNG cylinders.
Objects of the Issue
The object of the issue is to raise money for past expansion of the manufacturing facility by setting up a seamless high pressure gas cylinder plant at Gadhidham. The estimated fund requirement for the project is Rs. 105.76 crores.
Key Risk
The driver for the market is CNG cylinder and so the key risk is also the adoption of CNG as an alternate fuel. Although at this point things look up on that front this is the single most important factor for demand going forward.
Conclusion
While investing in this IPO one must keep in mind that the only reason for investing in this stock is that the investor firmly believes that CNG as a fuel will be adopted. Secondly pricing of the issue is an important thing to consider. While the EPS last year has been 11.90 it was only 3.72 the year before. One must keep in mind that the EPS last year has been higher than the normal growth and therefore even a P/E multiple of 15 should be quite high for judgment of whether the IPO should be bought and really 15 times should be the maximum one should be willing to pay. The issue has been priced between Rs.140 and Rs.160 and investors may avoid this IPO.
In order to give our reader's a 360 degree view of the company in question we have included certain important links which will give you further information about the company.
To visit the company's website click the link below:
Everest Kanto's Website
To download the full draft offer document click the link below:
Draft Offer Document
The following table shows the upcoming IPO that have been covered under this section and their status. You can click on any of these to read more about them.
