Hello Sir,
Hope you are doing well.
While everyone has been talking about the EV space and looking for investment opportunities, did you know, major underlying shifts are happening in the CNG segment and massive growth is expected over the next 8-10 years.
In May'22 we shared a new stock recommendation with our Premium Members which could benefit from the massive growth expected in the CNG segment. You can read about the company HERE.
Today, we would like to bring to your notice Everest Kanto Cylinders and share notes from its latest con-call. The company has done well since the last few years and the management sounds confident of strong growth in CNG space in the years ahead.
Hope you find the details useful for your own investments or to add the stock to your watch list:
With the recent market correction, we are working on few interesting stock investment opportunities and will share something good this month. You can get it along with our other Premium Members by signing up HERE
Everest Kanto Cylinders - Notes from Q4 FY 22 concall
Basic details -
- Our India business has delivered strong growth driven by expanding CNG ecosystem that is driving secular demand. As you are aware, leading gas infra companies are aggressively establishing CNG pumps across the country and backed by this expansion Auto OEMs are expanding their CNG portfolio to tap the demand from end consumers
- We do not sell to Maruti
- Our overseas operations have also delivered a sustained turnaround during the year, led by a global shift towards gas adaptation
- Accordingly, looking at the demand from the high potential Egyptian and African market, EKC’s wholly-owned subsidiary EKC International FZE has formed a Joint Venture in Egypt to establish a CNG cylinder production facility
- With our UAE facility operating at healthy levels, we believe, this facility should help us target the growing CNG opportunity due to the region’s major push towards the consumption of cleaner fuels
Imported cylinders vs Local -
- OEM customers prefer to buy products locally
- Lots of different capacity sizes, storage needs and just in time needs to be done, so there is definitely a preference for locally made products
- It's uneconomical to import cascades
Composite vs Steel cylinders -
- Composite cylinders are a complementary product to the industry. Steel cylinders are catering to a different segment and composite cylinders are catering to a different segment
- Composite cylinders are filling a gap, which is there in the market for specific need, for long distance gas transportation
- The growth of the composite cylinders is only in a segment where the gas transportation is required over a long distance
- if you're traveling over a long distance, instead of carrying two trucks, you're carrying one truck, definitely it is an advantage to the customer. Type IV is very good to have where you said six to seven months of payback is only when you're transporting gas over a big distance
Domestic CNG cylinder sales bifurcation -
- Cargo is growing much faster and is going to grow much faster also for us
- For our business, passenger is still about 35% and Cargo/commercial is around 65%
Why expanding in US and UAE despite not great margins -
- Going forward, COVID is behind us and I think the performances should be much stronger and there is a growth in the international market for CNG
- I think this is the right time for us to look at these opportunities which are coming up and I think it should be quite fruitful in the coming years, for these expansions that we are planning to do
US business -
- The order book is very strong
- US is a project-based business, so there always is a huge order book. $20 million-$40 million order book is available, but only thing is that these orders should be executed on time
- Suppose you're selling cylinders in a ship, the ship project is delayed, you get delayed because you're a very small part of a very big project
JV in Hungary -
- We have delayed it for some time, till this Russian situation becomes clear, because, Hungary is also a country that will depend on Russia for many things like gas and other things. No investments as of yet
JV in Egypt -
- Dubai is selling a lot of cylinders to Egypt today, and Egypt CNG business is growing very fast and we are not able to cater this business from Dubai and we feel that we need to have this manufacturing facility in Egypt to cater to this large growing market
- This is very recent development that has happened and we are just at JV signing stage right now
Guidance -
- Volume - Around 10%-15% growth in FY 23
- Product mix - CNG will become 60%, because CNG seems to be growing quite well, and industrial will be around 40%
Margins -
- We anticipate our sustainable EBITDA margin shall be in the range of 20-24% on a full year basis
Capacity expansion -
- During the year, we expanded our annual production capacity to over a million cylinders on the back of our brownfield expansion in India
- The second phase is also on track to be commissioned by Q2 of FY 23. This will add about 1 lakh cylinder capacity and should assist us to drive further growth in this year
- In addition to this our Greenfield expansion in Mundra is progressing well, and we remain on track to commission the facility by FY 24. The initial phase of this project will increase our production by two lakh annually
(End)
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Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.
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