EKC

EKC

EKC

Investors can consider phased exposure to the stock of Everest Kanto Cylinder, a high pressure cylinder manufacturer. At the current price of 97, the stock trades at 11 times its expected consolidated per share earnings for FY-12. The jump in volume sales in India and in its Dubai unit, lower costs of operations anticipated for new capacities and depletion of high-cost inventory augur for improvement of earnings from FY-12. Investors would need at least a two-year perspective to benefit from macro opportunities arising from CNG city gas distribution and Euro IV norms. Given the present market volatility, the stock can be accumulated in phases, on dips.

Patni Computers, EKC, Voltas, Piramal Glass

Patni Computers, EKC, Voltas, Piramal Glass

EKC

EKC

DLF, Everest Kanto, NTPC, Phoenix Mills

DLF, Everest Kanto, NTPC, Phoenix Mills

Dishman Pharma, EKC, EIH Hotels

Dishman Pharma, EKC, EIH Hotels

EKC

EKC

EKC

EKC

Cadila Healthcare, EKC, GDL, GSPL, HDFC Bank, Grasim

Cadila Healthcare, EKC, GDL, GSPL, HDFC Bank, Grasim

EKC

EKC

Today's Pick - EKC

We recommend a buy in Everest Kanto Cylinder from a short-term perspective. It is evident for the charts of Everest Kanto Cylinder that it has been on steady and gradual long-term uptrend since July 2005 low of Rs 54. Recently, the stock resumed the long-term uptrend, following a short-term correction from its life high of Rs 385 to a low of Rs 238. The stock’s resumption of the uptrend has been backed with bullish divergence in the daily momentum indicator. The dail y momentum indicator is rising in the neutral region and the weekly momentum indicator is on the edge of entering the bullish region. We also note that the 200-day moving average line has provided support for the stock recently. Moreover, the long-term uptrend is still in place. We are bullish on the stock in the short-term. We expect the stock to move up to our target level of Rs 375 in the short-term. The investors with short-term perspective can buy the stock with stop loss at Rs 279.


Via Businessline

Everest Kanto Cylinders: Buy

Investors can consider taking fresh exposure to the stock of Everest Kanto Cylinders (EKC), a leading manufacturer of high-pressure CNG (compressed natural gas) and industrial cylinders.

While we had earlier suggested that investors book profit on the stock, the recent spurt in oil price, combined with EKC’s change in raw material sourcing strategy, presents a case for renewed investment. Besides, the shift towards high-margin products and the commencement of production in the company’s Dubai and China (by early January 2008) units also underscore our changed stance.

At the current market price of Rs 330, the stock trades at about 20 times its likely FY09 per share earnings, assuming a full conversion of its foreign currency convertible bonds into equity. This valuation, though seemingly at a premium, is likely to be supported by the company’s established market presence and capacity expansion plans that would position the company to benefit from the growing global CNG market. Investors, however, can buy the stock in lots given the volatility in broad markets.
Buoyant demand trends

The global demand for CNG applications is set to increase on the back of a firm oil-price outlook. This is likely to rub off positively on EKC, which derives about 68 per cent of its revenues from the CNG segment. Catering to demand from countries such as Malaysia, Thailand, Gulf countries and CIS (Commonwealth of Independent States) nations, EKC appears well placed to tap the growth potential in the CNG space in overseas markets since it has the necessary approvals from its target countries.

Notably, demand from the domestic market may also increase with the Supreme Court mandating the use of CNG as auto fuel for heavy vehicles in 28 highly polluted cities. The proposed extension of City Gas Distribution projects may offer an opportunity for growth.

In the light of such an expected ramp-up in demand, EKC’s aggressive scaling of capacity appears well-timed, lending confidence regarding its ability to meet future demand. Capacity expansion across its units, setting up of greenfield project in China, introduction of new product line (Jumbo cylinders) in the Gandhidham unit and the opening of a second unit in Dubai suggest improved prospects. However, given the high gestation period, it could take a year or two before full benefits accrue from the added capacities. Concerns of excess capacities in the medium-term are also alleviated by the current high order book.
Broad-based sourcing

Change in raw material sourcing strategy also supports our case for investment. While there were concerns on EKC’s complete dependence on Tenaris, a global manufacturer and supplier of seamless tubes for raw materials, the broad-basing of sourcing to Chinese and Japanese manufacturers appears to have de-risked the same. However, the management expects the sourcing levels to be maintained at current levels (about 65 per cent from Tenaris), since the materials sourced from Chinese players may not suit the requirements of higher capacity cylinders.
Expanding margins

For the half-year ended September 2007, EKC doubled its earnings on a consolidated basis and expanded its operating margins by about 3 percentage points to 25 per cent. Improved realisations for the CNG cylinders and pruning of cost can be attributed to the margin expansion.

Going forward, margins are likely to expand further, given EKC’s plan to increase production of Jumbo Cylinders, which enjoy higher margins. Further, change in product mix tilted towards higher production of CNG cylinders over industrial ones may also add to the margins. While the overall volumes could remain at current levels, the management expects the change in product mix and improving realisations to yield better earnings in future.

Earnings may also get a lift from the proposed increase in export contributions from the India-based units. In this regard, the company’s active hedging policy and strategy to bill both imports and exports in either dollar or Euro denominations provide comfort against forex risks.

EKC

EKC

EKC

EKC

Kotak - EKC, ONGC

Kotak - EKC, ONGC

Everest Kanto: Book profits

Investors with a medium-term perspective can consider booking profits on at least a part of their holdings in the stock of Everest Kanto Cylinders (EKC), a leading player in the manufacture of seamless steel gas cylinders. At current market price, the stock trades about 24 times its likely FY08 earnings per share. While we remain optimistic on the growth prospects given the company's market presence and increasing capacities, the positives already appear to be factored into the current stock price. Besides, given EKC's recent announcement of a Rs 240-crore expenditure for further expansion (likely to be funded through equity-linked instruments), equity dilution also remains a risk to immediate earnings.

Given the robust demand scenario for CNG cylinders, EKC is set to benefit from the increase in capacities through both greenfield and brownfield expansion. Contribution from exports is also slated to increase given EKC's presence in Dubai and China. While the Dubai plant is expected to commence production from the current quarter itself, the China plant is likely to start production from the third quarter of FY08 only. However, since the full impact of the expansion is likely to be derived from FY09 only, earnings expansion in the current fiscal year may not be at levels impounded by the stock's valuation.

For the financial year 2007, EKC registered an 80 per cent growth in net sales and 114 per cent increase in earnings on a consolidated basis. While margins improved on the back of higher realisations and utilisation, the latest quarter saw a decline in margins in the Indian operations due to a change in the sales mix. Any domestic acquisition for capacity expansion, rise in oil prices or a change in regulations by the Union Government expediting the roll-out of CNG-run vehicles are likely to remain the primary risks to our recommendation.

ICICIDirect - EKC , ASK - Suzlon Energy

ICICIDirect - EKC

ASK - Suzlon Energy

Ramakrishna Forgings, EKC, Centurion Bank of Punjab, BPCL, Offshore Service Providers

Man Financial says Ramakrishna Forgings's topline is higher than
expectations, but faced pressures in the bottom line due to higher
depreciation and tax provisioning. They maintain a BUY with a target of
197

ICICIDirect recommends a BOOK PROFITS on EKC. At the current price of Rs
1063, the stock is richly valued at 20.79x its FY09E earnings per share of Rs 51.12. They believe that investors should book profits.

SSKI recommends OUTPERFORMER on Centurion Bank of Punjab

CBoP has reported Rs280m net profit (9% yoy growth) for Q4FY07 in line with our expectation of Rs282m. Higher standard asset provisioning led by one time hit of Rs198m (as expected) largely offset the benefits of the continued momentum in core income streams . Given its inherent duration mismatch, the bank was vulnerable to rising deposit rates leading to pressure on margins. CASA ratio also declined to 31% (decline of 300 bps QoQ ) considering the rapid balance growth . A latent significant operating leverage continues to be the key attractions of the bank. We have marginally downgraded numbers by 2.5% and 1% in FY08 and FY09 to reflect the higher provisioning. Going forward, we expect 46% CAGR in CBoP's earnings over FY07-09E. Though valuations of 4.2x FY08E and 3.8FY09E Adj P/BV appear expensive, they do not price in the high RoE generating capacity of the retail focused business model and low market cap/assets vis-à-vis peers . Maintain Outperformer.

SSKI Recommends OUTPERFORMER on BPCL

Bharat Petroleum Corporation's (BPCL) Q4FY07 results ¿ net profit of Rs 6.7 bn ¿were in line with our estimates of Rs 6bn. During the quarter, BPCL received Rs 9 bn in the form of oil bonds and Rs 11.84bn as upstream share that more than compensated for the negative impact of total under recoveries of ~Rs18.5bn. We upgrade the stock to Outperformer to factor in an expected improvement in fuel marketing margins driven by lower crude prices. Reiterate outperformer with a price target of Rs431.

Emkay recommends investing in Offshore Service Providers

We believe that fundamentals for offshore service providers remain extremely strong. Adding icing on the cake is the long term nature of contracts, which we believe provides unprecedented visibility of future earnings. We believe that the Indian offshore oil field services are very attractively valued with the group trading at an average two year forward P/E multiple of 8X. We believe a confluence of strong fundamentals, high earnings visibility, attractive valuation and strong possibility of re-rating should ensure superior stock performances by the entire pack of Indian offshore oilfield service providers. We initiate coverage on the sector with a positive view and BUY ratings on all the companies under coverage. Our top picks in the sector remain Aban, Great Offshore and Garware Offshore.


Sharekhan Recommends Aurobhindo Pharma

At the current market price of Rs684, Aurobindo is trading at 14.9x its FY2008E and 12.0x its FY2009E earnings. We initiate coverage on Aurobindo with a Buy recommendation and a one-year price target of Rs914 (an upside of 34% from the current levels). The price target discounts the FY2009E earnings by 16x.

Citigroup - Punjab Tractors Technicals, EKC

Citigroup - Punjab Tractors Technicals, EKC

ICICIDirect - EKC

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