>Everest Kanto Cylinder Limited (CRISIL)

‘Superior Fundamentals and Strong Upside’

■ Strong management and sustained leadership in cylinder market
Everest Kanto Cylinder Ltd (Everest Kanto) has a strong and experienced management with about three decades of experience in the high pressure cylinder industry. The management has successfully driven the company to a leadership position in the domestic as well as international markets. It is India’s largest player with 65% of market share and the second largest player in the world. The company supplies to around 20 countries and is one of the leading suppliers to Iran and Pakistan, the fastest growing

■ Compressed Natural Gas (CNG) markets, globally.
Domestic and international markets to provide impetus for growth In the domestic market, we expect CNG infrastructure to grow on account of increase in coverage of city gas distribution projects (from 35 to 100) and availability of gas from Reliance Industries, new discoveries by Oil and Natural Gas Corporation Limited (ONGC) and Gujarat State Petroleum Corporation Limited (GSPC) in the Krishna-Godavari (KG) basin. On the global front, rising concerns over environmental pollution by vehicle emissions and oil price fluctuations have caused governments of various countries to initiate CNG implementation programmes.

■ Expansion plans to meet future requirements
Everest Kanto augmented its production capacity by 400,000 cylinders in the last 3 years. It plans to increase it further by another 500,000 cylinders by the Q1FY11. This capacity expansion is expected to bridge the foreseen demand-supply gap.

■ Everest Kanto to demonstrate strong financial performance
Everest Kanto is well-positioned to encash the huge opportunity present in the cylinder space. Acquisition of CP Industries has enabled Everest Kanto’s entry into high margin jumbo cylinder business and access to the US market. We expect the company to witness strong growth in its gross sales at a Compound Annual Growth Rate (CAGR) of 16% over FY09-12 to Rs 13.9 Bn. PAT is expected to grow at a CAGR of 22% during the same period.

■ We assign Everest Kanto ‘4/5’ on Fundamental and ‘5/5’ on Valuation
Everest Kanto’s fundamental grade of ‘4/5’ indicates that the company’s fundamentals are
‘Superior’ relative to other listed securities in India. The grading factors in strong management capabilities and Everest Kanto’s leadership position in the industry. Prospects of the industry and of the company are positive as well. The valuation grade of ‘5/5’ indicates the value of the stock has ‘Strong Upside’ (Fundamental Price of Rs 270) from the current market price.

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