Everest Kanto Cylinder Limited Q2 FY23 Earnings Conference Call Insights

Key highlights from Everest Kanto Cylinder Limited (EKC) Q2 FY23 Earnings Concall

Management Update:

• [00:01:29] EKC said its performance in 2Q23 remained soft on account of the low demand seen in key commercial vehicle CNG cylinder segment. Weak CNG cylinder demand in June continued through the quarter impacting revenue.

• [00:03:06] EKC said it’s going slow on its greenfield expansion at Mundra due to current demand environment. However, as the demand environment for CNG cylinders is expected to remain soft in the near-term, EKC expects the demand to improve over the long-term.

Q&A Highlights:

• [00:05:30] Deepan Shankar of Trustline PMS asked about the reason for fall in volume in commercial vehicle CNG cylinder. Puneet Khurana MD replied that there was a inventory pile up at the OEM’s end due the price increase and demand shift, due to which they don’t want to take more volume.

• [00:07:36] Deepan Shankar of Trustline PMS asked about the industry for the ICV vehicle, if its volume decline and EKC volume decline are in similar lines. Puneet Khurana MD answered it’s that the customer is now preferring diesel vehicle instead of CNG now. EKC is falling in line with industry volumes.

• [00:10:45] Anurag Patil with Roha Asset Managers enquired about the reason for margins falling from 20% to 10% in last two quarters. Puneet Khurana MD clarified it’s mainly due to the substantial decline in the CNG business. So since the volumes have reduced, margins have reduced.

• [00:11:37] Anurag Patil with Roha Asset Managers asked when a recovery can happen in margin improvement. Puneet Khurana MD said it’s very difficult to give a timeline. It’s global scenario. However, EKC expects CNG to increase every month, but large volume can happen only when gas prices internationally cool down.

• [00:13:08] Anurag Patil with Roha Asset Managers asked that based on the current situation if volumes and revenue will continue to decline in 3Q23. Puneet Khurana MD answered that it might be similar to 2Q23.

• [00:16:35] Nishith Shah with Aequitas enquired about the mix of industry and CNG in revenues right now and execution in international business. Puneet Khurana MD said it’s around 50:50 on a standalone basis. On international business, in 2Q23, US has rebounded and Dubai 3Q23 will be looking much better.

• [00:18:15] Nishith Shah with Aequitas also asked that in US if EKC can expect the same kind of revenues as in 2Q23. Puneet Khurana MD replied that in US the company expects better revenue going forward.

• [00:18:47] Karan Asli with Maximal Capital asked about the demand from the cascade segment. Puneet Khurana MD said that due to the effect of vehicle population not increasing, the high gas prices, the gas companies have also slowed down their projects on further infrastructure. The major projects have been slowed down.

• [00:22:08] Deepan Shankar of Trustline PMS enquired about the margin difference between CNG CV cylinder vs. PV cylinder. Puneet Khurana MD answered that exact number cannot be given but added that CV will be higher.

• [00:24:51] Deepan Shankar of Trustline PMS asked about EKC’s current utilization and if 3Q23 will stand at the current utilzation. Puneet Khurana MD said it’s 60% and for 3Q23, nothing has changed from 2Q23, so it will be in the similar lines.

• [00:26:14]  Deepan Shankar of Trustline PMS asked about the reason for UAE business margins turning negative. Puneet Khurana MD clarified that it’s due to inventory holdup. Some orders supposed to be executed did not get executed. But in 3Q23, it’s expected to normalize.

• [00:33:37] Prakash asked about any update on Egypt and Hungary, and about expansion in India. Puneet Khurana MD said that on expansion; the brownfield has been completed that was planned in India. In Egypt more clarity will be seen in coming quarters. In Hungary, it’s kept on hold after the Russia crisis.