Everest Kanto Cylinder Limited Q3 FY22 Earnings Conference Call Insights

Key highlights from Everest Kanto Cylinder Limited (EKC) Q3 FY22 Earnings Concall

Management Update:

• EKC’s brownfield expansion initiatives have increased production capacity in India to about 1 million cylinders annually. The second phase of brownfield expansion is expected to complete by 2Q23. EKC acquired 53 acres of land parcel in Mundra, Gujarat for the planned greenfield expansion.

Q&A Highlights:

• Mohit Khurana from Banyan Capital asked about what exactly is the raw material mix for EKC and how passing on the raw material pricing to the customer is going as of now. Puneet Khurana MD said that EKC is importing only one raw material which is stainless steel tubes that come from China. The company added that it is always passing on the costs to the customers.

• Mohit Khurana from Banyan Capital also asked that if it is a fixed rupee margin the company makes or if it’s in the percentage terms. Puneet Khurana MD replied that it’s more of a percentage basis.

• Mohit Khurana from Banyan Capital asked about the EBITDA margins improving to around 21% in 3Q22 and how it is expected going forward.  Puneet Khurana MD answered that the company is expected to maintain some healthy margins.

• Sunil Jain of Nirmal Bang asked about reprcing some historical contract and if it’s related to India or International and in which sector. Puneet Khurana MD said that the repricing is related to India and with a mix of sectors, something in industrial and something in CNG.

• Sunil Jain of Nirmal Bang enquired about gross margin coming off at consolidated level in 3Q22 and if it’s possible to bounce back to the 2Q22 level of around 50%. Puneet Khurana MD said that 2Q22 was special but margins will continue to be strong going forward and will improve from 3Q22 level.

• Sunil Jain of Nirmal Bang also asked about international operation and if the revenue seen in the US since last two quarters is sustainable. Puneet Khurana MD said that the revenues seen is sustainable. In US, last two quarters has seen some comeback and that EKC expects it will be maintained.

• Sunil Jain of Nirmal Bang enquired what is driving demand in UAE, if it’s local demand or export demand. Puneet Khurana MD answered that UAE is mainly an export base and there is not much sale the company does in UAE. Mainly the demand comes from Africa, Egypt, South America and Europe. So these are the main countries EKC exports to from UAE.

• Vivek Gautam GS Investment enquired why EKC has not been able to pass the price increases in 3Q22. Puneet Khurana MD said lot of things happened in 3Q, some input costs like electricity, natural gas, LPG have come in and some old contracts that needed to be honored. EKC is taking corrective actions going forward.

• Ravi Nnaredi with Naredi Investment asked that in different locations, at what capacity the company is running the plants. Puneet Khurana MD replied that right now almost 100% in both the locations.

• Ravi Nnaredi with Naredi Investment also enquired that in what time frame 0.9 million to 1.8 million capacity expansion will take place and what’s the capex and working capital requirement for it. Puneet Khurana MD answered that the expansion will take place by 2023-2024. And the capex is INR250 crore.

• Mohit Khanna of Banyan Capital asked about the order book in the US and India. Puneet Khurana MD answered that the order book in US is $35 million and in India it like six months of order book.