Analysts' Corner: Everest Kanto

Brics PCG Research recommends a "buy" on Everest Kanto. The report states that the project site, Gandhidham, has been decided keeping in view the proximity to Kandla and Mundra ports of Gujarat.

This makes it well located for the import of raw material (seamless tubes) as well as the export of finished goods. With the advent of CNG as an alternative eco-friendly automotive fuel, a new segment for cylinders has opened up for Indian players.

Moreover, the company is aiming to reach a production level of 15 lakh cylinders per year under the EKC trademark by 2010. This will help it achieve better economies of scale.

The Gandhidham plant has been designed keeping in mind the potential for aluminium and composite material cylinders and to undertake large scale production in future as and when a market for such products develops.

Everest Kanto manufactures a wide range of cylinders for industrial and medical gases, fire-fighting equipment, the beverage industry, accumulator shells, aerospace, scientific research, vehicles and many more applications.

Greenply Industries

Almondz Research, initiating coverage, recommends a "buy" on Greenply Industries. The report states that Greenply enjoys strong brand equity and leadership in terms of market share, extensive dealer network across India and presence in export markets. Expansion plans would boost its revenues by Rs 150 crore annually considering the growing market appetite. Further, leveraging on its strong brand equity to enter into newer segments like particle board, would help expand customer reach.

Commissioning of new capacity at Uttaranchal in mid-2006 would improve the operating margins due to availability of soft wood, timber, that is cheaper compared to hardwood used at existing timber plants.

Merger of Worthy Plywoods would generate synergies for the company at the operating level as well as on the marketing front. Higher contribution of revenues from the plywood segment would help improve the financials of the company as it is less capital intensive compared to laminate business.

Sterling Tools

Brics PCG Research, in its report on Sterling Tools, states that the company has a well-diversified client portfolio with low concentration risk attached to major clients. In terms of revenue concentration, Maruti accounts for 12 per cent of the revenues (single segment), while Tata Motors contributes 19 per cent of the turnover across all segments.

In terms of vehicle segments, passenger cars provide 30 per cent of the total revenues while CVs contribute another 18 per cent. The company plans to focus on special fasteners where margins are comparatively higher than those of standard fasteners.

The report believes that this will improve the overall operating profit margin despite the risk of rising raw material prices. The company is setting up a third facility that will add a further capacity of 6,500 MT at a capital expenditure of Rs 40 crore.

The facility should be commissioned by Q4 FY06 and is expected to generate Rs 60 crore in revenues in FY07.