BUY Everest Kanto – Citi

Citigroup Research has re-initiated coverage on Everest Kanto Cylinders with a BUY rating on the back of new expansion plans announced by the company.

Besides the Dubai expansion (recently commenced) and China greenfield plant (to start next Quarter),EKC plans to: (1) expand the Gandhidham facility (0.2m industrial cyl/yr), (2) set up a greenfield plant at Kandla SEZ (0.3m CNG cyl/yr), and de-bottleneck Tarapur. Total capex envisaged is c.US$50m. The company has recently raised ~US$57m through an FCCB and private placement. All these expansions are positive as they diversify two key risks – RM supplies and the China market.

Citi adjusts FY08E earnings by 3% and significantly revise FY09-10E by 18-33%. The new Target Price of Rs 437 implies 40% upside from current levels and is based on 22x Sep-09E earnings, well supported by 47% EPS CAGR over FY07-10E. Kotak has maintained a HOLD recommendation with target Price being achiveed at Rs 311.