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Everest Kanto Cylinder + Nitin Fire Protection – Review

November 10, 2008

The Growth in CNG cylinders’ usage will continue to be robust for the next few years despite the recent fall in crude oil prices as developing economies which account for bulk of the demand rely heavily on imported sources of energy, hydrocarbon supply over the next 5-10 years will not match demand and CNG is definitely economical.

Everest Kanto Cylinder – EKC continues to hold more than 75% market share in the Indian CNG cylinder market and about 10% globally. Lower steel prices (about 50% of raw material costs) will largely cushion a moderate fall in realizations—we forecast 44% EPS CAGR over the next two years.

Revised EPS estimates suggest EKC will report an EPS of Rs 16 and Rs 21 for FY09 and FY10 respectively.

Nitin Fire Protection:
Nitin Fire continues to ramp up its cylinder manufacturing operations at the Vizag SEZ. We expect capacity at the plant to double to 500,000/year by 1QFY2010E and foresee utilization levels improving from about 51% in FY2009E to about 60% in FY2011E. Lower steel prices will also benefit Nitin Fire.

Nitin Fire is expected to report an EPS of Rs 27,5 and Rs 31.8 for FY09 and FY10 respectively. Stock has potential upside of 25%.

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