For Everest Kanto Cylinder – EKC, the uncertainty over cylinder sales and realizations from the Dubai facility (44% of FY09 sales, Iran major market) to continue at least till FY10 end. Although domestic cylinder sales, particularly to the OEM segment, should grow over the next 6 m, this may not be enough to fill the gap from Dubai slowdown.
EKC benefitting from favorable regulatory changes in India and incremental gas supply from the KG – D6 basin remains intact, problems at the Dubai operations of the company will dominate earnings for the next 6-12 months.
Goldman Sachs in a report has cut FY11E and FY12E sales estimates by 15% – 28% due to lack of clarity on the time-frame over which cylinder volumes and realizations on sales from the Dubai facility (which caters to the Iran market) would improve.
Revised EPS estimates for EKC now stands at Rs 3.6 and Rs 11 for FY10 and FY11 respectively. Goldman has downgraded the stock to Neutral with a price target of Rs 173.