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Everest Industries Q1FY15 results update

August 20, 2014, Wednesday, 16:44 GMT | 11:44 EST | 21:14 IST | 23:44 SGT
Contributed by Nirmal Bang


Posted Strong Results despite lower margin in Steel building

Everest Industries Ltd (EIL) reported a strong set of numbers for Q1FY15 led by improved demand in both Building Products and PESB (Steel Building) segment, Net sales increased by 28.3% YoY to Rs 380.8 cr. Strong volume growth was further boosted by increased realisations and thus we saw a sharp improvement in EBIT margins in building product. Though steel building saw good sales growth but EBIT margin declined on account of outsourcing of work and increase in cost. PAT increased by 43.1% YoY and stood at Rs 19.6 cr.


Strong growth in Building Products segment (75% of total revenues)

Building Product reported a volume growth of 19.2% YoY to 230,000 MT & price realisation increased by 5.4% leading to 25.7% increase in revenues at Rs 291.5 cr. EBIT margin stood at 13.3% vs 11.1% in Q1FY14. Building product being seasonal in nature with Q1 being the best quarter and Q2 the weakest quarter, next quarter revenue & profitability will decline sequentially but will see improvement YoY. Overall the outlook for building product segment is likely to be positive in coming period.


Despite growth in volumes, PESB reported lower margins

PESB reported a substantial uptick in volume by 58% YoY to 10,900 MT (vs 6900 MT in Q1FY14). However, realisations witnessed decline of 8.2% resulting into lower profit margins for the segment. The company executed some old orders at fixed prices. As the new plant was not ready the company had to outsource these orders which impacted the margins. There are still some pending orders which will be executed in Q2FY15 and post that the company expects improvement in margins in the segment. The current order book of PESB stands marginally lower at Rs 260cr (31000 MT) as compared to Rs 270cr in last quarter.

- Raw material cost continued to remain on the higher end as chrystolite fibre (which accounts ?70% of the total raw-material) is 100% imported and due to rupee depreciation the cost was higher. Nevertheless the management has guided that chrystolite fibre prices will remain stable going forward with stable rupee movement.

- Freight cost increased by 34.3% YoY and stood at 9.2% of total sales vs 8.7% in Q1FY14) due to higher diesel prices. In order to reduce the freight cost. EIL has set up new plant at Gujarat (with an investment of Rs50cr and capacity of 30000 MT). This will help EIL to reduce both inward and outward freight cost leading to improving the operating profit margin of the company.

Management expects demand to remain strong with improvement in rural demand. Building Product business has seen an improvement in domestic market and exports (~50%) also continue to remain strong. Q1 being a seasonally strong quarter has seen sharp improvement in operating performance which is likely to witness moderation in Q2. We had initiated coverage on the stock at Rs 148 in our report dated 20th Jan 2014 and the stock has generated returns of 72.3% since then. We recommend investors to book partial profit. Investors can continue to HOLD remaining share with a revised target price of Rs 280 (7.5x FY16E EPS).