Everest Industries Q3FY14 results update
February 3, 2014, Monday, 11:49 GMT | 07:49 EST | 17:19 IST | 19:49 SGT
Signs of improvement visible; Retain BUY
Net revenue declined by 11.2% YoY to Rs 227.1cr and up by 14.7% QoQ. EBITDA margin declined by 400bps YoY to 3.4% in Q3FY14 owing to higher input cost and decline in net revenue. Everest Industries (EIL) reported net loss of Rs 1cr in Q3FY14 as gainst net profit of Rs 9.6cr due to higher interest cost led by project capitalization and increase in working capital plus higher depreciation cost.
Decline in volume growth and no price hike led fall in Net revenue YoY: The Buidling Product reported a decline in volume by 13.7% YoY however; Steel Building reported an uptick in volume by just 2.5% YoY resulted into the decline in overall net revenue by 11.2% YoY to Rs 227.1cr in Q3FY14. The Building product volume declined due to subdued demand in Southern region which accounts for 30% of the total revenue. Further, decline by 20% of price realization in Steel building due to change in product mix, impacted the revenue growth of EIL despite building product registering an increase by 6.7% YoY. However, we draw comfort from the fact that EIL has registered a substantial improvement from Q2FY14, where Building product and Steel building reported a volume growth by 19.1% and 28.6% QoQ respectively.
Higher input cost led decline in EBITDA: Moreover, EBITDA margin stood at 3.4%, down by 400bps YoY owing to jump in employee cost and Other expenses as a % of sales. In addition, decline in net revenue further added woes in the operating margin for the company. However, to our surprise, the company reported a substantial improvement in Gross margin by 220bps YoY and by 370bps QoQ to 44.8% in Q3FY14. The key raw-material Chrystolite fibre (forms 45-50% of raw-material) is 100% imported, was relatively stable (QoQ) owing to stable rupee. However, inability to pass on the increase in costs (no price hike during Q3FY14) due to rise in compeititon continues to strain EBITDA margin. Nevertheless, management has guided of no price increase expected in Chrystolite fibre, gives us comfort that with the improvement in volume (Building product and Steel buidling in coming quarters as Q4 & Q1 are historically good quarters) and relatively stable price in Chrystolite fibre, operating margin will improve from hereon. EBITDA declined by 59.5% YoY to Rs 7.7cr and against negative EBITDA of Rs 8.9cr in Q2FY14.
Valuation & Recommendation
We feel that, with good monsoon, the rural population will enjoy higher disposable incomes which will boost demand for pucca housing and ACS. Secondly, with lot of the RBI initiatives to keep the rupee under check compared to global currencies, we expect rupee to remain stable, thus we feel that operating margin will improve from hereon. We believe the timely expansion in ACS of 0.1MT in June 2013 and PESB (30,000ton by mid 2014) will drive volume growth over the next two years. Currently PESB enjoys Rs 310cr worth of order book. We have slightly tweaked our estimates and expect EIL to post revenue decline by 2.4% in FY14E incorporate the slower volume growth. However, we expect revenue growth by 22% in FY15E. We are positive on the long term prospects of the company. At CMP, EIL is trading at a PE of 18.2x FY14E and 5.6x FY15E. We retain BUY rating with a TP of Rs. 220 per share.