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Everest Industries Q4FY14 results update

May 6, 2014, Tuesday, 07:00 GMT | 02:00 EST | 11:30 IST | 14:00 SGT
Contributed by Nirmal Bang


Signs of improvement visible

Net revenue increased by 25.5% YoY to Rs 301.2cr and by 32.6% QoQ due to strong volume growth in Building Products by 15.7% YoY to 1.7MT and Steel building (PESB) by 96.5% YoY to 0.1MT. EBITDA margin declined by 40bps YoY to 4.5% in Q4FY14 owing to higher raw-material and freight cost. PAT was down by 25.3% YoY to Rs 3cr due to higher interest cost led by project capitalization and increase in working capital plus higher depreciation cost.

Net revenue up by 25.5% YoY: Everest Industries (EIL) reported a strong growth in net revenue by 25.5% YoY led by jump in Building Product by 21.8% YoY to Rs 212.2cr and in PESB by 40.6% YoY to Rs 94.3cr.

Strong Volume growth in Building Products and PESB: The Buidling Product reported a volume growth by 15.7% YoY whereas; PESB reported a substantial uptick in volume by 96.5% YoY resulted into the jump in overall net revenue by 25.5% YoY to Rs 301.2cr in Q4FY14. Further, decline by 28.4% of price realization in PESB due to lower steel prices, although, Building Product witness an improvement in the price realization YoY by 5.3%. Currently PESB enjoys Rs 270cr worth of order book. However, we draw comfort from the fact that EIL has registered a substantial improvement from Q3FY14, where Building product and PESB reported a volume growth by 22.8% and 38.3% QoQ respectively.

Higher raw-material cost and freight led decline in EBITDA margin: EBITDA margin stood at 4.5%, down by 40bps YoY owing to jump in raw-material cost and freight as a % of sales. Higher raw-material is attributed to the fact that the chrystolite fibre (which accounts 70% of the total raw-material) is 100% imported, witnessed a significant jump due to the rupee depreciation. Thus, Gross margin declined by 370bps YoY to 35.9% in Q4FY14 and by 890bps QoQ. In addition, jump in frieght cost (9.1% in Q4FY14 as against 7.5% in Q4FY13 as a % of sales) due to higher diesel prices further added woes in the operating margin for the company. Nevertheless, management has guided of no major price increase expected in Chrystolite fibre, gives us comfort that with the improvement in volume (Building product and PESB in coming Q1, historically a good quarter) and a small price hike taken in the month of April and May, operating margin will improve from hereon.

Profitability impacted despite higher Net Revenue: EIL reported a decline in PAT by 25.3% YoY to Rs 3cr in Q4FY14 on the account of higher interest cost led by project capitalization and higher WC plus higher depreciation cost by 31.4% YoY. Though, lower tax outgo of 32.6% in Q4FY14 as against 46.9% in Q4FY13 and 56.2% in Q3FY14, somewhat curtailed the decline in the profitability of EIL.


Valuation & Recommendation

We believe the recent smart uptick in volume is likely to turnaround the building product business for Industry and company which will intern lead to recovery in margin. Further we believe the expansion in PESB (30,000ton by mid 2014) with revival in economy will drive volume growth over the next two years. We are positive on the stock from a long term perspective. We roll-over our target multiple to FY16E (8x FY16E) and arrive at TP of Rs. 220 per share.

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