HOLD Everest Industries: AnandRathi Institutional Research

Restrained performance drags down profitability; Hold

Everest Industries' Q2 revenue climbed 16.3%, supported by growth in its steel-building division. The margin narrowed 197bps yoy to 1.5%. On account of the weak H1 FY16 figures and slower-than-expected recovery, we lower our FY16/17 EPS estimates by 35%/29%.

16.3% yoy jump in top line. Q2 FY16 sales grew 16.3% yoy to Rs. 2.86bn, powered by the sharp jump in revenue from the steel-building (SB) division (up 69.8% yoy, to Rs. 1.2bn). SB volumes grew a significant 70% yoy because of strong capacity utilisation at the new plant in Gujarat. Volumes in the building products (BP) division slid 4.3% yoy due to sluggish rural roofing demand.

SB division margins improve drastically. Supported by robust revenue growth, the SB division's EBIT margin improved, from -8.3% in Q2 FY15 to 3.1% a year later, with flattish realisation due to lower steel prices. This division's order book is a strong 31,000 tonnes. Revenue of the BP division slipped 5.8%, with the margin falling 597bps yoy to 2.5% due to low volume and realisation and high raw-material costs (rupee depreciation).

Loss reported in 2Q. Because of the lower fixed-cost absorption, the Q2 FY16 EBITDA margin slipped 197bps yoy to 1.5%. The company reported a Rs. 23m net loss vs. Rs. 34m net profit a year ago primarily due to a jump in interest expenses and the tax rate, and declining other income.

Outlook. Construction at the greenfield project in the UAE has commenced (to be complete by mid-2016), this will cater to the international market and help savings in logistics costs. The 72,000-tonne plant will cater to the global market and help savings in logistics costs. In Q2 the company launched "Everest Super Colour" (pigmented roofing sheets), and operations at the new plant in Bharuch have stabilised.

Valuation. The Housing-for-All campaign and Swachh Bharat Abhiyan would boost demand for building products. We retain our Hold call, assigning 8x PE to FY18e and derive a target of Rs. 332 (earlier Rs. 362). At the ruling price, the stock quotes at a PE of 10.1x FY16e and 7.5x FY17e. Risk. Rise in input costs.

Shares of EVEREST INDUSTRIES LTD. was last trading in BSE at Rs.298.4 as compared to the previous close of Rs. 299.8. The total number of shares traded during the day was 3643 in over 238 trades.

The stock hit an intraday high of Rs. 306 and intraday low of 296.3. The net turnover during the day was Rs. 1096613.

Source : Equity Bulls

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