Everest Kanto Cylinder Limited (EKC.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the earnings conference call of Everest Kanto Cylinder Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mitesh Jain from CDR India. Thank you, and over to you, sir.

Good evening, everyone, and thank you for joining us on Everest Kanto Cylinder's Q1 FY '26 Earnings Conference Call. We have with us today Mr. Puneet Khurana, Managing Director; and Mr. Sanjiv Kapur, Chief Financial Officer of the company. We will initiate the call with opening remarks from the management, following which, we will have the forum open for a question-and-answer session. Before we begin, I would like to state that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation shared with you all earlier. I would now request Mr. Puneet Khurana to make his opening remarks.

Good evening, everyone, and thank you for joining our earnings conference call. I will begin by starting an overview of our performance for the quarter, followed by a Q&A session. We are pleased to share FY [ '27 ] has begun on a strong note for EKC. In Q1, consolidated revenue stood at INR 386.9 crores, up 12.9% year-on-year. This was driven by healthy demand across both our domestic and international businesses. Consolidated EBITDA came in at INR 61.3 crores, up 47.8% year-on-year, with margin at 15.8%, while PAT for the quarter stood at INR 51.6 crores, up 84.9% year-on-year. This includes an exceptional gain of INR 12.6 crores, representing an employee retention credit received by CPI Industries, our U.S. subsidiary. On standalone basis, revenue were INR 237 crores, up 20.9% over the same period last year, with margins improving to 17.2% from 9.4% in Q1 FY '25 and PAT at INR 26.1 crores, up 122% -- 122.8% year-on-year. Our Indian operations delivered strong growth with revenue at INR 237 crores, up [ 21.1% ] year-on-year and EBIT at INR 34 crores, up 143% year-on-year. The U.S. business also performed remarkably well with revenues of INR 109 crores, up 21% year-on-year and EBIT at INR 27 crores, up 83% year-on-year. Given that the U.S. market in order-driven performance may vary from quarter-to-quarter, however, we expect the region to perform exceptionally well for this year. Together, these results highlight the strength and balance to our geographical portfolio. On the policy and sectoral front, the government continued emphasis on CNG adoption, clean energy and high-tech manufacturing in creating a favorable environment for a high-pressure gas storage solutions. Emerging applications in areas such as compressed biogas, semiconductor and green hydrogen are gaining momentum. And our high-pressure gas cylinders are already enabling safe and reliable storage in these segments. Our capacity expansion front, our both facilities in Mundra in India and in Egypt are progressing as per plan. The state-of-the-art plants will be instrumental in enhancing our capability to cater to growing needs for domestic and global customers. We expect both facilities to come on stream during the current financial, enabling us to step up in supply capability from year '27 onwards. In closing, the first quarter has been strong start of the year with healthy demand, visibility, upcoming capacity addition, a widening set of applications of our products and a strong balance sheet position. We are well positioned to capture the next phase of growth and continue delivering value to our stakeholders. With that, I conclude my opening remarks, and I request the moderator to open the floor for questions.

[Operator Instructions] Our first question comes from the line of Sucrit Patil from Eyesight Fintrade Private Limited.

Good evening to the Everest Kanto team I have two questions. One is for Mr. Khurana, and one is for Mr. Kapur. So my first question to Mr. Khurana is with the demand rising in CNG and hydrocarbon cylinders and global expansion underway, how are you planning the next big step for Everest Kanto? Are you building a roadmap to move beyond just cylinder supply towards smart gas storage, AI-led safety features or partnerships that can help Everest Kanto play a bigger role in the clean energy infrastructure ecosystem?

Just to give perspective, definitely, on CNG and hydrogen, we are building new products, we continue to invest in product development and other activities. On AI, this is primarily a new subject for us. So we are definitely exploring AI in -- as the aspect of improving our processes and more efficiency at the plant level. And what is the other question? Sorry, I missed. Anything else?

Yes. So my other question was, is there a roadmap which you are planning just beyond your...

So we continue to be strong in the cylinder business and product development in cylinder. And in our business, we are catering across wide spectrum of industry. So it's sometimes challenging to go beyond just the focus on the cylinder business. So the cylinder business itself has a lot of bandwidth it takes of ours. So to go beyond that is sometimes we find it challenging. So we continue to have a roadmap focusing on new products in the cylinder business only at the present. We're not doing anything outside the product line of the company and the core business of the company at the moment.

My second question to Mr. Kapur. As you invest across plants and new tech and new formats like hydrogen and composites, I would like to understand how do you decide where to spend first? Is there any system of capital allocation that you follow, which ensures short-term returns with long-term leadership in clean energy? I would like to understand your point of view on that, Mr. Kapur.

Mr. Patil, obviously, we always look for value. So if you are investing something, we will always look at the returns and payback. And based on that, I mean, our decisions are taken.

[Operator Instructions] Our next question comes from the line of Reet Jain from First Water.

Yes. Congratulations on the good set of numbers. My first question is regarding the contingent liability. So I saw in the annual report that the GST liability stands at INR 352 crores, which is roughly 30% of our net worth. So just wanted an update on this. And how confident we are that we will win this GST dispute?

So I'll answer this. As I've already indicated earlier in my earlier discussions also that we have gone for High Court appeal, for which the hearing has not yet come. And we also made representation to the government. So I believe that very recently, government has announced that they'll be having classification matters, which will get resolved. So as is also a classification matter, which we believe we have put it strongly, and we should get a favorable reply.

Okay. So when is the next hearing date? Any...

Hearing date is not yet available. But the GST council meetings and other things are already announced. And by Diwali, there may be a lot many changes which may come about. And in that, even the issue on classification is going to be addressed.

Okay. Sir, any -- so recently, there was GST rate change in a lot of products. So are we still at 28% or 18%?

We are at 18%.

Okay. Got it. And regarding U.S.A., what is the current order book?

So order book is around USD 70 million.

USD 70 million. And are you accepting any more developments in the order book for U.S.A.?

So I mean we've got more than a year -- it's 1.5 or 2 years of product, which is already planned. So yes, I mean, it keeps coming. It's like we execute and we keep getting new orders.

Got it. And regarding the new CapEx, which is Mundra and Egypt, what is the commissioning timeline?

So for Egypt, we are having October to November as the start of trial production. And maybe in the next -- after that, in the next 2, 3 months, we'll have commercial production. So the impact would obviously be visible more in FY '27. Mundra also is being ready for the last quarter. And we expect that we can have commercial production just before the quarter closes -- or rather the year closes.

Got it. And could you comment on the demand scenario in Egypt? How is the demand there?

So there is strong demand there because the government is pushing for people converting their vehicles into CNG-based vehicle. And we believe that will be a good project for us to have.

So ramp-up would not be an issue in Egypt, is it correct?

Yes. So obviously, we'll first start the production and cater to the requirements and then go for Phase 2.

No, no, I'm talking about the existing land, which we are putting up. The capacity utilization will not be an issue in the first phase?

It won't be an issue.

Okay. Got it. And I saw your press release that we are seeing new opportunities in biogas, semiconductors. So can you comment on how will the opportunity is?

Puneet, can you take this?

Yes, yes, sure. So biogas, of course, as you know, in India, a lot of activity is going on by government incentives to set up more and more biogas plants for waste management. So this is a sector that is quite -- growing quite aggressively from the last 2, 3 years. So we continue to see good growth in that. And semiconductor is a completely new segment. We have introduced some products in the semiconductor industry. So we are hoping to -- this also a sector to grow quite well in the coming future.

So are we already in talks for customers for the semiconductor...

We're already supplying, so we are supplying products in the sector. We are already supplying products. Only thing is these are new sectors. So like everything new begins small, but we see a great potential future in this also. So the thing is that there was a lot of discussion going on for years, but nothing was happening. Now we can see things are -- biogas plants are coming, semiconductor industry investments are coming in a large way. So definitely, we feel that this kind of thing is going to give us an advantage going forward.

Okay. Got it. And my last question is regarding -- are there any imports from China in India for the cylinder?

There are imports, but they are not so significant, not such -- large imports are not there.

Okay. I'm asking this because our revenue in India for the whole year is close to INR 1,000 crores. So just wanted to understand the industry side. Is it a very small industry or I'm missing something?

I don't know. Sanjiv, how do you reply to this?

On the industry side, we have not been able to really map that because, I mean, very few data is available of our competitors. So I mean, yes, it's an industry which is growing, for sure. And the imports, like Puneet said, are not much to impact.

[Operator Instructions] Our next question comes from the line of Anil Jain from Equipassion Capital.

Yes. Congratulations for a good set of numbers. I just wanted to know, what's your take on India business? It has grown by 20% in the quarter, and margins are at 17%. So how do you see the next quarter and the FY '26 panning out in terms of India business?

Yes. Sanjiv, do you want to take that?

Yes. I'll take this. So we believe that obviously, with not many changes like the recent announcements and -- we see a lot of positivity. So going forward, we expect that we'll do a good business here.

Do you see that this kind of growth and margin are sustainable for the rest of the year?

So we'll continue to want to achieve such margins. But obviously, we'll want to be conservative, too. So we will always go for a conservative margin.

Okay. But what do you see the sustainable margins? Like was there any one-off in the quarter or...

It's not one-off. I mean it's like we do make efforts to ensure that we are having good margins available. So obviously, that goes into strategy and planning also. So still, I would rather say that margins between 13%, 14% would be more ideal.

Okay. And what about growth?

Growth of 10% to 15% is what we are sure that it will happen.