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

Ladies and gentlemen, good day, and welcome to the Earnings Conference Call of Everest Kanto Cylinder Limited. [Operator Instructions] I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and thank you for joining us on Everest Kanto Cylinder's Q3 and 9M FY '25 Earnings Conference Call. We have with us today Mr. Puneet Khurana, Managing Director; and Mr. Sanjiv Kapur, Chief Financial Officer of the company. We initiate the call with opening remarks from the management, following which we 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 earlier. I would now request Mr. Puneet Khurana to make his opening remarks.

Good evening, everyone. Thank you for joining us on our earnings conference call. I will begin by sharing an overview of our performance for the third quarter and 9 months ended 31st December 2024. Following, we will be having the Q&A session. We are pleased to report a steady performance in Q3 FY '25, supported by an uptick in our domestic business, driven by healthy demand from CNG and Industrial segments. Additionally, our domestic operations delivered an improved margin aided by prudent inventory management and operational efficiencies. On a stand-alone basis, revenue stood at INR 244 crores, making it a year-on-year increase of 18.2%, with EBITDA of INR 36.5 crores and a margin of 14.9%, reflecting the progress in our domestic operations. On a consolidated basis, revenue stood at INR 367 crores, a year-on increase of 11.4%, while EBITDA came in at INR 39.9 crores with a margin of 10.9%. PAT stood at INR 18 crores. International operations faced challenges with margin impacted by nature of order booking in the U.S. and difficulty operating environment in Dubai. Despite these challenges, we remain focused on enhancing operational resilience to define profitability across our global markets in the coming quarters. In India, the outlook of CNG market remains strong, supported by environmental benefits, cost efficiencies. The steady expansion of CNG vehicle adopted, coupled with growing refueling infrastructure, reinforces CNG critical role in India energy transition. Additionally, emerging developments such as biogas, bio-CNG integration are strengthening CNG position as a sustainable fuel alternatives. The government's commitment to green mobility through incentives for biofuel, stricter emission norms and infrastructure investments is expected to sustain the momentum of cleaner fuel solutions, benefiting overall demand for CNG cylinders. Additionally, green hydrogen continues to gain traction as a transformative solution in India clean energy landscape. And as industries and transport sector move towards the decarbonization, we anticipate significant demand in high-performance gas storage solutions, including hydrogen and industrial gas cylinders. We are well prepared to address this growing demand, leveraging our expertise in manufacturing high-pressure gas cylinders to cater to evolving energy ecosystem. With robust operational and financial foundation, we are well positioned to capitalize on opportunities in clean energy space. Our continued focus on innovation, operational excellence and strategic expansion efforts with the drive on long-term value creation as a leading player in the high-pressure gas cylinder industry, we are committed to standing our market leadership, pursuing sustainable growth. With that, I would conclude the remarks and invite the moderator to open the floor for questions.

[Operator Instructions] The first question is from Deepan Sankara Narayanan from TrustLine Holdings.

So firstly, what are the key drivers for 22% year-on-year growth in India business and also 5% plus Q-on-Q improvement in margins for India business?

So here in India, of course, as you see the CNG infrastructure is growing. So there is more CNG vehicles that are going to be plying. And now the CV business is also growing, which was subdued in the last 2 years. So we think the growth is going to come from there as the price rise of CNG did dampen that for some time. But now we are seeing that more with growth of infrastructure. So the CV business and the CNG business continues to grow.

Okay. And as the inventory restocking cycle has begun for CNG cylinders used by commercial vehicle manufacturer?

Yes.

Okay. And how is the current capacity utilization for domestic business?

We're still around 60%.

Okay. Any update on passenger vehicle customer addition front, sir?

The same customer base continues.

Okay, okay. And for U.S.A. business, so despite reporting strong growth in revenues, margins has reduced to 5%. So what are the reasons for the same? And do we expect it to improve during Q4?

So U.S. is a completely project-based business. So what happens is that you cannot be seeing the business quarter-to-quarter. It is more how the order book moves. So the order book is very strong, but the movement of the product because we have a lot of defense orders and other things. So sometimes you have delays in the product movement. But the order book is good. And if you see on an annual basis, definitely, you will see that how the business is growing and it's going to continue to grow. In the U.S., now with the new regime, we believe that U.S. is definitely -- the U.S. business will be definitely benefited from the policies that the government is coming out with now.

Okay. What is the kind of order book currently we have in U.S.A. subsidiary?

Around $30 million.

[Operator Instructions] The next question is from Reet Jain from First Water.

Sir, despite similar revenue in the previous quarter on the consol basis, which is INR 367 crores, our power and fuel cost has increased by 20% and also other expenses have increased by close to 20%. So what is the reason for such an increase?

This is Sanjiv Kapur. In respect to power and fuel, I mean, I'm sure you're aware that from previous year, there have been increase in all the cost of all the items which go into power and fuel, that is CNG, LPG and power, basic power. That is one reason. And other is on a quarter-to-quarter basis, if you compare, you'll find that sometimes it's a little higher because that's -- because of the production having been carried out, but the final output has -- the final finished goods have not been done. And this gets reflected in the inventory. So this is how the power and fuel is being. But it's well under control, and we are always finding ways and means of reduction in this cost.

Okay. And regarding finance cost, that has also increased. Last quarter, it was INR 2.74 crores. Now it is INR 4.9 crores. So are we -- have we increased the debt level?

Yes, we have increased slightly the debt level because what we wanted to push on the sales turnover. So obviously, there's a little more funding gone into my inventory and debtors.

So can you quantify the debt amount?

Debt amount is -- total debt for the whole group is INR 140 crores.

Okay. Sir, regarding GST notice, we have the liability of INR 127 crores. So have other players also received the notice or we are the only one who has received this notice?

It's an industry-related matter because everyone is following the same classification. The GST demand notice due to difference in tax transmission of CNG cylinders. And the department content needs be classified under a different [ HSN ], which is at 28%, and we have classified under 18%. And it's a matter of interpretation and there is no lapse on our part, and there are all multiple industry players we have received similar notices.

So all appealed to...

Yes. We are in the process of filing an appeal, and we are also pursuing various other legal routes available to us.

And in the press release, you have mentioned that there is some challenging operating environment in Dubai. So can you explain the situation, what...

Yes, because Dubai caters to the market in Europe, in Africa, in Brazil, in all other areas across the world. So obviously, everywhere, it's not so conducive the way we have it in India.

But we are setting up a new plant in Egypt. So...

So Egypt has separate dynamics where government is favoring that we should have CNG unit there. So there CNG will get easily absorbed because we are pushing for CNG conversion.

Okay. Got it.

So we don't think that it should be an issue related to the turnover or the sales.

Okay. But since you have the spare capacity in Dubai, can we repurpose that available capacity to new geographies?

Obviously. So we'll be always be looking out for new geographies. But the overall environment in the global scenario is all -- it's a wait and watch because the Trump administration is bringing in a lot many new policies. So people are on the wait and watch theory as of now. So which country will have -- which impact is not very well known.

Okay. And one more thing is regarding the U.S.A. subsidiary, you mentioned you have an order book of close to $30 million, right?

Yes.

And do you see this order book being maintained going forward due to new policies in oil and gas?

So we already said that the new administration of the Trump administration will obviously support manufacturing within U.S. So obviously, there will be more orders coming to us because we have government companies who give those orders.

Next question is from [ Riddhi Shah ] from C.R.Kothari & Sons.

Can I get the revenue guidance for FY '25 and the kind of margins that we are expecting?

Yes, it should be better than last year. We're not able to give you any specific figures.

Okay. So can we assume that it will sustain at 14%?

It will be sustained at 14%?

We are working towards that.

Yes, yes. We are working towards that, yes.

Next question is from [ Ramakrishnan V ], who is an individual investor.

Our domestic business is doing very well, whereas we have headwinds in the overseas market. And now we are putting further investment in Egypt now. So I would like to know that what is the total investment we have made globally -- and this is -- I think the global operations are very volatile. So why can't we bifurcate a deal? Is this the company is a global company as a separate company and the domestic company as a separate company because we have seen good kind of growth in domestic market. And it's very -- even though quarterly it's very volatile. So most of the investors, they don't like that quarterly -- this kind of a volatility.

I mean I agree with what you're saying, but only thing is that these businesses have some value that they add to the total business. So separating them it might not be looking in the long run, definitely, they'll be adding value. There might be some volatility in the short term. But in the long term, they will definitely be -- they will be rewarding.

Sir, what is the investment we have made globally?

Sorry?

Globally, what is the amount of investment we have done in our U.S. operation, Brazil operation -- and Brazil, U.S., Dubai and Egypt? And when the Egypt is going to come operational? Are we supplying to Maruti?

So in September, we will -- the Egypt operations will come operational in Egypt in September '25. And what's the total investment we have made internationally? Yes, one second. Yes. We just -- we don't have the figure off hand on the investment is what we've made in the last 2 years internationally. We'll just give it to you a little bit later on the call, yes.

Next question is from [ Kaushal ] who is an individual investor.

Sir, I have 2 questions. The first one is that on the overseas business, we've seen that in Q3, the EBITDA has been around INR 3 crores, I mean, if I just do consol minus standalone. But overall, on a 9-month basis, the EBITDA for overseas business has been around INR 50 crores. So while I understand that there were some headwinds in Dubai and also there was some project-related this thing in U.S. Just wanted to -- I mean just wanted to understand how do you account for revenues and profitability in the U.S. business, which is like a project business.

It's more like project accounting.

Sir, in line with the revenue booking, you should also book the P&L, right? I mean the profit should also be commensurate with percentage of completion method, right?

Yes, yes, yes.

But it is not visible. I mean if you see the consol EBITDA, it is just INR 3 crores in Q3. I mean, INR 3 crores higher than the stand-alone EBITDA.

Maybe some projects have a lower margin. So that's the reason why that's -- yes, the EBITDA is lower.

Okay. And sir, with respect to this Dubai business, this is not a project business, right?

No, it's not.

So then, I mean, if you could just give us -- I mean, quarter-on-quarter, what was the EBITDA for Dubai or quarter-on-quarter, what was the EBITDA for U.S.A. It would help us better understand this overseas business because there's a lot of volatility in the EBITDA.

So Dubai, of course, the order book has been a little bit stalled because of the -- some of the customers have not picked up the product. That is some part of it, the reason why we had the slowdown in the Dubai business. And sorry, the other question was?

No, I'm saying -- I was saying, could you give us like quarter-on-quarter EBITDA of, let's say, Dubai and U.S.A. business in your investor presentation that you circulate. So it will better help us understand the overseas business in terms of quarter-on-quarter, what has been the EBITDA? Because for 9 months, you've given that overseas business is typically INR 50 crores in EBITDA, but U.S. and Dubai put together. But for Q3, it was only INR 3 crores. So...

No, what we do is we just work out these numbers, and we can share it with you later on this when we have them. We don't have them offhand here.

Okay. All right. That will help.

[Operator Instructions] The next question is from [ Bhavin ] who is an individual investor.

Sir, can you share the status on Maruti? Have we got -- have we started delivering to them? Or what is the status on that?

No, no, we haven't yet got any orders from Maruti as yet.

But are we pitching that?

Yes, we are pitching, but we are still waiting for business.

[Operator Instructions] The next question is from [ Ravi Jain ], who is an individual investor.

Sir, actually, I wanted to know regarding U.S.A business, this percentage completion method is being followed for accounting purpose. So revenue should be booked accordingly and profit should also come likewise. But what I understood from previous con calls and this con call that we are saying that U.S.A is a project business. And in the project business, revenues and profits are coming in a quarter and not coming in the way percentage completion method, it's not coming in line with the percentage completion method. So just wanted to know how we are accounting the revenues and profits for projects, U.S.A projects?

Yes, we are accounting as per the project method. But like you already indicated that sometimes some projects may carry lower EBITDA or lower margins. So that will affect your basic calculation.

But it seems there is a very significant variation in terms of margins project to project, a very large variation because your profits which we are seeing in this quarter compared to what we have seen in the last quarter, there is a very significant variation.

There are always some additional orders which you get, which may be more revenue generating and profit generating. So whenever you account for it, you will get the profit or the margin over it.

And how long does it take to complete a project? What is the duration of the project when we call something as a project? What time period is generally considered?

Considered 1 year to 18 months.

I year to 18 months. Okay. One more thing I would like to ask regarding this UAE business, what is the expectation for the next quarter and for the next year? How do we see growth coming in UAE?

So next quarter is definitely going to be better. But going forward, yes, we are wanting to explore other areas also across the world. And obviously, we'll do better than this year.

That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.

Yes. Thank you once again for the interest and support. Should you need any further clarification or would like to know more about the company, please feel free to contact our Investor Relations at CDR India. Thank you so much. Thank you.

Thank you very much. On behalf of Everest Kanto Cylinder Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.