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] Please note that this conference is being recorded. I will now hand the conference over to Mr. Mitesh Jain from CDR India for his opening remarks. Thank you, and over to you, Mitesh.

Thank you, Ryan. Good evening, everyone, and thank you for joining us on Everest Kanto Cylinder's Q4 and 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 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 us on our earnings conference call. I will begin by sharing an overview of our performance for the period under review, following which we will have a Q&A session. We are pleased to share that FY 2025 has been a year of strong growth and consistent execution for EKC. In FY '25, consolidated revenue grew by 22.6% to INR 1,499.2 crores, with Q4 revenue increasing by 29.5% year-on-year to INR 422.2 crores. This performance was supported by healthy demand across both our domestic and international businesses, particularly in this U.S. stand-alone revenue growth was also robust with FY '25 revenue increasing by 22.6% to INR 946.2 crores. Q4 stand-alone revenue rose by 23.1% year-on-year to INR 276.2 crores, reflecting a strong volume traction. While realizations remained under pressure during the period under review, margins compression was limited and absolute profitability remained healthy on the back of strong top line growth. Consolidated PAT for the year stood at INR 97.7 crores. Q4 PAT came in at INR 13.3 crores, impacted by exceptional losses of INR 6.4 crores related to the impairment of -- for ideal asset and CapEx under progress. Our U.S. business delivered an exceptional performance in FY '25 with revenue rising by 42% to INR 742 crores and EBIT increasing by 86% to INR 58 crores. While quarterly trends in this region can be lumpy due to the nature of order booking and dispatch cycles. The full year performance has been strong with the policy emphasis on Make in America by the current administration, we believe the outlook for this vertical remains encouraging going into the FY '26. On the domestic front, the outlook remains equally promising. India CNG market witnessed remarkable growth during the year, driven by increasing consumer preference for cleaner, cost-effective mobility solutions. The government continues to push towards expanding the CNG infrastructure in playing a key role in accelerating adoption across both the passenger and vehicle -- commercial vehicle segment. These structural tailwinds are expected to sustain growth in domestic market, and we believe that EKC is well positioned to capitalize on this opportunity given our scale, capability and customer relationships. In line with our long-term growth plans, we continue to expand our manufacturing footprint on -- upcoming facility at Mundra is on track and will play a key role in enhancing our domestic capacity and serving export end markets more efficiently. Meanwhile, our greenfield project in Egypt is progressing as planned and is expected to be completed by Q3 FY '26. This facility is strategically positioned to support Egypt's national objectives of expanding CNG adoption. The government's strong push to convert vehicles into CNG aligned well with our goals, and we are committed to playing a key role in meeting the growing demand in this region. Together, with initiatives further to strengthen EKC's position as a global supplier of high-pressure gas cylinder solutions, I'm pleased to share the Board of Directors has recommended a final dividend of INR 0.7 per equity share for FY '24-'25. This decision reflects our disciplined approach to capital allocation, ensuring we maintain our financial flexibility to support ongoing growth initiatives. In closing, FY '25 has been a year of meaningful progress across markets, operations and strategic initiatives. As we move forward, we remain confident in the long-term growth perspective of our business supported by strong fundamentals, scalable infrastructure and focus on innovation. We appreciate your continued support and interest in EKC. For that, I conclude my opening remarks. I request the moderator to open the floor for questions. Thank you.

[Operator Instructions] The first question comes from the line of Deepan Sankara Narayanan from Trustline Holdings Private Limited.

So firstly, from my side, what are the key reasons for this 700 bps drop in India business margin? And how was the mix between CNG and industrial cylinders for the quarter?

So we have some long-term contracts, which are under some pricing pressure, so that's the reason that we have some squeeze in the margins on those orders.

Okay. So it was specific to this quarter and then we will be coming back to our normal margins of 12% to 15% from next quarter onwards?

Yes, definitely, there will be an improvement.

Okay. And what is the key reason for this 23% increase in these other expenses during the current quarter?

Sanjiv will answer that, yes.

Yes, Deepan, so since the revenue overall has been a little lower because of the pricing pressure, I mean, the costs look higher. Otherwise, it's normal. If you compare from the higher turnover, it would have been comparable.

Okay. So we are happy to see that we are reporting stronger growth in all these regions. But still in terms of margins -- hello?

Go ahead. Go ahead. Go ahead.

Yes. But still, in terms of margins, we are able to improve. So are we seeing any visibility in terms of margin improvement in near term over the next 2, 3 years going back to this 15% to 18% levels. And what are the challenges we are facing in that and how are we addressing that?

Yes. So margin improvement is a continuous process. And so the idea will be, of course, focused on more products where the company has a better margin and a better position in the market. Definitely, this is -- and we are continuously striving to introduce new products in the market. So margins definitely will -- and new products will definitely be better and improve.

And can you throw more light on this exceptional loss on this impairment on property and equipment, what is that regarding?

It's a provision. I mean, you understand, I mean, the -- as per the accounting standards, and we have gone as per the accounting standard 28, that is impairment of assets. So based on that, assets have to be looked upon at the end of the year to ensure they carry the realizable value. So it's a provision. So it's maybe if the asset gets utilized, I mean, the value may be back. So there will be a reversal there.

Okay. This is for which region exactly?

This is in our plants in Gujarat only. So obviously, somewhere once they get utilized or once it's up and running, so then the provision which we made may be reversed.

Okay. Okay. And lastly, like what is the kind of capacity utilization currently we are having in overall -- India and overall?

In India, it's around 70%. Overall, UAE is around 50%. And even in the U.S., it's around 50%. So those 2 units are at 50%.

What is the mix between CNG and industrial cylinders currently?

Around 60-40.

[Operator Instructions] The next question comes from the line of Shrey Gandhi from CR Kothari Stock Broking.

My first question is regarding the order book. Can you specify the order book for U.S.A., UAE and India specifically?

So U.S. is around $55 million. India is around INR 300 crores.

And UAE?

And UAE is INR 100 crores.

And how much CapEx is done currently and what is pending for Europe and Mundra -- Egypt and Mundra, sorry?

Egypt is in the first phase. So how much pending? Pending is around 50%. 50% of spending. So, Egypt around 50% of CapEx is still pending.

And for Mundra?

Around INR 50 crores is still left.

INR 50 crores is left. okay. And another question is for the UAE business, why there is a drop in revenue and margins Y-o-Y?

So again, they are also facing some pricing pressures for orders that they had taken from the market where they are finding it the pressure on the pricing for the product.

So when will we expect this to be normalize?

I think maybe from coming quarters, things will start normalizing.

Okay. What was the purpose of borrowings which you raised recently [indiscernible] purpose of borrowings?

Say that again, you said the borrowings?

Yes. What was the purpose for raising funds from the...

You said raising funds. Okay.

No, term loan has been for the project.

We have only taken a term loan here, nothing else, I think INR 20 crores.

INR 20 crores of term loan.

We've only taken a term loan of INR 20 crores remaining whatever is all CC limits. And anything in UAE and U.S. A using the CC limits?

$5 million.

Yes. Is there any term loan in UAE -- in Egypt project term loan?

[Foreign Language] Small Term loan in Egypt for the project. How much is that?

INR 7 crores. Okay. So no, we've not taken any -- long-term capital is not there much. About INR 27 crores is what we can see in long-term capital.

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

We are struggling in UAE in terms of margins. So as you said previously that you are taking some pricing pressure. So I want to understand what could be the reason for this pricing pressure? Are there any cheap imports in UAE or some other regions?

The region where they are working, they have pressure on the sale price.

No. I mean, why -- previously we used to do 15% margin, but now we have done 1% only. So what could be the reason?

It's also the product mix that could be significant here because the product mix that was probably made in the quarter because the order book only had that. So the margin was affected by -- they had taken orders at these prices and this has affected the margin.

Yes. But my question is why we have taken the order at low margin because...

They might not have got the order of the higher margin product mix, so they have to stay with the low margin product mix. And so that affected their pricing. The margin pressure has come.

Okay. And any R&D or partnerships that we are doing for the hydrogen sectors?

No, we're not doing any -- we are doing only some development work, but we're not doing any joint venture or anything on the hydrogen sector.

And regarding the new product development, where are we now?

So that's continuously -- we are continuously working on new product development and introducing new products in the market. So that is a continued process we are doing.

So regarding new product, which sectors are we targeting?

Industrial, automotive, all sectors we are targeting.

The next question comes from the line of [ Ashwath ] from Arihant Capital.

I had a question very specific to bottom line margins. Am I audible?

Yes, yes, we can hear you. We can hear you.

So we went from 7% to 5.6% on an annual basis. Do we see this shrinking further or any guidance on this?

No, there will definitely be an improvement in the margin in the coming quarters.

Yes. So for FY '26, so much do you guide?

At least double digit.

Double digit on PAT margin?

Yes.

Okay. And I also wanted to understand our split. If you -- if I'm just going through presentation, Slide #9. So U.S. and Hungary make up a huge chunk of the EBIT. So I wanted to understand the split, where do we see the split in FY '26 and '27? Do we see a similar margin pressure from UAE continuing? Or how is the split going to be like? If you could also elaborate on the top line split and the EBIT split?

The split is there. Only thing is that definitely, things will improve in UAE and U.S. will be continuing to be strong. And India also, I think we should be better off than this year on EBITDA.

Even top line.

Even top line.

So when you say better, could you just quantify in terms of how do we see that happening, right, in terms of numbers? Or are you seeing the bifurcation...

We are not able to share specific numbers.

Percentage [indiscernible].

Yes, yes, it is 10% to 15%, yes.

We take the next question from the line of Shrey Gandhi from CR Kothari Stock Broking.

This is [ Nidhi ] here. I want to understand the GST liability that you mentioned in the previous call of INR 127 crores, what is the current status of that?

Ma'am, we have filed a rate in the high court, and our hearing is going to be coming in soon. So as things flow, we will inform the investors.

And you mentioned that 50% of Egypt CapEx is done out of INR 150 crores, so INR 75 crores is pending. And for Mundra, INR 50 crores is pending. So this total INR 125 crores, how are you planning to fund this remaining CapEx?

So I mean, we have planned out a small borrowing for the term loan from India of another INR 20 crores. And for the Egypt project, we already have -- so we may or we may not, I mean, entirely take up the borrowing. But it's already there. The loan is already sanctioned.

Okay. So INR 20 crores is already sanctioned and the remaining INR 100 crores?

No, the balance also in Egypt also is fully sanctioned.

Got it. And sir, just one last question. The U.S.A. business, so the margins are quite fluctuating. Previously, it was around 5% to 6%, right now, it is 16%. So what is the margin that we can expect ahead for U.S.A. and India?

U.S. also will go on similar line because they are having a strong order book, and they are executing pretty quickly. So we believe that they will continue in the same fashion.

Okay. So 8% for India and in the range of 16% for U.S.A.

Yes. I mean it can be in that appropriate range, yes.

[Operator Instructions] Ladies and gentlemen, as there are no further questions, I will now hand the conference over to the management for their closing comments.

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

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