Everest Kanto Cylinder Limited (EKC) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to 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 Anoop Poojari from CDR India. Thank you, and over to you, Mr. Poojari.

Thank you. Good evening, everyone, and thank you for joining us on Everest Kanto Cylinder's Q3 and 9M FY '26 Earnings Conference Call. We have with us today Mr. Puneet Khurana, Managing Director; and Mr. Sanjiv Kapur, Whole Time Director and CFO of the company. We will initiate the call with opening remarks from the management, following which, we'll 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 will now request Mr. Puneet Khurana to make his opening remarks.

Good evening, everyone, and thank you for joining our conference call. I will begin by sharing the overview of our performance for the quarter followed by a Q&A session. We delivered a strong performance in Q3 FY '26 with a notable improvement in profitability, driven by improved realization, favorable product mix and continued focus on cost discipline. Consolidated revenue stood at INR 365 crores. EBITDA grew 48% year-on-year to INR 59.2 crores with consolidated margins expanding to 16.2%, and improved 534 [ BPS ]. PBT stood at INR 53.6 crores and PAT for the quarter came in at INR 35.7 crores, reflecting a growth of 98.9% year-on-year. On a stand-alone basis, revenue for the quarter stood at INR 247 crores. EBITDA margins expanded to 23.1% compared to 14.9% in the same period last year. Reflecting strong operating performance during the quarter, standard profit after tax stood at INR 36 crores, registering a growth of 57.6% year-on-year. For the 9-month period ended FY '26, stand-alone EBITDA margin stood at 17.3%, and our endeavor remains to build upon this performance over time. As margins are influenced by the product mix executed in any given quarter, we remain focused on optimizing both volume and value to drive sustainable and profitable growth. Our Indian operations remained the primary contributor to overall performance, supported by steady demand across CNG and Industrial applications. In the U.S., performance continued to remain -- reflect the order-driven nature of the business, with healthy progress on year -- by year-to-year basis, supported by strong order pipeline. To support future growth opportunities, we have approved a CapEx of USD 5.5 million in our wholly owned subsidiary, CP Industries, to enhance manufacturing capabilities. With a focus on larger diameters and Type 4 cylinders, the investment will strengthen our position to address emerging clean energy and industrial application and support growing demand across North and South America. Our operation in Dubai remained subdued during the quarter. However, we continue to focus on strengthening market engagement and improving operating performance in the region over time. Our capacity expansion front, we have successfully commenced operations at our greenfield Mundra facility with one production line now operational, the remaining two lines are expected to be established over the coming months. We have also approved additional CapEx of INR 30 crores for shelling capabilities and enhance operational readiness at the facility. In addition, our Egypt facility is progressing steadily and expected to commence operation by May '26. The facility will focus on addressing domestic demand while supporting regional market requirements and will further strengthen our global manufacturing footprint. Overall, we remain encouraged by the improving demand environment and the progress on our strategic initiative. With new capacities coming online, a strong order pipeline and continued focus on operational efficiency, we believe we are well positioned to support future growth with sustaining healthy profitability. With that, I conclude my opening remarks and request the moderator to open the floor for questions. Thank you.

[Operator Instructions] First question is from the line of Chirag Ghoti from NB Alpha Fund Management.

Sir, I have one question. What is leading to margin expansion in India? Second about the product mix changes. And what is the mix that you are doing currently?

Our focus is on a little higher end products. So we have some products in CV market, some products in defense, some products in the semiconductor industry. So that has been the product mix. And that's why the margins in this quarter have been quite good.

Okay. And how much it is contributing approximately, those kind of products?

I don't have the breakup, but these have contributed to bettering the margin.

[Operator Instructions] Next question is from the line of Anubhav from Prescient Capital.

Sir, am I audible?

Yes. Yes, we can hear you.

Sir, can you give some more color on the improving product mix because there is a significant margin improvement, so what happened to the product mix? Like did we see a significant uptick in the cylinders for commercial vehicles or what happened, sir?

There's a mix. There is definitely an offtake, the commercial vehicle business has been quite subdued over the last 2 years. So there is definitely now the growth of CNG infrastructure, definitely, the CV volumes are -- have increased compared to the previous quarters. And we think this trend is going to continue. And there's a new segment also in semiconductor where we've entered. And there also, we've seen some good order book coming our way. So this is all contributing to the margin.

Okay. And sir, will it be possible to share like the contribution of auto cylinders in this quarter, like the mix between auto and industry?

No, we don't have that with us.

And sir, this trend that you are witnessing in like pickup in commercial vehicle cylinders, do you find it sustainable?

Yes, of course, it's sustainable because it's come after a period where the consumers were also trying to gauge the CNG prices because sudden rise in the CNG prices also had pushed them back. But now with their getting used to the CNG price, even diesel prices are high, petrol prices are high. So the consumers are more or less now are accepting. And of course, the infrastructure of CNG stations have been increasing every year. So with more and more availability, ease availability of CNG is just putting more vehicles and also the OEMs now have more models that they are offering to the customers. So the choice for customers has increased, infrastructure has increased and customer acceptability on the fuel pricing has also been there. So all these things are coming together. So we feel that this is kind of -- is a good sign and sustainable. It has come after some time where the CV market is coming back.

Yes, sir. It's also driven by the like -- somewhat revival in commercial sales that we are witnessing. So it's also driven by that?

I don't know about the overall space of CV, but I can only talk about CNG that's where we are finding that this business of CV of -- CNG segment of the CV is growing.

Got that. And sir, in the domestic market, are we also into like composite cylinder because...

Yes, we are, yes.

So can you share some more details on that, like what products we are in? Are we in type 4?

We are in type 3 composite cylinders, yes. This is a new market. And so we are slowly, slowly making some headway into this market.

Okay. And like, have we -- like are we entering into type 4 as well?

No. Not right now. We have more focus on type 3 right now. In the future, definitely, as you know, this composite business grows, we are also learning and evolving, and we definitely -- we are making type 4 in the company in the U.S. So definitely something that is there for us in the future to plan. And as the market evolves and things become more mature, definitely, we will also look into development of type 4 for Indian market.

Next question is from the line of Guneet Singh from [indiscernible].

I would like to understand that, I mean, are the 16% EBITDA margins sustainable going forward?

Yes, I think I can assure you. No, they should be. They should be.

All right. So we have done margins of about 24% in the past as well. So according to you, what are the sustainable sales base margins going forward? And I mean do you believe that going forward, 17% would be margin...

15% to 17%, you can consider, 15% to 17%, yes, with the product mix and everything, I think the -- yes, it should be.

And what are the capacity utilization across our plants currently?

About 75%. About 75%.

Can you give plant wise utilization? And also the revenue potential from new plants and coming CapEx, where commercialization timeline as well as any potential from them as well?

It is more or less the same, but it's difficult to give you the numbers over a call. I'll keep it a note, and maybe we can work on this and give it to you.

All right. And also -- and do you have any internal targets in terms of top line and bottom line for FY '27 that you starting with the new facility coming in the current product mix?

I think about 15% to 20% is what we are targeting. We would like to grow at that.

All right. And maintaining the margins?

Yes, yes, yes, of course.

Next question is from the line of Jatin Damania from Svan Investments, LLC.

Softness on the domestic performance, but if I want to understand in the UAE business, from the last couple of quarters, the numbers have been subdued, and we are working on the shunting product like averaging the market. So when can one can actually see benefit of the sort that has been put in the UAE?

I think in the coming quarters, I think we should be able to see -- we were expecting some businesses to come up in the Middle East and in Africa region, but things have just been slow. So hopefully, in the coming quarters, we should expect that the business should come up.

But do we expect to break even in the UAE business in FY '27 or we'll still operate at the...

Yes, of course, yes.

In terms of the contract, I mean, are we looking at to sign up any significant -- I mean, a decent size contract with the Middle East or South Africa? Or are we in touch so that which gives us the...

There was always running customers and things like that. So it's just a little bit of a slowdown that has happened in the last 2, 3 quarters. So hopefully, this thing will turn around in the new year, and we will be seeing the business.

Okay. So one, at what sort of profitability or what sort of revenue contribution one can expect that UAE to be breakeven?

Yes, I mean whatever they're doing, at least 10% higher would be breakeven.

Over 10%, probably we expect that to come into FY '27.

Yes, yes, yes.

Coming on to our U.S. business. Now after a long time, we are probably doing an incremental CapEx of $5.5 million. What sort of visibility do we have in the U.S. market? Or is this particular CapEx backed by any contracts that you are signing up with the customer?

Yes, yes. So U.S. business, what is happening is that most of the larger vehicles are running -- have been converted into CNG. So we are already working with an OEM who wants us to expand capacity. So this capacity expansion is exactly as per the customer contract. So we expect that about additional INR 100 crores should be added to the top line once the expansion is complete in '27-'28. So this is all backed with customer contracts and with Type 4 expansion in the U.S.

So then it's right to assume that FY '28, there should be INR 100 crores incremental revenue coming up from the U.S. business with a margin of upward of 20%, given the type 4 cylinder?

Margin in the U.S. is always good. See, margin in the U.S. have always been very good.

And on the Egypt front, now once the capacity comes in month of May or June, will it take time for the customer to approve our product or probably from...

The customer approval is already there by the same customer because the same customers were buying previously also. Customer approval is not such a big challenge. And most of the customers are like fleet owners and Egypt is not so much on the -- like an OEM customer where approval processes take a long time. So immediately, as the product -- I'm probably sure that they have orders already in hand. It's just the customers are waiting for the facility to start.

Which is expected in the month of May, right?

Yes. Yes.

And what sort of revenue one can expect?

For the first year, I think about INR 50 crores to INR 60 crores.

And margin will be similar to the domestic business or it will be on the lower end?

First in the beginning, maybe the margins will be a little low, but when it ramps up, definitely, the margins will be much better.

So that means it's probably if one can look then FY '27 could be more of a consolidation and FY '28, while we can think more benefit coming on from the U.S. with a higher margin, Egypt and UAE to contribute profitability?

Yes, correct. Yes, correct.

And on the India business, other than Mundra, the remaining two lines when are we expecting? And what sort of capacity that will increase to?

Maybe by next quarter.

Okay. And it will increase our capacity by what percentage?

Yes, around 15%.

[Operator Instructions] Next question is from the line of let Reet Jain from First Water Capital Advisors.

Sir, I wanted to know what is the order book for U.S.A?

Around $75 million.

Okay. And execution time?

Maybe 2 years.

Okay. And I wanted to ask about the product mix since we are supplying into defense and semiconductor industry and these two industries are growing in India. Sir, do you feel that the product mix would be sustainable going forward? Or there will be up and down in the product mix?

See, there will definitely be up and down because defense and all is long term. So definitely, some projects will come, and we will have these maybe something special but there is good visibility, good this thing from the customers that there will be good requirement in these segments.

Okay. And also regarding the U.S. CapEx that you have announced, $5.5 million. So I believe that the volatility of the USA revenue will reduced because the incremental revenue will be sticky every year?

Yes, yes. Definitely, this is more -- will be a more consistent -- this expansion will give the company a more consistent revenue model.

Okay. And any update on the GST case, which we had in India?

No, no update as such.

But any timeline which you have like when we can hear some update?

No, we are also waiting on this.

Next question is from the line of Ayush Kumar Birendra, an individual investor. Due to no response, we move to the next participant. Next question is from the line of Sajid, an individual investor.

I would like to know that you have shown that UAE sales has been INR 33 crores. It is only for UAE or we have exported some cylinders to other parts as well or countries as well?

Sorry, can you repeat that? Sorry, we didn't follow.

We have seen that UAE sales has grown up by INR 33 crores, UAE plant. Hello?

You're talking about quarterly sales? Yes, you're talking about quarter sales?

Yes, yes, yes. So is it INR 33 crores is for only supplied to UAE market or is it exported to other countries?

Export or exported to other countries, yes.

What may be the percentage of type 3 sales and value in coming this financials?

In UAE?

Sajid, sorry to interrupt you, your voice is breaking. Can you please come in a better reception area?

Now it is clear, sir?

Yes, I can hear you. Yes, go ahead. You said Type 3.

Sajid, sorry, again, we are losing you? May I request you to reconnect, please? [Operator Instructions] Next follow-up question is from [indiscernible].

Yes, I hope now my voice is pretty clear.

Yes, yes, yes.

I would like to know the Type 3 sales and the percentage value in overall years in India?

India is not so significant. Yes, it's quite small.

There's no response from the participant. Can you hear us? [Operator Instructions] As there are no further questions, I'll now hand the conference over to the management for closing comments.

Yes, thank you once again for your 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 team or CDR India. Thank you.

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