ATTRACTIVE SMALL CAP STOCK

ATTRACTIVE SMALL CAP STOCK

EVEREST INDUSTRIES LTD(Rs 290)

(BSE Code- 508906 NSE Code-EVERESTIND)

(Equity-15.23 cr., Promoters’ Stake-49.39%)

(P/E-8,  Mkt. Cap-441 cr.)

Established 76 years ago, Everest Industries (now controlled by Mrinalini Trust created by highly respected Gujarat Ambuja Cement’s former promoter Narottam Sekhsaria) is one of India’s leading building solutions company. It has continuously introduced innovative and modern building products with a promise of Strength, Speed and Safety.Everest offers complete range of building solutions like Roofing, Ceiling, Wall, Flooring, Cladding, Door and the Pre Engineered Steel Buildings for the Industrial, Commercial & Residential sector. Broadly, the company operates in two business segments namely Building Products and pre-fabricated Steel building Divisions.  Everest Industries is transforming into a complete building solutions provider.

There are many misconceptions about one of its raw materials, asbestos. The company uses white asbestos (Chrysotile) fibre bound in a cement matrix in the manufacturing of AC roofing. Chrysotile is a naturally occurring mineral, mined and imported in shrink-wrapped pallets from developed and environmentally conscious countries like Canada, Russia and Brazil. In its manufacturing process, fibre is used in controlled environment. Fibre emission is fully controlled and fibre dust concentration at its production facilities is better than prescribed international norms. The company has systems to ensure zero discharge of industrial effluent. Regular health check-ups for all its workmen confirm the absence of any asbestos-related disease over decades of service.

Everest is one of the largest national brands in the Indian fibre cement roofing market. Everest's roofing sheets find application throughout the country in factories, power plants, stadiums, schools, urban/rural houses, animal shelters, poultry farms and commercial establishments. Fibre cement roofing solutions are preferred in rural and agriculture based housing markets as an affordable and durable roofing solution. Everest has six manufacturing units for Building Products across the country with a cumulative capacity of 8,10,000 MT per annum. Everest provides roofing solutions to housing, building and construction industry with a strong portfolio of roofing products for rural housing and commercial applications. Everest’s range of solutions include Corrugated Fibre Cement Roofing Sheets, Hi-Tech Fibre cement roofing sheets, Durasteel Metal Roofs, Polycarbonate Roofiights and roofing accessories like Ridges,Gutters, EPDM Washers and North Light Curves among others.

The Government of India is committed to inclusive growth and has increased expenditure on rural and infrastructure development. It has also focused on agriculture and education.The company operates in all these sectors. The huge housing deficit in rural India, with a majority of Kaccha houses, offers tremendous opportunity of sustained growth of new age construction practices as well as building products. There is equally encouraging demand in the industrial sector also. Growing at a CAGR of 10% over the past five years, the per capita consumption of structural steel and Pre-Engineered Building (PEB) in India has reached about 6.2 Kgs now. Penetration of PEB in large traditional segments like power, chemicals, cement etc is increasing. Also Small-scale industries, are recognizing the advantages of using PEB over conventional concrete buildings to control cost and time overruns.

In FY 2014 sales grew 2% to Rs 1035.25 cr.. OPM crashed 580 basis points from 9.6% to 3.8% taking OP down 59% to Rs 39.85 cr.. PAT was down 83% to Rs 9.15 cr.. On a equity of 15.23 cr.(Promoters’stake-49.39%, FII/DII stake-12.94%), the FY14 EPS stood at  Rs 6 and the  dividend declared was 25%(Rs 2.50 per share). For the half year ended September 2014, Everest has posted 225% rise in net profit to Rs 23 cr., whereas net sales increased 26% to Rs 623.6 cr.. The half yearly EPS stands at Rs 15.1. The industry’s volume growth has already revived and realizations have improved and the trend is likely to sustain. Moreover imported fibre prices have declined and rupee appreciation and stability has further reduced raw material costs. So good sales growth as well as sharp improvement in OPM reverting towards its traditional range is expected from current year FY 2015.

With expected revival in economic activity, housing construction activities should also gain momentum. On the back of increasing rural income, rural housing growth is expected to accelerate over coming quarters. With the right building solutions and products, deeper market penetration and strong customer equity, Everest Industries is positioned to benefit from the growing demand. Central government’s fast tracking of approvals on infrastructure and industrial projects during the second half of FY 14 are likely to boost the PEB industry. The Everest stock is currently trading at 8.7 times FY15E earnings (Rs 33- Rs 34) and 7.1 times FY16E earnings(Rs 40- Rs 41).

Investors can start accumulating the Everest Stock at current levels and add more on declines for decent returns of 50%-60% over the next 8-12 months.