India's Shift To Clean Energy Will Create New Revenue Opportunities In CNG And Green Hydrogen

Key Takeaways

• Expansion in India's CNG market and government incentives for clean fuels are set to drive revenue and margin growth for Everest Kanto Cylinder.
  
• Strong U.S. order book and efficient operations boost prospects for revenue growth and margin stability amid rising demand for clean energy solutions.
  
• Rising costs, debt, and regulatory challenges in international and domestic markets could pressure Everest Kanto Cylinder's profitability and revenue stability.

Catalysts

Manufactures and sells gas cylinders in India.

• The expansion of the CNG market in India, supported by environmental benefits and growing refueling infrastructure, is expected to boost revenue growth for Everest Kanto Cylinder due to increased demand for CNG cylinders.
  
• The integration of biogas and bio-CNG, along with government incentives for clean fuel solutions, is likely to enhance revenue and sustain margin improvements as demand for CNG cylinders grows.
  
• The company's preparedness to meet rising demand for high-performance gas storage solutions in green hydrogen could positively impact future revenue streams and earnings as India pushes towards clean energy initiatives.
  
• Operational efficiencies and prudent inventory management have improved domestic margins, suggesting potential net margin stability or improvement in the future, especially as the CNG infrastructure and vehicle adoption expand.
  
• The strong order book in the U.S., especially with new governmental policies favoring domestic manufacturing, is a catalyst for future revenue growth and earnings improvement as projects mature and are completed.

Everest Kanto Cylinder Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Everest Kanto Cylinder's revenue will grow by 18.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.1% today to 13.6% in 3 years time.
• Analysts expect earnings to reach ₹3.2 billion (and earnings per share of ₹28.43) by about March 2028, up from ₹991.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.1x on those 2028 earnings, down from 14.1x today. This future PE is lower than the current PE for the IN Packaging industry at 18.7x.
• Analysts expect the number of shares outstanding to grow by 0.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.13%, as per the Simply Wall St company report.

Everest Kanto Cylinder Future Earnings Per Share Growth

Risks

• The international operations face challenges, particularly in Dubai, where the operating environment is difficult and less conducive, which could impact revenue and margin stability.
  
• Despite a strong order book in the U.S., the project-based business model leads to volatility in revenue and earnings due to delays in product movement and order realization.
  
• Increases in power and fuel costs by 20%, coupled with a rise in finance costs due to higher debt levels, could pressure net margins and overall profitability.
  
• The company faces potential liabilities from a GST notice concerning the classification of CNG cylinders, which may impact net earnings if resolved unfavorably.
  
• The challenging global environment and wait-and-watch economic conditions, particularly due to geopolitical policies, add uncertainty to international revenue and earnings sustainability.

Valuation

• The analysts have a consensus price target of ₹158.0 for Everest Kanto Cylinder based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹23.4 billion, earnings will come to ₹3.2 billion, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 13.1%.
• Given the current share price of ₹124.14, the analyst price target of ₹158.0 is 21.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.