Stock Pick from Cement & Cement Products Sector

HERE IS WHY

• Strong revenue visibility in building products division
• Steel building division is expected to show margin improvement going forward
• Recent capacity expansion to drive volume growth

The Indian economy is showing a good amount of traction and revival in the overall market environment. The changing business environment will definitely boost the industry's capex plans creating a demand for building solution providers. One such company, Everest Industries, is one of India’s fastest growing building solutions.

Everest announced its second quarter results exhibiting the turn-around story for the company. It has posted a net profit of Rs 3.4 crore during the second quarter against the loss of Rs 6.6 crore in the same quarter last year. The result exhibits good traction for the company as the second quarter is traditionally weak due to lower demand for building material due to the monsoon season. However, the management expects the momentum to pick up particularly in the steel building segment.  The company is seeing a perk up already happening in order book as well as in the order enquiry status. Further, the company is expecting its new capacity to be commissioned very soon that will contribute to its topline.

The building product showed good momentum with more than 22 per cent growth on yearly basis. Further, margins for the same division expanded by considerable amount posting profit against loss in the same quarter last year on yearly basis. The company's management is expecting building activities from both the rural sector as well as the commercial sector. Further, the management is confident to maintain its EBITDA margins for the division in coming future.

The revenue in the second division – steel building too shot up by 25 per cent with a 11 per cent volume growth on yearly basis. However, the company was not able to post profit from this division. The company was affected by steel price hike and it was carrying a large order book at fixed prices. However, much of that inventory of old orders has been exhausted, Hence the management expects results to start improving in the coming quarters. On the positive front, this division has a strong order book of more than Rs 240 crore.

Everest has been doing considerable capex to capitalise the deficit in building solution industry. Over the past few quarters, Everest has commissioned three factories in India, thus giving a boost to its domestic business. Further, the company is planning to set up a fibre cement board plant in UAE to expand its overseas business. The company also had launched colour-coated metal roofing sheets in August 2014. We expect the recent and planned capacity expansion would drive volume growth for the company. The UAE plant would help cater to the growing demand and savings in logistics cost, resulting in its margins. Also the expected margins improvement in steel building division too give us confidence in Everest's one year prospect. We recommend our readers to buy this stock for next one year.