This post has been written by Ajay Krishnan for FinMedium Research Desk.
Incorporated in 1934, Everest Industries Ltd is an established player in the domestic FC sheet industry with experience of over seven decades. The company’s operations can be classified into two divisions:
- Building products
- Steel buildings/PEB.
The building products division includes roofing products (asbestos as well as non-asbestos FC sheets), ceiling, wall, floor, cladding and door solutions.
The steel buildings division provides end-to-end solutions, from designing and manufacturing to installing of steel buildings, mainly for industrial buildings and warehouses.
EIL has a capacity of 9,50,000 MTPA for building products and 72,000 MTPA for steel buildings.
Everest Industries is a pioneer in new age building products. From modern fiber cement boards to pre-engineered steel buildings, they have continuously introduced products that help in faster, stronger, and aesthetic construction.
With over seven decades of experience, the company has a rich history in the manufacturing of building products and steel products.
Everest offers a complete range of roofing, ceiling, wall, flooring, and cladding products distributed through a large network, as well as EPC of pre-engineered steel buildings for industrial, commercial, and residential applications.
Everest is the pioneer of roofing solutions in India. The company started manufacturing AC roofing sheets in the pre-independence era. The company reimagined the entire roofing ecosystem through a series of innovative offerings.
From color to material, the new age roofing products of Everest offer durability and aesthetics. Everest’s roofing product portfolio caters to
clients across residential, commercial and industrial sector.
The company has developed strong brand loyalty with customers. Everest has 6 state-of-art roofing sheet manufacturing plants across the country and a distribution reach to more than 1 lakh villages and 600 towns.
The company is synonymous with roofing in India.
It is one of the leading building solutions providers in India, providing detailed technical assistance in the form of designs, drawings, and implementation for every project. Everest Industries aims to be the most penetrated housing and building provider in India by 2025.
The company is already a household name in the rural areas of the country and preferred by MSMEs for their construction and building needs.
(Image Sources: Annual Report FY2020)
Product Portfolio and Market Share
Everest offers a wide range of products for residential, commercial, and industrial roofing. Everest products are installed on more than 1 billion sq. meters of industrial and residential roofs in India.
2 out of 3 Indians have an Everest roof over their heads. With 7 roofing sheet manufacturing plants across the country and distribution reach of more than 1 lakh villages and 600 towns, Everest today is a brand synonymous with roofing in India.
Everest roofing sheets are made from superior quality cement and imported fibre using a unique fibre mesh technology. It is used by customers across the country for their residential housing needs.
Everest Fibre Cement roofing sheets are also widely used in making animal husbandry and poultry shades, schools, rural community centres, public health centres, places of worship etc.
Everest has also introduced the new age coloured Fibre Cement roofing sheets – Everest Super Colour, which comes with special water repellent and anti-fungal properties.
These roofing sheets are very popular in both urban and rural India, as it gives a very sophisticated look to the house or the particular industrial building, and makes it look more aesthetic.
A result of extensive R&D efforts of the company – Everest Hi-tech is India’s first Non-asbestos Fibre Cement roofing sheet, widely accepted as ideal roofing solution for making factories, warehouses, stadium, resorts, etc.
Everest is a leader in designing, manufacturing, and erection of modern Pre-Engineered Steel Buildings.
Steel buildings are the fastest systems of construction today and are gaining popularity all over the world just as quickly.
The company is making things even easier by providing a comprehensive solution right from a project briefing to the final on-site installation, and after-sales service.
Everest is known for its strong buildings that are delivered quickly and safely. Everest Pre-Engineered Steel Buildings are an example of transparent, systematic and process driven workflow.
From structural design to installation of their own customized ERP runs on a SAPR3 platform that enables the customer to track the status of the project at any point in time.
Timely performance, excellent service back up and faster response time adds to the company’s commitment to its motto, “No Cost Over-runs, No delays.”
Everest also offers Pre-Engineered Buildings for industrial and warehousing infrastructure.
Their Light Gauge Steel Frame (LGSF) based Smart Steel Buildings for low-rise low-span structures like residential and commercial buildings; and Primasteel Roofing Solutions for Industrial Roofing & Cladding are some of the most acclaimed products in this domain.
A pictorial representation of Everest Industries product-wise breakup is given below:
Recent Events and News
The company experienced a challenging Q2FY2020-21 in performance. Everest Industries witnessed a rise in the prices of the primary raw materials.
Steel, cement prices rose on account of change in exchange prices, some on account of basic change in the pricing itself.
Everest Industries estimate that the primary demand that is demanded by the trader was low on account of lower liquidity and this was further impacted by the COVID-19 threat and the subsequent lockdown which happened in March.
The steel building business was affected due to slowdown in manufacturing activities. Slowing urban demand because of COVID-19 affected demand for boards.
However, production and supply of goods had commenced during the month of April – May at the manufacturing locations of the company after obtaining necessary permission from the government.
Everest Industries were among the first industries to open and have been working with limited labour while maintaining all safety precautions including the social distancing norm.
In the building product segment, the demand was seen to be pretty decent in the first two months of the quarter. The roofing demand has come back strongly as rural areas are less affected by lockdown compared to urban areas.
Good Rabi output and smooth harvesting have further boosted the demand in rural areas. Everest Industries have witnessed strong demand from geographies that have been opening.
However, there are many operational challenges due to shortage of labour, changing rules of factory operations, restrictions on various borders and so on.
The boards and panels business including exports has started more sedately. We feel that great opportunity exists to promote quick construction when the market reopens as a lot of projects are delayed and will at ways and means to finish them quickly.
The company has played an active role in India’s fight against COVID-19 by setting up quarantine centers at many locations across the country. This is a good sign of commitment and managerial prudence from the company.
Demand for June and July will really determine the direction of the business trajectory as the urban markets open.
(Source : Investor Presentation)
The financial performance for the period started well with first quarter reporting a healthy margin. However, the subsequent quarters were impacted by higher cost of materials and lower volumes.
These were a result of subdued markets and money supply. In addition, majority of FY2021 was impacted by the lockdown in the industry. Sales were lower on volume and selling price; and this also impacted profitability as raw material prices and exchange rates impacted the results.
Steel Buildings Business continued to reap the benefits of improved risk management practices and contract management.
Exports have continued to be challenging due to stiff competition from local players in the markets in which the company operates. The decline in the INR makes the products of the Company more competitive in the export markets.
The company’s financial highlights for the past four years is given below:
As we can see, the margins have been growing healthily till FY2019 until the COVID-19 pandemic put a halt to it in FY2020. The margins are slated to improve in FY2021, with recovery being seen in the steel sector already.
The company is technically bullish as well with the charts representing a considerable up move in stock prices from the current set up. Stock price has been steadily growing since the lows of March 2020.
The OPM of the company has already stabilised at around 11-12% from almost 0% in March.
This shows that the fundamental of the company is intact, and at current valuations can be a good performer in the short-to-medium future.
The company has a conservative capital structure and the healthy debt coverage metrics—the total debt to OPBDITA was 1.2x and the interest cover was 7.7x. The metrics are likely to remain at comfortable levels in FY2021, despite the expected decline in operating profit.
Despite lower sales, working capital was effectively managed by reducing the receivables and inventories. This resulted in reduced borrowing costs.
Debt-to-Equity ratio continued to be low and the working capital limits were reduced in view of the RBI circular requiring the company to convert portions of Cash Credit Limits into Working Capital Demand Loans in case if the total limits were in excess of INR150 crores.
We must keep in mind Everest Industries’ established position in the domestic fibre cement (FC) industry backed by its strong brand, distribution capabilities and geographical spread of its plants, which enable better customer reach.
The company takes revenue diversification very seriously, owing to the presence of the steel buildings segment and the non-asbestos products in the building products segment, accounting for almost 45-50% of the turnover.
Everest Industries also has an adequate liquidity position, supported by significant unutilized working capital limits, along with limited capex commitments and debt repayment obligations in FY2021-FY2022.
(Source: Annual Report 2020)
The company continuously focuses on research and development activities and has always had a philosophy of introducing new and improved products in the marketplace.
The R&D team at Nashik, Maharashtra works continuously for alternate raw material usage for the improvement and product lines.
This is a very interesting trend for Everest industries, as they are now focusing on in-house R&D than depending on foreign players for technology.
Innovative procedures like large-scale rural marketing are also helping Everest Industries to extend their market reach as well as business share for both major product verticals.
Rural India Growth
Urbanization is taking place at a rapid rate in India. According to the World Bank, 28.53% of India’s population was residing in urban areas in 2001 which has increased to 34% in 2017. By the year 2021, more than 43.2 crore people will live in urban areas.
This huge urban population growth will need housing solutions like the ones Everest Industries is producing, especially ready-made, high-quality materials. We are now seeing that urban business opportunity is becoming bigger vis-à-vis rural areas, reversing an existing trend.
Growth of the Industrial Sector
The industrial sector is one of the main sectors that contribute to India’s GDP. The country ranks 14th in the factory output in the world.
The industrial sector accounts for around 27% of India’s GDP and it employs about 25% of the total workforce in the country.
The lower corporate income tax rate announced by the government to boost the economy in the middle of the financial year should enhance India’s competitiveness vis-à-vis other potential manufacturing hubs in Taiwan and Southeast Asia, such as Vietnam, Thailand and Indonesia.
This tax rate concession should leave the companies with more cash for investment and expansion and persuade them to remain and expand in India. This could be a great opportunity for companies like Everest Industries to collaborate and set up joint ventures.
(Source: Con Call Q2FY2021)
Watch: Everest Industries Pre-Engineered Buildings
With a market cap of just INR 412 crore, Everest Industries holds a magnificent opportunity for the discerning investor. The company is fundamentally solid and indulges in healthy financial metrics while keeping operating costs low.
The company has also recovered 124% in its stock price from the lows of March with healthy volumes, which clearly shows investor confidence in the business and management.
Let us look at the positive impacts of the business:
Established position in domestic FC Roofing industry
Everest Industries Ltd is an established player in the domestic FC-roofing industry, with a track record of over seven decades of operations.
This is backed by its strong brand, distribution capabilities with around 6,500 retail outlets and wide geographical reach of its plants, enabling better market penetration and customer acquisition.
The FC segment accounts for 50-55% of the revenues, while non-asbestos products such as boards and panels and steel buildings (pre-engineered building (PEB) segment) account for the remaining.
This reduces the revenue concentration from the FC-roofing segment and distributes the risk and return over another major business vertical.
Healthy debt coverage metrics
Everest Industries Ltd has a comfortable capital structure of 0.1 times as on December 31, 2019 and healthy debt coverage metrics with total debt to OPBIDTA of 1.2 times, interest coverage of 7.7 times and net cash accruals/total debt of 49%.
These are very good ratios for a company with just INR 412 crore market cap. In addition, the fact that Everest Industries has been in business for more than 85 years, says a lot about the financial strength of the company.
Despite pressure on profitability in FY2021, the debt coverage metrics are likely to remain comfortable as debt levels remain modest.
Demand for Roofing and Warehousing
Demand for the roofing business has been good because of good agricultural produce. Cash availability in the rural belts has improved due to various government incentives. A good monsoon prediction will also benefit the industry.
Government of India’s initiatives towards developing smart cities and infrastructure projects, providing housing for all by 2022, and increased transparency in the real estate sector, will lead to opportunities for innovative and modern building products.
Everest Industries offers modern building products which offer faster and aesthetic construction, which is the need of the hour.
With increase in online sales, the requirement of warehousing is set to increase by more than ten times.
The company, while offering a multitude of opportunities, do also come with a few risks that the investor should be aware of.
As the housing and construction industry were two of the most affected in the times of COVID-19, recent performance of Everest Industries has also taken a hit.
The construction sector is heavily dependent on skilled labor. The recent migration of labor, back to their villages, has impacted the construction of projects. A lot of projects are getting stalled or delayed.
Most contracts continue to be fixed price contracts and steel price changes impact the bottom line. Challenges on account of quality of erection labour, site conditions and underdeveloped logistics in the country, continued.
Some of the challenges that we see are as follows:
Slowdown in revenues and profitability in FY2021
Everest Industries Ltd’s revenues are likely to get adversely impacted in FY2021 because of the lockdown in April-May 2020 owing to the Covid-19 pandemic. The company’s sales volumes declined significantly in Q1, the peak-demand quarter.
Consequently, the operating profits, return indicators and debt protection metrics are likely to moderate. Everest Industries Ltd’s operating profitability declined in 9MFY2020 to 4.3% from 8.1% in 9M FY2019.
This was primarily due to the decline in the performance of the building products segment, owing to competitive pricing pressures and higher input costs of raw fiber and cement on YoY basis.
The moderation in the operating margins is likely to result in sub-par ROCE in FY2020 and FY2021.
Cyclicality and Stiff Competition in the FC Roofing industry
Vulnerability of the FC industry and the PEB business to cyclical trends in the main end-user segments (real estate, construction and rural housing), and the intense competition in the FC industry exert pressure on EIL’s margins.
The FC industry is characterized by low entry barriers, ease of capacity addition and supply overhang, all of which lead to pricing pressures.
Exposure to this cyclicality and low moat makes Everest Industries susceptible to increased competition from lesser players and also hampers its long term sustainability plans.
Exposure to Regulatory risks associated with asbestos-related products
With 50-55% of the revenues coming from the FC roofing segment, Everest Industries Ltd’s revenue is exposed to restriction on the use of asbestos in the domestic market as well as on the mining of asbestos in asbestos-producing countries.
In India, only white asbestos (known as chrysotile) fiber is used, and all forms of asbestos mining are banned.
Volatile Raw Material Prices
The major raw materials used by the Company are Chrysotile fibre, Cement and Steel. Any volatility in the prices of raw material is bound to have impact on the profitability of the company.
Dependence on a Single segment
Customer concentration is a measure of how the total revenue for a company is divided among the customer base.
Dependence on a single segment of customers poses a risk to any organization. Everest Industries has mitigated this risk by diversifying into different product portfolios.
Everest Industries are grouped mainly under cement businesses, even though the company cannot actually be put under this sector alone.
They have a wide range of products and solutions, whose raw materials includes cement. Hence, the peer comparison should be viewed with that perspective in mind.
Given below is a snapshot of the competing businesses:
From the metrics above, you can see that only Everest Industries Ltd has a considerable presence abroad and also within niche verticals like AC roofing sheets and pre-built steel buildings.
Through this structure, they enjoy a considerable economic moat when it comes to certain business sectors which are quite profitable and also needs significant R&D – an area where Everest Industries excels due to their long lineage of 86 years.
Everest Industries Ltd currently has a capacity of 9,50,000 MTPA for building products and 72,000 MTPA for steel buildings.
In the near future, the company plans to upgrade these capacities and bring about a 20-25% increase in production.
The company also has committed to a sustained revenue growth of over 8-10%, and improvement in operating margin to approximately 7-8%. This is a very positive sign, considering the segment the company is in, with a large room for growth.
A CAGR of 8-10% is highly possible given the current low market capitalization and also the captive market share the company will be able to tap into in both the urban and rural environments. Everest Industries will be a major beneficiary of the consumption story India is witnessing.
Everest Industries has adequate liquidity for capex projects that the company is planning in the near to medium future.
Sustaining a comfortable capital structure and improvement in other key credit metrics, supported by prudent capex and working capital management keeps the company in good stead to take on bigger competitors who have hight debt to equity due to poorly planned capex projects.
The company management has been known in the previous four decades to take their debt positions very seriously, which is seen in the way how Everest Industries was able to weather the storm during March 2020.
From our perspective, such prudence is always rewarded in the medium-to-long term, bringing wealth for shareholders and hedging risk in a very intelligent manner.
Everest Industries currently has more than 7000 dealers in 600+ cities, with plans of becoming the most penetrated player in the steel buildings and roofing sector. This looks increasingly possible with the kind of market penetration they already have and been able to ramp it up even during the pandemic.
Consumer outreach has been at the core of all marketing initiatives at Everest.
With the objective of knowledge sharing and creating awareness amongst consumers about their modern building product solutions, education and information dissemination have been the key components for increasing outreach for the company.
The company constantly undergoes outreach programs to target audiences through exhibitions, knowledge seminars and marketing campaigns which is significantly assisting them in reaching out to more customers across India and abroad.
Everest has also seen an improvement in liquidity, and a tremendous increase in profit margins. PBT YoY for Sep 2020 was at a staggering 325.97% and PAT YoY has grown 369.3% in the same period. Both metrics look very attractive in the near team.
It is highly likely that with such a track record behind them, Everest Industries is on a true growth path that may be fuelled by the huge infrastructure needs the country will have in the coming decade.
In addition, the government’s INR 100 lakh crore push in the sector will benefit the company immensely.
The company really looks set to grow in the long term at a healthy and sustainable rate. With the help of prudent management practices that has been proven in the past, Everest Industries will emerge as an important player in India’s infrastructure space.
This post has been written by Ajay Krishnan for FinMedium Equity Research Desk.
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Cover Image: Sawdust Online