India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/16979" target="_blank" data-smartkarma-citation="entities:16979:1">Everest Industries Ltd (EVI IN)</a> is known as a roofing company with its most popular brand ‘Everest’. In FY18E, we expect EVI revenues to reach Rs 12.6bn. Roofing, board and panels used in construction may account for Rs 8.2bn and pre-engineered buildings may account for Rs 4.4bn. India will likely account for 95% of revenues.  </p><p>Over FY18E-20E we expect EVI’s CAGR of revenues/ EBITDA/ PAT to be 13%/ 23%/ 30% respectively. The EBITDA margin expansion and debt repayment will help EVI to post ROE and ROCE of 16% and 23% respectively, by FY20E. Our optimism on EVI is driven by a faster growth in higher margin segment of boards and panels, reducing debt levels and better asset turnover.</p><p>EVI can be a part of the long-term portfolio because:</p><ul class=""><li>EVI is focusing on newer avenues for growth. The Boards and Panel products part of the building product segment is growing faster than the roofing segment. This will lead to an improvement in EBITDA from 3.4% in FY17 to 8.8% by FY20E. The roofing industry has grown by CAGR of 1% during FY11-16. We expect EVI to outperform the industry growth as it has introduced new products with a technological advantage in FY18E. This will likely increase its market share to ~19% from the current 17%.</li><li>The steel building segment suffered a setback in FY17 as contracts did not allow EVI to pass on increased steel prices to clients. This has changed with new contract terms from FY18E. This averts the adverse impact on EVI performance. FY18E performance has been marred by doubtful debt provisions in first three quarters. </li><li>EVI has adequate capacity for both its businesses so there are no large CapEx plans during FY19E-20E. We expect EVI to pay off its debt by FY20E and turn net cash positive. The savings in finance costs will improve ROE to 16% by FY20E from 13% in FY18E. </li><li>In the 9MFY18; EVI reported revenue growth of 9% YoY to Rs 9bn. EBITDA increased from Rs 118mn to Rs 614mn and PAT of Rs 309mn was reported compared to a loss of Rs 99mn a year ago. The growth in the EBITDA and PAT indicates that EVI has recovered from the demonetisation and GST impact. Q4FY18E performance of EVI is likely to report a growth of 3%/9% /29% in sales/EBITDA/PAT respectively over 4QFY17. (Refer<em> Annexure 8: Year to Date Performance</em>)</li></ul><p>We have valued both businesses separately by applying PE multiples appropriate for each business. The fair value estimates for EVI comes to ~Rs 775/- per share over the next twelve months. This valuation is based on FY20E earnings and suggests a potential return of 56%. </p><table class="table table-striped"><tbody><tr><td style="width: 239.5px;"> </td><td style="text-align: right; width: 158.5px;"><strong> FY17 </strong></td><td style="text-align: right; width: 144px;"><strong> FY18E </strong></td><td style="text-align: right; width: 150px;"><strong> FY19E </strong></td><td style="text-align: right; width: 142px;"><strong> FY20E </strong></td></tr><tr><td style="width: 239.5px;"><strong>PE (x)</strong></td><td style="text-align: right; width: 158.5px;">            84</td><td style="text-align: right; width: 144px;">            15</td><td style="text-align: right; width: 150px;">            11</td><td style="text-align: right; width: 142px;">9</td></tr><tr><td style="width: 239.5px;"><strong>ROE</strong></td><td style="text-align: right; width: 158.5px;">1%</td><td style="text-align: right; width: 144px;">13%</td><td style="text-align: right; width: 150px;">15%</td><td style="text-align: right; width: 142px;">16%</td></tr><tr><td style="width: 239.5px;"><strong>ROCE</strong></td><td style="text-align: right; width: 158.5px;">5%</td><td style="text-align: right; width: 144px;">17%</td><td style="text-align: right; width: 150px;">21%</td><td style="text-align: right; width: 142px;">23%</td></tr></tbody></table><div class="content-caption">Source: Trivikram Consultants Research  ( PE based on close price of EVI on 17th April 2018)</div>

Everest Industries Ltd (EVI IN) is known as a roofing company with its most popular brand ‘Everest’. In FY18E, we expect EVI revenues to reach Rs 12.6bn. Roofing, board and panels used in construction may account for Rs 8.2bn and pre-engineered buildings may account for Rs 4.4bn. India will likely account for 95% of revenues.  Over FY18E-20E we expect EVI’s CAGR of revenues/ EBITDA/ PAT to be 13%/ 23%/ 30% respectively. The EBITDA margin expansion and debt repayment will help EVI to post ROE and ROCE of 16% and 23% respectively, by FY20E. Our optimism on EVI is driven by a faster growth in higher margin segment of boards and panels, reducing debt levels and better asset turnover.EVI can be a part of the long-term portfolio because:EVI is focusing on newer avenues for growth. The Boards and Panel products part of the building product segment is growing faster than the roofing segment. This will lead to an improvement in EBITDA from 3.4% in FY17 to 8.8% by FY20E. The roofing industry has grown by CAGR of 1% during FY11-16. We expect EVI to outperform the industry growth as it has introduced new products with a technological advantage in FY18E. This will likely increase its market share to ~19% from the current 17%.The steel building segment suffered a setback in FY17 as contracts did not allow EVI to pass on increased steel prices to clients. This has changed with new contract terms from FY18E. This averts the adverse impact on EVI performance. FY18E performance has been marred by doubtful debt provisions in first three quarters. EVI has adequate capacity for both its businesses so there are no large CapEx plans during FY19E-20E. We expect EVI to pay off its debt by FY20E and turn net cash positive. The savings in finance costs will improve ROE to 16% by FY20E from 13% in FY18E. In the 9MFY18; EVI reported revenue growth of 9% YoY to Rs 9bn. EBITDA increased from Rs 118mn to Rs 614mn and PAT of Rs 309mn was reported compared to a loss of Rs 99mn a year ago. The growth in the EBITDA and PAT indicates that EVI has recovered from the demonetisation and GST impact. Q4FY18E performance of EVI is likely to report a growth of 3%/9% /29% in sales/EBITDA/PAT respectively over 4QFY17. (Refer Annexure 8: Year to Date Performance)We have valued both businesses separately by applying PE multiples appropriate for each business. The fair value estimates for EVI comes to ~Rs 775/- per share over the next twelve months. This valuation is based on FY20E earnings and suggests a potential return of 56%.   FY17  FY18E  FY19E  FY20E PE (x)            84            15            119ROE1%13%15%16%ROCE5%17%21%23%Source: Trivikram Consultants Research  ( PE based on close price of EVI on 17th April 2018)

EVEREST INDUSTRIES - Growing Beyond the Roof