Its quite surprising to see Everest doing poorly in both the segments for few quarters now while competition continues to do well.
This company just like other companies in the roofing space had generated good profitability and return ratios in the last cycle 2010-2013. Last 3 years proved to be tough for the industry because of poor monsoons largely. However in FY17 so far, there are signs of revival if we look at segmental numbers of Visaka and HIL while Ramco and Everest continue to report losses. Visaka has done splendidly well because of its growing boards and panel product line. However, its not clear to me why Everest and Ramco reported losses, any idea?
Building comp quarterly.xlsx (18.0 KB)
Pennar does 10%+ margins while Everest is surviving to make profits. Its quite difficult to understand the stark contrast b/w two companies.
Overall, amongst the 4 players, Visaka and HIL have done quite well in FY17. A lot depends on monsoon as major chunk of profits still come from roofing sheets for all the companies.
Its a fairly mature sector and every player is trying to reduce its dependence on asbestos sheets. In last few quarters Visaka has done a great job in that. Its growing boards vertical is highly profitable (15% margins). Hil is also trying to bring its dependence on asbestos to 60% in next 2-3 years. Everest, though, has done a great job of diversification into PEBS but it always struggles to make money there.
Going by the conventional ways of valuation, pls refer the attached excel, Everest seems to be priced in line with Visaka, HIL. And both these companies, Visaka and HIL, are trading at their upper band of historical P/E. If these two companies continue to report changing mix and rise in profitability then I believe they do deserve such multiples or may be 10x-12x+ but coming back to Everest, it is very difficult to justify such high valuation unless there is clear road to profitability from here.
Valuation comp.xlsx (11.2 KB)
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