I have been following EKC since some qtrs now.One thing that stands out is that the management is pretty evasive about certain things.As an example note how the company has never formally addressed the blanket ban on it’s oxygen cylinders by the government.Neither in any press release nor in their ppt.But whenever the mgt is asked about it they say they are close to getting unbanned or in talks with the concerned authorities.Why not address this in the beginning address in the concall? The ban happened in end-April/early May and yet there is no formal ownership of it by the company.Even if there is no malice involved,such actions don’t reflect well on the company.Similarly,the company’s recent JV in Hungary was not explained well.From what I gather,Europeans prefer to buy cylinders made in Europe rather than from other countries thus the JV.Again the management has not addressed this anywhere.For a company that has a bad track record with foreign acqs this aspect is very important.Yet the biggest googly for me was the recent brownfield capex announcement.Company is going to add 4 lk cylinders to it’s capacity at a cost of 38 cr. in a period of 8 months. Contrast this with the earlier announcement of a greenfield capex at 45 cr. cost for 2 lk cylinders but a period of 24 months! Which company in it’s right mind goes for a greenfield capex when so much land is available already for a brownfield? This has again never been cleared by the management.Was land not available for use earlier? Have they got some clearances now that they hadn’t earlier?
Coming to the company,it seems like a tale of two cities.The India business is a superb quality biz.Company has 50% mkt share,good pricing power and makes great margins.They have great clientele and industry macro is great.The other piece is the subsidiaries which have been the major spoilsport over the last many years.The recent delta in earnings is largely contributed by subsidiaries in UAE turning around. USA too,can do well from here.But these subsidiaries don’t seem to have the kind of revenue visibility as the India piece.Thus,it’s possible that the earnings will stay volatile on a consol basis.Though going by the mgt commentary it does seem that atleast for a few quarters the consol nos. will also be healthy.
Inspite of all these things,this is still one of those stocks where you scratch your head at the valuations.For a company that is going to do 350 cr. kind of EBITDA in fy22 how is it available at an EV of 2000 cr? That too after there is a clear roadmap for new capacity addition.The India biz alone could be doing 2000 cr.+ revenues and an EBITDA in excess of 500 cr in a few years.Key monitorable remains how transparent the management can be and whether they can be more generous with their strong cash flows.For Fy21,dividend payout was a paltry 3%.
Disc.: Invested.Views are biased.