G. Madhan

Steady prospects for the asbestos cement sheets industry augur well for Everest's revenues.

SHAREHOLDERS can retain their holdings in the stock of Everest Industries (formerly Eternit Everest). The steady growth prospects in the asbestos cement sheets industry, the company's focus on the non-asbestos segment and its improving fundamentals augur well for its revenue growth.

The stock trades at about nine times its expected FY-05 per share earnings.

Everest Industries, which is among the top three players (in volume terms) in the asbestos cement roofing industry, competes with companies such as Hyderabad Industries, Ramco Industries and Visaka Industries. It holds 16-17 per cent (in volume terms) of the domestic market share.

Demand stable

Everest Industries makes asbestos cement sheets that find application in rural housing, particularly in cost-effective homes for the economically-backward sections, warehouses and industrial structures.

The demand prospects for these sheets appear bright, given their relatively lower costs and favourable technical properties. About 80 per cent of the company's revenue is derived from the asbestos segment.

The asbestos cement sheet industry grew 9 per cent last year; it has grown at a compounded growth rate of 10.5 per cent over the last three years. The trend is likely to continue over the next couple of years, as the demand prospects for asbestos cement sheets appear stable.

The capacity expansions should stand the company in good stead, imperative as they are to retain competitiveness in this volume-driven industry.

Focus on non-asbestos segment

The company's focus on non-asbestos products such as e-boards, which are used in false ceilings, or panelling, doors, and pre-fabricated structures, may also bolster earnings.

For instance, the sales volume of asbestos-free building boards grew 44 per cent in FY-04. The company is also setting up a Rs 30-crore plant to make high-density boards, which will broadbase its revenues.

Margins may come under pressure

The operating margins during the first half of FY-05 rose by three percentage points to 17.4 per cent. This trend, however, may not necessarily continue given the stiff competition and the seasonal nature of this industry.

The price of finished goods may also be range-bound in the near term as capacity additions is happening at a fast clip in the asbestos cement industry.

Hence, the company's ability to retain the margins will hinge on improving the capacity utilisation and operating efficiencies of its inputs.

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