China Push Dumped as India Becomes Profitable for Cylinder Maker

(Bloomberg) -- India’s biggest maker of compressed natural gas cylinders plans to sell its China operations to cut debt and expand faster in the domestic market, prompted by Prime Minister Narendra Modi’s fight against use of dirty fuels from kitchens to city transport.

The renewed push for usage of gas for cooking food and powering buses across towns and cities in the South Asian nation has helped Everest Kanto Cylinder Ltd. post its first profit last year after four straight annual losses. It expects net income to rise more than 20 percent in the year through March 31, while domestic revenues may touch 3 billion rupees ($46.5 million) from 2.44 billion rupees during 2016-17.

“India business will be the driver of our growth,” Everest Kanto’s Chief Executive Officer Puneet Khurana said in an interview. “We have reasonable visibility on orders.”

The Mumbai-based company, which supplies CNG cylinders to city-gas retailers such as Indraprastha Gas Ltd. and Mahanagar Gas Ltd., is gearing up for exponential growth as Modi expands gas distribution to 140 new cities with about 210 billion rupees of investment over the next five years. The country’s demand is about a fifth of China’s due to weak supply and poor infrastructure, though the government is trying to change this by laying 15,000 kilometers (9,323 miles) of gas pipelines.

Khurana said the company, which has a 60 percent market share for CNG cylinders in India, expects to get about 450 million rupees from the sale of its Chinese assets. As a result, the company could halve its long-term debt from about 800 million rupees currently.

Everest Kanto’s three plants in western India are running at 60 percent capacity and the company can ramp up production to meet rising demand. It could look at expanding, if needed, in the next financial year, Khurana said.

Expanding use of natural gas use in vehicles will boost demand for cylinders, which account for around 60 percent of the company’s sales, as the government seeks to cut emissions in a nation that’s home to 14 of the 30 most-polluted cities in the world.

“We are focusing more on consolidating our India business over our overseas operations, making it more profitable and reducing debt,” Khurana said.

©2017 Bloomberg L.P.