Codex

Know the Business

Everest Industries is a 91-year-old Indian building materials company running three distinct businesses under one roof: fibre cement roofing sheets (rural, commodity), fibre cement boards and panels (urban, value-add), and pre-engineered steel buildings (project-based, lumpy). The market is pricing this at 0.9x book because margins have collapsed to near-zero and the TTM P&L is loss-making – the key question is whether this is a cyclical trough in a structurally sound franchise or a business that has permanently lost pricing power while taking on capex debt.

How This Business Actually Works

Everest runs three businesses with fundamentally different economics tied together only by a shared brand and fibre cement manufacturing heritage.

Roofing (~45% of revenue) is the legacy cash cow. Asbestos cement and non-asbestos roofing sheets sold through 13,000+ dealer outlets primarily to rural India. This is a commodity with limited pricing power – the fibre cement roofing market grows at barely 1% CAGR (₹6,250 Cr market, ~44 lakh MT). Everest competes on distribution reach and brand recall in Tier 3/4 towns. The key input is chrysotile fibre, historically sourced from Russia, which creates both cost and supply-chain risk. Margins here are low-single-digit and entirely hostage to raw material spreads.

Boards & Panels (~20% of revenue) is the higher-value, higher-growth segment. Fibre cement boards for walls, ceilings, cladding, and flooring sold into urban commercial and institutional construction. The Indian fibre cement board market is ~₹1,500 Cr and growing at 8%+ CAGR – the structural shift toward dry construction methods is a genuine tailwind. Everest added a new Mysore plant in FY24 to address South India demand. The economics are better here (higher realisation per MT) but excess industry capacity and export slumps have triggered price wars, eroding margins in FY25.

Steel Buildings / ESBS (~35% of revenue) is a project business. Pre-engineered steel buildings for warehousing, agri-processing, and industrial customers. This is order-book-driven and lumpy – Everest delivered its highest-ever PEB topline in FY25 (production up 56% to 48,454 MT vs 31,103 MT). The industry is growing at 10-11% CAGR. However, this segment carries execution risk, working capital intensity, and steel price exposure.

The cost structure problem. The consolidated business earned just ₹30 Cr operating income on ₹1,723 Cr revenue in FY25 – a 2% margin. Interest costs have risen from ₹3-4 Cr (FY21-22) to ₹24 Cr (FY25) as the company took on debt for the Mysore plant, SAP migration, and innovation centre. Depreciation jumped from ₹25 Cr to ₹39 Cr. The result: pretax profit went from ₹92 Cr (FY21) to a ₹6 Cr loss (FY25). TTM through Q3 FY26 is far worse – operating income is negative ₹2 Cr and pretax loss is ₹64 Cr.

The incremental profit driver is utilisation. With 8 plants and capacity added recently (Mysore for B&P, Ranchi for ESBS), fixed costs have risen ahead of revenue. If demand recovers and volumes ramp, operating leverage works in reverse – margins could snap back quickly from 2% toward the 5-7% historical norm. But if demand stays weak, the fixed cost base bleeds cash.

The Playing Field

Everest competes against different peers in each segment. In fibre cement (roofing + boards), the relevant peers are Ramco Industries, Visaka Industries, and HIL Limited. In PEB, it competes with Jindal Steel (Panther), Kirby Building Systems, and Interarch Building Products. Shree Cement is included in the screener peer set but is not a true comparable.

Ramco Industries is the standout in the fibre cement space. With ₹2,315 Cr market cap (4.4x Everest), Ramco consistently earns 10-12% operating margins and maintains a PE of 9x. Visaka – a closer size comparable – is also struggling (negative ROE, low ROCE) at 0.7x book, confirming this is partly an industry-wide margin trough, not just Everest-specific.

Ramco sustains higher margins because it has a stronger product mix (higher-value boards dominate), larger scale in South India, and less exposure to the volatile PEB business. Everest's margin gap to Ramco has widened from 7pp in FY2021 to 9pp in FY2025. This is the central competitive question: can Everest close this gap as its Mysore board plant ramps and product mix shifts, or is the PEB business structurally diluting returns?

Is This Business Cyclical?

This business is deeply cyclical on three fronts, and they are currently all hitting at once.

Demand cycle: Roofing demand tracks rural income and monsoon quality. FY25 was hurt by subdued market activity from income strain and inconsistent monsoons. Boards & Panels depend on urban construction cycles and institutional procurement timelines. PEB depends on industrial capex cycles.

Input cost cycle: Chrysotile fibre, cement, wood pulp, and steel are the main inputs. Steel prices affect PEB directly. Fibre costs are influenced by geopolitical risk (Russia sourcing). When input costs rise and selling prices cannot keep pace, margins compress violently.

Capacity cycle: Everest invested heavily in FY22-24 – new Mysore plant, SAP migration, innovation centre, PEB scale-up. These investments raised the fixed cost base right as demand softened. CWIP went from ₹13 Cr (FY21) to ₹80 Cr (FY24) before the Mysore plant commissioned.

The stock reflects this. It fell from ₹750 to ₹285 (a 62% drawdown) before settling at ₹335. The last time margins were this bad (FY2017 at 4%, EPS ₹1.96), the stock bottomed and then rallied as margins recovered to 7% by FY2018-19.

The Metrics That Actually Matter

FCF has been negative in 2 of the last 3 years. FY21's ₹248 Cr spike was the anomaly (working capital release + low capex). The FCF profile confirms this is a capital-hungry business where cash generation is episodic, not steady.

What I'd Tell a Young Analyst

The thesis here is simple: mean-reversion of margins on a below-book stock. At 0.92x book and with ₹597 Cr of equity backing a ₹531 Cr market cap, the market is pricing permanent impairment. If operating margins revert even halfway from 2% to the historical 5-7% range, EPS normalises to ₹15-25 and the stock re-rates significantly. But this is not a quality compounder – it is a cyclical value bet.

Watch these signals, in order of importance:

First, quarterly operating margin trajectory. If Q4 FY26 or Q1 FY27 shows OPM recovering above 4%, the earnings inflection has begun. Second, the new MD (Hemant Khurana, appointed September 2025 after Rajesh Joshi resigned) and what he prioritises – cost discipline vs growth spending. Third, chrysotile fibre sourcing costs – the multi-vendor strategy reduces Russia risk but watch the blended cost. Fourth, Boards & Panels volume growth from Mysore – if domestic board volumes grow 10%+ with stable pricing, the value-add mix shift is working.

What the market may be missing: The PEB business delivered record revenue in FY25 despite overall losses – if steel prices cooperate and execution improves, this segment's contribution could surprise. The Boards & Panels market is genuinely growing at 8%+ and Everest's new Mysore capacity positions it well for South India demand.

What could permanently impair the thesis: A sustained ban or restriction on chrysotile/asbestos fibre would gut the roofing business (45% of revenue). India has resisted this so far, but regulatory risk is non-trivial. Additionally, if the new capacity remains underutilised for 2+ more years, the balance sheet deteriorates from manageable to stressed.