Elecon Engineering

Elecon Engineering

Elecon Engineering

Elecon Engineering

Elecon Engineering

Elecon Engineering

Grasim, Gayatri Projects, Reliance Industries, Elecon Engineering

Grasim, Gayatri Projects, Reliance Industries, Elecon Engineering

Elecon Engineering

Elecon Engineering

Elecon Engineering Company

Investors with medium-term perspective can consider investing in the stock of Elecon Engineering Company (Rs 81.5).

The stock was on an intermediate-term uptrend from March 2009 low around Rs 25 till it encountered resistance at Rs 110 in October. Its decline from that peak was arrested in the significant support band between Rs 70 and Rs 73 in mid March.

Positive divergence displayed in the daily moving average convergence and divergence indicator triggered the stock's up move from the aforementioned band. For the past three weeks the stock has been on a nascent short-term uptrend. While trending higher, it breached its 21- and 50-day moving averages last week.

Moreover, the stock made a weekly gain of 9 per cent accompanied with high volume. With this gain the stock has breached its downtrend line in the weekly chart. The daily relative strength index is featuring in the bullish zone and weekly RSI heading towards this zone in the neutral region. After signalling a buy, the daily moving average convergence and divergence indicator is on the brink of entering into the positive territory, implying a positive outlook for this stock.

We are bullish on Elecon Engineering from a medium-term perspective. We believe that it has the potential to rally towards the price target of Rs 98 in the coming weeks. Investors with medium-term perspective can consider buying the stock with stop-loss at Rs 73. Short-term traders can buy with target of Rs 89 and the stop-loss is Rs 77.5

Follow up - Network 18 Media and Investments (Rs 139.3)

The stock gained 12.7 per cent last week and has achieved our short-term target. It is currently in the process of heading towards our medium-term target of Rs 150. We reiterate our medium-term bullish outlook on the stock. Investors with medium-term perspective can consider holding the stock while maintaining a revised stop-loss at Rs 120 level.

via BL

Elecon Engineering

Elecon Engineering

Elecon Engineering

Elecon Engineering

Deccan Chronicle, Dabur India, Dishman Pharma, EIH Hotels, Elecon Engineering, EMCO, Entertainment Network, GMR Infrastructure Deccan Chronicle, Dabur

Deccan Chronicle, Dabur India, Dishman Pharma, EIH Hotels, Elecon Engineering, EMCO, Entertainment Network, GMR Infrastructure

Bharti Airtel, Elecon Engineering, IRB Infrastructure, Spicejet, Tata Chemicals, TTK Prestige, Tulip Telecom

Bharti Airtel, Elecon Engineering, IRB Infrastructure, Spicejet, Tata Chemicals, TTK Prestige, Tulip Telecom

Elecon Engineering

Investors can consider buying the stock of Elecon Engineering, which manufactures industrial gears and material handling equipment.

While slowing order inflows, especially in its industrial gears segment, absence of any material progress in its new windmill and windmill gearboxes venture, besides the increasing pressure on its working capital had kept the company from meeting its FY-09 guidance, with the economy now showing signs of revival, the tide may be turning for Elecon too.

At the current market price of Rs 56, the stock trades at about 8 times its likely FY-10 per share earnings. Investors however can accumulate the stock in lots on declines, as it may take a couple of more quarters for the order flow scenario to improve for Elecon.

Order pipelines

The company’s order book at end-March 09 quarter stood at about Rs 1,629 crore (about 1.7 times its FY-09 revenues), registering a growth of over 26 per cent year-on year. It has since added over Rs 200 crore worth orders from different companies. But even as the order book cover lends healthy visibility to its revenue, what remains a concern is that the order booking has been weak. While most companies in the capital goods space have also reported weak order inflows, for Elecon, the concern arises from delay in execution of a Rs 400-crore order included in the current order book.

This order, bagged in August 2008 from Bramhani Industries, was put on hold by the latter. This issue, however, may be addressed soon as the management expects the order to take off in the next couple of quarters.

Besides, considering that some of its user industries such as steel, power and cement have begun showing signs of bottoming out, a revival in these sectors could mean a renewal of order flows for the company. The company has so far received business-related inquiries worth Rs 3,000 crore.
Industrial capex key to growth

Driven by the economic downturn, most companies have either postponed or significantly cut down their capex plans for the year. While some pockets of the economy have sprung back, registering good numbers, there appears no clear trend of companies coming forward to announce major expansion plans or other capex spends. This does not bode too well for Elecon, given its exposure to industrial capex.

The company’s industrial gears division, which owes its fortunes to the increasing spends by its user industries, reported a 30 per cent decline in revenues for the March-09 quarter as against the same quarter last year.

The facility also clocked lower utilisation levels of about 25-30 per cent. This was also partly due to the deferment of some orders last quarter, which will most likely get reflected in its current quarter revenues. The division currently has an outstanding order book of about Rs 239 crore only (executable over three-five months). That industrial gears enjoy higher margins also makes it imperative that the company receives more orders from the gears segment.

The windmill gearbox segment revenues will also from now be covered under the industrial gears division; the gearbox facility is currently ready and the management expects to procure orders for the same soon.

Elecon’s material handling division (MHE) appears to be the only division on a firm footing for now. This division, which also makes up a bulk of the total order book, may continue to drive the company’s growth. Sustained spends by companies such as BHEL in the power sector with which Elecon enjoys a good rapport, may help the division hold its ground. This may also bode well for the industrial gears division (as MHE uses gears) to some extent.
Results scorecard

For the year ended March 09, Elecon managed a revenue growth of over 16 per cent, helped primarily by the strong growth in its MHE division (grew 25 per cent). The gears division reported flat growth. Falling revenues from the gears division have led to a greater share for the MHE division in the overall revenue pie.

The material handling business now has a share of about 60 per cent from 55 per cent last year, while the industrial gears division’s contribution has fallen to 40 per cent. On the margin front, Elecon improved its performance by 1.2 percentage points to 17 per cent, helped by lower raw material prices.

The company is likely to sustain (or marginally improve) profit margins once it exhausts its current raw material inventory (mostly by second half of the current fiscal). Net profits, however, fell by 15 per cent. Higher interest outgo and depreciation, besides lower revenues, led to the decline in profits.
Delay in windmill initiative

There has not been any material progress in Elecon’s touted entry into the windmills and windmill gearboxes business.

While the company had earlier begun prototyping for windmill gearboxes of about 1 MW range for its customer and installed six wind turbine generators in Gujarat and supplied four in Maharashtra, the development so far has not been impressive. This scenario may, however, change in the next few quarters as the management indicated that the issue of certification for its windmills has been resolved recently. The management expects to make Rs 50 crore revenue contribution from the windmill segment this year.

Elecon Engineering

Elecon Engineering

Elecon Engineering

Elecon Engineering

Elecon Engineering

Investments can be retained in the stock of Elecon Engineering, an established player in both material handling equipment (MHE) and industrial gears business. At the current market price of Rs 112, the stock trades at about 11 times its likely FY-10 per share earnings, down significantly from its peak of Rs 330 in January. While much of this fall can be explained by the broad-based selling in the market, the stock was also beaten down in anticipation of slowing demand and contraction in margins for the company, as there was a sharp run up in steel price during the period.

These concerns have, however, partly receded with the company’s good first quarter earnings performance. In the June quarter, not only did Elecon manage to strengthen its order-book; it also bettered its profit margins. This lends confidence to the company’s ability to grow despite challenging macro environment.

Further, Elecon’s entry into new businesses — windmills and windmill gear boxes — while currently insignificant in terms of revenue contribution, holds potential to deliver strong long-term growth, thus making it worthwhile to remain invested in the stock.
Fragmented user base

Unlike other infrastructure and capital goods companies, Elecon caters to a fragmented user industry base made up of power, steel, cement, sugar, mining and ports. This may explain why the company has so far not encountered any significant slowdown in the overall demand for its products. Apart from the power sector and, to some extent, cement, no other sector contributes significantly to the company’s overall revenue pie. That the company is now slowly increasing its focus on the steel sector (recently bagged Rs 400-crore worth orders from Bramhani Industries) may help it weather any slowdown in the cement sector, where the capex cycle may be nearing its peak.
Results

For the quarter-ended June 2008, Elecon registered a 30 per cent growth in sales and 15 per cent increase in profits. On a segmental basis, while the MHE division grew by 58 per cent, the gears division witnessed a sedate growth of 8 per cent.

On the margins front, however, the company’s performance was commendable. Despite mounting pressure on input costs, Elecon improved its margins by 2 percentage points to about 17 per cent. Price escalation clauses for orders secured from NTPC and SEBs (State electricity boards) and higher margins for the remaining orders helped it improve margins. And given that steel, its primary raw material, is showing signs of cooling down, Elecon may well be able to sustain margins at the current levels in the coming quarters too.
Buoyant order book

The strong growth in Elecon’s order-book is testimony to the continuing demand for its products. At the end of the first quarter, Elecon had an unexecuted order-book of Rs 1,399 crore (1.7 times FY-08 sales), of which Rs 1,158 crore (83 per cent) came from its material handling division; on a year-on-year basis, this marks a growth of over 61 per cent in its order-book. However, there was a 37 per cent drop in orders booked during the quarter. This is in sharp contrast to the same quarter last year when the revenues booked had increased by a whopping 139 per cent. High base apart, the drop this time around can be partly attributed to delays in booking orders in the quarter.

While this can also be construed as slowdown in demand, that the company has, in the recent past, procured large orders and has suggested that it has quite a few orders in the pipeline, may provide some relief.
New business initiatives

Elecon’s entry into windmills and windmill gear boxes holds tremendous long-term growth potential, given the global supply constraints for gearboxes. While Elecon is yet to forge a technical tie-up for the same, it has indicated that the formal agreement should be in place by the end of this quarter.

The management has said that it has begun prototyping for windmill gear boxes of about 1 MW range for its customer. Further, it has already installed six wind turbine generators in Gujarat and supplied four in Maharashtra. The windmill gear box division is expected to be fully operational by next quarter.

The success of these new initiatives is extremely critical for Elecon as its revenue guidance for the next two years takes into account contribution from these businesses as well.

And since there have been delays in this regard — one of the reasons for the stock’s plunge — progress on execution and order booking in this segment may be key triggers to the stock price. Any further delay will pose a downside risk to the company’s revenues.
Concerns

Any significant slowdown in the economy, leading to a sharp slowdown in capex across sectors, can hamper the growth prospects of Elecon. While the company has remained unscathed from the impact of a slowing economy, the lag effect of higher interest rates may soon catch up.

On this score, growth in the company’s order-book provides comfort on revenues over the next two years, by which time there may be more clarity on the economy front. Till such time, trends in order-booking in the coming quarters need to be watched closely.

Elecon Engineering, Ranbaxy Open Offer

Elecon Engineering, Ranbaxy Open Offer

Banking Sector, Elecon Engineering

Banking Sector, Elecon Engineering

Elecon Engineering

Elecon Engineering

Elecon Engineering

Investments with a two-three year perspective can be considered in the stock of Elecon Engineering, a leading manufacturer of bulk material-handling equipment and industrial gears.

At current market price of Rs 222, the stock trades at about 18 times its likely FY-09 per share earnings on a fully diluted basis. This appears reasonable, given Elecon’s expanding order-book, healthy return ratios and foray into the high-end windmill gearbox business. Elecon’s higher reliance on the domestic capex cycle also offers comfort in the midst of a possible global slowdown.

While the stock price has declined significantly after a disappointing third-quarter performance, we feel this slowdown in Elecon’s revenue growth may only be an aberration, given its strong order-book and good execution skills. Investors can use dips in the share price to accumulate the stock.

Presence in high-growth sectors

With a presence straddling high capex sectors such as power, mining and cement, Elecon appears well-positioned to reap the benefits of the increasing infrastructure spends in the country. The company’s order-book is nowtilted towards the power sector.

Segment-wise, while power (59 per cent) and mining (18 per cent) industries made a significant revenue contribution to the material-handling division, revenue inflows in the industrial gears division was relatively fragmented leaning towards industries such as material handling, cement and sugar.

Going forward, Elecon plans to extend its presence across industries such as steel and ports also. This holds potential given the investment planned in these industries.

The company’s strong mooring in the domestic capex cycle also merits attention. Elecon’s limited exposure to overseas market (about 4 per cent of revenues in FY-07) may make its revenue stream relatively resilient to the global economic uncertainties.

While the company does plan to increase focus on exports over the long term, the domestic focus reduces the impact of any global slowdown on the company’s order flows or revenue growth.
Rising order-book position

Driven by investments in the infrastructure sector, the company’s order-book has also seen significant growth over the years. It stands at Rs 1,091 crore (about 1.5 times its FY-07 revenues).

On a year-on-year basis, the company’s order-book has grown by 57 per cent, with about 80 per cent contributed by the material-handling division and the rest by the industrial gears division. For nine-months ended December 2007, the order intake for the material-handling division grew by a whopping 157 per cent as opposed to a negative 8 per cent in the industrial gears division.
New initiatives

Elecon’s foray into manufacturing windmill gearboxes holds potential, given the supply constraints for gearboxes. Addressing a target market of over Rs 2,000 crore, the management expects to achieve an asset turnover of up to three-four times in the long run, once the facility begins commercial production in April 2008.

Regarding technological know-how for the manufacture of gearboxes, the management has indicated that it is in the negotiation stage to acquire the necessary technology for high-class gearboxes of between 1-2 MW.

However, since the company is yet to forge a formal tie-up, it may fall short of its guidance of Rs 110-120 crore revenues (for this business) in FY-09. The windmill business too may suffer from the delay. However, these delays may only result in slowdown over the short term, even as medium-term prospects continue to be bright.
Capex plans

The company plans to invest about Rs 100-120 crore to fund its expansion drive. Out of this, about Rs 80 crore will be for its windmill gearbox business and Rs 8-10 crore for the windmill business. The remaining would be distributed evenly between its two divisions — material-handling and industrial gears. This would be funded through a mixture of debt and internal accruals. While 25-30 per cent of the capex spend will come from Elecon’s internal accruals, the rest would be through term loans.
Future growth drivers

Elecon’s dominance in the material-handling space on the back of high investments in infrastructure development is the key growth driver for the company. While the tilt in the order-book towards this division augurs well for revenues, on the earnings front, however, the higher-margin industrial gears division may drive growth.

With the share of customised gears expected to gain prominence as opposed to the standard ones, earnings contribution from this division may scale up. Elecon’s technical collaborations with Germany-based RenkAG and Haisung Industrial Systems Company Ltd of South Korea for technology for manufacturing vertical roller mill gearbox (used in cement and coal mills) and high capacity gearbox (to be used in lift/elevators) respectively, also hold potential.
Financial performance

The company’s performance for the quarter ended December 2007, however was disappointing. Despite a promising order-book position, Elecon’s revenue grew by only about 10 per cent as compared to last year. This was due to lower invoicing of the material handling division’s orders, which grew by only about 6 per cent.

The industrial gears division also disappointed on the revenue front with almost flat numbers. Despite the perceptible lag in the execution of orders this quarter, the company’s swelling order position suggests a likely acceleration in growth.

The quarter, however, saw Elecon expand its operating margins by 1.7 percentage points to 18.8 per cent. Margins may see further expansion given the company’s foray into high-margin businesses. Growth in earnings however may not be commensurate given the company’s higher dependence on debt.

Any slowdown or delay in the capex plans of user industries or delays in the roll out of windmill and gearbox businesses may affect Elecon negatively.

Indian Bank, Elecon Engineering

Indian Bank, Elecon Engineering

Ashapura Minechem, Elecon Engineering

Ashapura Minechem, Elecon Engineering