Elecon Engineering Company Limited
CMP Rs.605, Hold, target price revised to Rs.660
Elecon Engineering Company Ltd. (Elecon) has reported decent performance during Q1FY2008. A brief analysis of the performance reported by the company for Q1FY08 is discussed herewith.
§ During Q1FY08, Elecon's revenues grew by 37.1% YoY to Rs.1296.3 mn. EBIDTA margins increased by 126 bps to 16.2% and EBIDTA increased by 48.6% YoY to Rs.209.5 mn. Its interest cost grew by 23.3% YoY to Rs.45.5 mn while it's PBDT increased by 57.6% YoY to Rs.164 mn in Q1FY08. Depreciation charge for the quarter was higher by 27.8% YoY to Rs.34.2 mn. After accounting for other income (which was higher due to receipt of insurance claim of Rs.19 mn), its PBT increased by 78.9% YoY to Rs.155.3 mn in Q1FY08. It's APAT for the quarter jumped by 74.5% YoY to Rs.104.3 mn.
| Segmental Performance | Q1FY08 | Q1FY07 | FY07 | FY06 |
| Material Handling Equipments (Rs. Mn) | 639.8 | 571.5 | 4484.3 | 2259.6 |
| Growth (%) y-o-y | 12.0% |
| 98.5% |
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| % of Net Sales | 49.4% | 60.4% | 62.0% | 51.1% |
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| Transmission Equipments (Rs. Mn) | 705.8 | 409.0 | 3134.5 | 2318.6 |
| Growth (%) y-o-y | 72.6% |
| 35.2% |
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| % of Net Sales | 54.4% | 43.2% | 43.3% | 52.4% |
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| Less: Inter-Segment Revenue | 49.3 | 34.7 | 387.8 | 153.4 |
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| Net Sales (Rs. Mn) | 1296.3 | 945.7 | 7231.1 | 4424.8 |
| Growth (%) y-o-y | 37.1% |
| 63.4% |
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Strong Order Book Position
Elecon has been consistently adding new orders to its strong order book position throughout the year. Moreover, it added two prestigious large orders; (a) Order worth Rs.2290 mn from NTPC in April 2007 and (b) Order of Rs.3785 mn from Mejia Thermal Power Station in July end. With these, the latest unexecuted order book position of Elecon stands at about Rs.13,270 mn, out of which MHE order book stands at Rs.11,020 mn, while, TE division order book stands at Rs.2,250 mn.
Outlook & Valuation
Elecon Engineering is very well placed to grow rapidly over the next few years given its strong technology offering, market leadership, positioning in the core sectors, dynamic management and sound financials. Going forward, heavy investments in core sector & industries are expected to deliver high growth in Elecon's MHE business. Similarly, boom in the industrial segment will ensure continued strong growth numbers for TE division as well. We like Elecon's decision to foray into windmill manufacturing, as there is immense potential for wind power generation in India and with fuel prices going up phenomenally in past couple of years, there is greater emphasize being placed on wind power generation in India and globally. Similarly, new facility planned for high-end Gear Boxes for Windmills of 1-2 MW is a welcome step, as it is not only an import substitute product having good margins but it fits will into the overall business of Elecon since it is already a strong player in the domestic gear business (TE division).
The company has delivered an excellent performance during Q1FY08 with sharp jump in its profits. This coupled with a large unexecuted order book position & foray into wind mills and high-end wind mill Gears; we are upgrading our Revenues & EBIDTA estimates for FY08 & introducing our estimates for FY09. We expect its revenues to grow by 35.9% & 35.6% in FY08E & FY09E, EBIDTA margins to grow by 86 bps to 16.3% in FY08E & 76 bps to 17.1% in FY09E and its APAT to grow by 44.4% & 42.2% in FY08E & FY09E respectively. At the current price of Rs.605, the stock is trading at a valuation of 23.2X & 16.5X its FY08E & FY09E earnings of Rs.26 & Rs.36.6 respectively. Due to recent run up in the stock price, we have changed our rating to "Hold" with an enhanced price target of Rs.660, at which the stock would quote at PER of 18x and EV/Cash Profit of 17x based on its FY08E numbers.
Key Financials
| Y/E | Net Rev. | APAT | AEPS | EPS | PER | PEG | ROCE | RONW |
| March | (Rs m) | (Rs m) | (Rs) | (% Chg) | (x) | (x) | (%) | (%) |
| FY2006 | 4424.8 | 314.4 | 11.0 | 93.3 | 54.9 | 0.6 | 16.7 | 27.0 |
| FY2007 | 7231.1 | 557.0 | 18.0 | 63.6 | 33.6 | 0.5 | 19.2 | 30.0 |
| FY2008E | 9827.2 | 804.2 | 26.0 | 44.4 | 23.2 | 0.5 | 21.8 | 30.2 |
| FY2009E | 13321.0 | 1143.4 | 36.6 | 40.8 | 16.5 | 0.4 | 23.2 | 30.7 |
Source: Sushil Finance
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