Result Update

Elecon Engineering Limited – In line with our Estimates

Elecon Engineering, a Gujarat-based company, a leading manufacturer of bulk Material 11-May-2010
Handling Equipments (MHE) and Industrial Gears (IG) has delivered a 59.4% jump in its PAT CMP: 78.6 Nifty: 5136.2
backed by one time gain on sale of investments. However the operational performance
continues to remain under pressure. Rating:

Details:
Other Income lifts Q4 PAT
Sector: Engineering - Industrial
For the quarter under review, Elecon has registered 59.4% YoY growth in its PAT from Rs Equipments
17.0 crore in Q4FY09 to Rs 27.1 crore in Q4FY10. The spurt is mainly attributed to one time
gain on sale of investments to the tune of Rs 8.3 crore. For the full year, PAT has registered Equity Cap (Rs Cr): 18.6
a YoY growth of 15% from Rs 57.5 crore in FY09 to Rs 66.2 crore in FY10. The growth is Face Value: 2
largely on the back of other income to the tune of Rs 16.8 crore.
52 Week High: 110.8
Muted operational performance
52 Week Low: 46.55
Elecon has registered a fall of 6% in its operating profit at Rs 47.1 crore for the quarter Market Cap (Rs Cr): 729.9
ended March 2010. Operating margins too have contracted by 300 bps at 14.3% largely on
account of higher input costs. For FY10 operating profit remained flat at Rs 157.5 crore Price Chart
while OPM was down 170 bps from 16.6% in FY10 to 14.9% in FY10.

However with the demand picking up for both its segments – MHE & IG, the company is
likely to command better pricing terms which should result in better operational
performance in the forthcoming quarters.

Order Book stands at Rs 1,266 crore

Currently, the Company has an unexecuted order book of Rs 1,266 crore which is 1.2x its
FY09 revenues. The majority of the outstanding order book is being accounted by the MHE
business (Rs 974 crore) and balance by the gears business.
Shareholding Pattern:
Order Inflows

Division FY10 FY09 FY08

MHE 311 907 1258

Gear 437 427 392

Total 748 1,334 1,650

As witnessed in the table, the order inflows have taken a huge hit in the last financial year. However with the pick up in
manufacturing activities, we believe the company is all geared to benefit from this and should see substantial increases in the
order book.

Division Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10

MHE 45 66 75 81 89

Gear 84 81 117 112 127

Total 129 147 192 193 216

As seen above, it may be noted that there has already been a gradual increase in the order inflows over the last three to four
quarters & this is only expected to increase in the coming quarters as indicated by the fresh orders booked during the month of
April 2010 to the tune of Rs 188 crore. Elecon expect fresh order inflows at Rs 350 crore for the first quarter of this fiscal.

Valuation & Recommendation

At CMP of Rs 78, the stock is trading at 9.5x & 7.0x its estimated FY11 & FY12 earnings of Rs 8.2 & Rs 11.1 respectively.
Considering the buoyancy/pick up in the infrastructure spending as well as increase in manufacturing activities,
we believe this would augur well for the engineering industry and Elecon in particular which has strong presence
in this space. We reiterate a BUY on the stock with a price target of Rs 125 an upside of 56% from current levels
for 15 to 18 months horizon.
 Result Update
(Rs. In Cr.)
Elecon Engineering Company Ltd. Q4FY10 Q4FY09 % Chg. Q4FY10 Q3FY09 % Chg. FY201003 FY200903 % Chg.
Net Sales 329.1 288.5 14.1 329.1 249.9 31.7 1046.4 955.1 9.6
Other operational Income 3.4 5.0 -33.1 3.4 1.4 146.3 7.9 8.9 -10.3
Total Oper. Income(TOI) 332.4 293.5 13.3 332.4 251.2 32.3 1054.3 963.9 9.4
Raw Materials Cons.- 225.4 229.6 -1.8 225.4 150.3 50.0 693.8 737.5 -5.9
% to TOI 67.8% 78.2% - 67.8% 59.8% - 65.8% 76.5% -
Stock adj. (-)Inc / (+)Dec- 9.2 -33.8 LP 9.2 21.0 -56.3 34.7 -105.5 LP
% to TOI 2.8% -11.5% - 2.8% 8.4% - 3.3% -10.9% -
Net Raw Mat adj. for stock 234.6 195.8 19.8 234.6 171.3 36.9 728.4 632.0 15.3
% to TOI 70.6% 66.7% - 70.6% 68.2% - 69.1% 65.6% -
Other expenses 41.1 37.8 8.8 41.1 27.9 47.3 124.9 130.2 -4.1
% to TOI 12.4% 12.9% - 12.4% 11.1% - 11.8% 13.5% -
Contribution Net_Sales 56.7 59.9 -5.3 56.7 52.0 9.1 201.0 201.7 -0.4
Personnel 9.7 9.9 -2.3 9.7 13.1 -26.0 43.5 43.8 -0.7
% to TOI 2.9% 3.4% - 2.9% 5.2% - 4.1% 4.6% -
Total expenditure 285.4 243.5 17.2 285.4 212.3 34.4 896.8 806.0 11.3
Operating Profit 47.1 50.0 -5.9 47.1 39.0 20.8 157.5 157.9 -0.3
% to TOI 14.2% 17.0% - 14.2% 15.5% - 14.9% 16.4% -
Non-Operating Income 8.3 0.0 34587.5 8.3 7.7 7.8 16.8 0.7 2212.1
Interest 11.7 15.8 -25.9 11.7 11.3 3.4 50.9 48.4 5.2
Exceptional Items 0.0 - 0.0 0.0 0.0
Gross Profit 43.7 34.2 27.6 43.7 35.3 23.5 123.4 110.3 12.0
Depreciation 9.5 7.0 36.5 9.5 8.3 15.1 33.1 22.2 49.6
PBT before Extra-ord 34.1 27.2 25.3 34.1 27.1 26.1 90.3 88.1 2.5
% to TOI 10.3% 9.3% - 10.3% 10.8% - 8.6% 9.1% -
Extraordinary Items 0.0 - 0.0 0.0 0.0
PBT 34.1 27.2 25.3 34.1 27.1 26.1 90.3 88.1 2.5
Tax Rate 20.7% 37.6% - 20.7% 26.7% - 26.7% 34.8% -
Prov. for Tax 7.1 10.2 -31.2 7.1 7.2 -2.4 24.1 30.7 -21.2
% to TOI 2.1% 3.5% - 2.1% 2.9% - 2.3% 3.2% -
Profit after Tax 27.1 17.0 59.4 27.1 19.8 36.5 66.2 57.5 15.2
% to TOI 8.1% 5.8% - 8.1% 7.9% - 6.3% 6.0% -
Face Value 2.0 2.0 0.0 2.0 2.0 2.0 2.0 0.0
Equity Share capital 18.6 18.6 0.0 18.6 18.6 0.0 18.6 18.6 0.0
EPS (Rs.) 2.9 1.8 59.4 2.9 2.1 36.5 7.1 6.2 15.2
CEPS (Rs.) 3.9 2.6 52.7 3.9 3.0 30.0 10.7 8.6 24.8

Source: ACE Equity

 Result Update

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