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Elecon Engineering Company Ltd Research Report - 08th Feb 2016

Capital Goods | Published on Feb 08th 2016


For 3QFY2016, Elecon Engineering reported a disappointing set of numbers on both the standalone and consolidated basis. The standalone top-line grew by 6.0% yoy to `120cr while the EBITDA margin declined by 891bp yoy mainly on account of unfavorable revenue mix involving bulk of the shipments of low margins. The consolidated top-line grew by 10.6% on a yoy basis to `330cr mainly led by the overseas business and growth in the Material Handling Business (MHE) business. But the EBITDA margin deteriorated sharply by 872bp yoy to 2.8%, mainly owing to a spike in raw material cost and other expenses. The company has reported higher other income on its standalone business related to profits from sale of land amounting to ~`22cr, adjusting for which, the standalone bottom-line declined by 66.3% yoy to `2cr. On the consolidated basis, the bottom-line after adjusting for the above mentioned exceptional gains and minority interest reported a loss of `11cr. Recovery in capex taking longer than expected, long term prospects intact: The performance of the MHE business of the company has remained under pressure on account of delay in capex in the core sectors and due to slower execution at customer level. On the other hand, the PTE business which had been holding its ground has faced some pressure in the current year. Although the recovery in capex in core sectors has been slower than expected, the long term prospects for the MHE business remain intact. Additionally, the underperforming European subsidiary is undergoing restructuring and it has been PAT positive for the past three quarters (PAT of `7cr in 9MFY2016). We expect the subsidiary to contribute more meaningfully in the longer run. Outlook and Valuation: The impending improvement in the economic scenario and the resultant capex is expected to drive up demand for the MHE business. Also its PTE business stands to benefit for the same reason. However, owing to near term issues like slow pace of execution at customers ends and delay in capex in core sectors have been impacting the overall business of the company. We are accounting for a modest 5.6% revenue CAGR over FY2015-17E to `1,482cr and we expect net profit after minority interest to be at `42cr in FY2017E. At the current market price, the stock is trading at 15.7 its FY2017E earnings. We have a Neutral view on the stock.

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CMP 61
Target Price
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others33.0
Grand Total100.0

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