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Elecon Eng.: Still to see any recovery - Views on News from Equitymaster
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Elecon Eng.: Still to see any recovery
Feb 3, 2010

Performance summary
  • Net sales grow by 1.7% YoY in 3QFY10, 7.6% YoY during 9mFY10. Growth during the quarter aided by traction in the company’s material handling segment which grows 4.3% YoY during the quarter.
  • Operating margins contract by a marginal 0.1% YoY during the quarter. This is on account of higher raw martial costs (as percentage of sales).
  • Net profits grow by 59% YoY in 3QFY10 due to a Rs 77 m profit on sale of investments. Excluding this, profits fall by 3% YoY during the quarter on the back of the fall in operating margins as also a big jump in depreciation charges.


Performance snapshot
(Rs m) 3QFY09 3QFY10 Change 3QFY09 3QFY10 Change
Sales 2,457 2,499 1.7% 6,665 7,173 7.6%
Expenditure 2,087 2,123 1.7% 5,625 6,114 8.7%
Operating profit (EBDITA) 370 376 1.6% 1,040 1,059 1.7%
Operating profit margin (%) 15.1% 15.0%   15.6% 14.8%  
Other income 10 91 804.4% 45 131 188.1%
Interest 142 113 -20.0% 325 392 20.3%
Depreciation 56 83 47.8% 152 236 55.6%
Profit before tax 182 271 48.5% 609 562 -7.7%
Extraordinary income/(expense) - -   - -  
Tax 57 72 26.5% 204 171 -16.2%
Profit after tax/(loss) 125 198 58.5% 405 391 -3.4%
Net profit margin (%) 5.1% 7.9%   6.1% 5.5%  
No. of shares       92.9 92.9  
Diluted earnings per share (Rs)*         6.0  
P/E ratio (x)*         13.2  
* On a trailing 12 months basis

What has driven performance in 3QFY10?
  • Elecon’s revenues grew by 1.7% YoY during 3QFY10. The company was able to manage this growth largely due to growth in its material handling equipment (MHE) business (which recorded a 4.3% YoY growth during the year). On the other hand, its transmission equipment (TE) business saw a fall of almost 2% YoY. As such, the MHE business increased its share in the company’s total revenue to nearly 59% from 57% last year, while the TE business contributed to the balance 41% during the quarter (43% in 3QFY09).

    Segment-wise performance
    (Rs m) 3QFY09 3QFY10 Change 3QFY09 3QFY10 Change
    Material Handling Equipment (MHE)
    Revenue 1,437 1,498 4.3% 3,885 4,449 14.5%
    % share 57.3% 58.7%   56.7% 60.5%  
    PBIT margin 11.3% 12.1%   11.7% 12.6%  
    Transmission Equipment (TE)
    Revenue 1,071 1,052 -1.7% 2,968 2,901 -2.2%
    % share 42.7% 41.3%   43.3% 39.5%  
    PBIT margin 17.5% 16.5%   18.2% 16.2%  
    Total
    Revenue* 2,508 2,551 1.7% 6,852 7,350 7.3%
    PBIT margin 13.9% 13.9%   14.5% 14.0%  
    * Excluding inter-segment adjustments

  • Elecon’s operating margins contracted marginally by 0.1% during 3QFY10. The reason behind this was much higher raw martial costs (as percentage of sales). On the other hand, employee costs and other expenditure saw a fall as a percentage of sales during the quarter.

  • During the quarter, the company’s net profits grew by 59% YoY due to a Rs 77 m profit on sale of investments. Excluding this, profits recorded a fall of 3% YoY during the quarter. This is on the back of a contraction in operating margins as well as a substantial rise in depreciation charges.

What to expect?
At the current price of Rs 80, the stock is trading at a multiple of 10.1 times our FY12 earnings estimates. At this level, we hold a cautious view and would advise against taking fresh positions in the stock.

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