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  • Feb 12, 2011 - Elecon Engineering: Strong performance delivered...

Elecon Engineering: Strong performance delivered...

Feb 12, 2011

Elecon Engineering has announced its 3QFY11 results. The company has reported 20% YoY and 85% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 20.4% YoY in 3QFY11, 15.2% YoY during 9mFY11.
  • Operating profits grew by 28.2% during the quarter on account of relatively lower increase in expenditure when compared to the growth in sales. The expenditure seems to be well managed despite the prevailing macro-economic headwinds.
  • Interest costs grew much slower during the quarter. In fact, for 9mFY11, the interest costs declined by 16% YoY.
  • Higher other income in addition to the relatively lower rise in interest costs led to a magnified bottom line. Net profits were up by 86% during the quarter.

Performance snapshot
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Sales 2,499 3,009 20.4% 7,173 8,265 15.2%
Expenditure 2,123 2,527 19.1% 6,114 7,029 15.0%
Operating profit (EBDITA) 376  482 28.2% 1,059 1,235 16.7%
Operating profit margin (%) 15.0% 16.0%   14.8% 14.9%  
Other income  91  220 142.1%  131  250 90.5%
Interest 113  123 8.8%  392  328 -16.1%
Depreciation  83 98 18.5%  236  285 20.8%
Profit before tax 271  480 77.6%  562  871 55.0%
Extraordinary income/(expense) - -   - -  
Tax  72  112 55.3%  171  228 33.3%
Profit after tax/(loss) 198  368 85.7%  391  644 64.6%
Net profit margin (%) 7.9% 12.2%   5.5% 7.8%  
No. of shares       92.9 92.9  
Diluted earnings per share (Rs)*           9.8  
P/E ratio (x)*         6.6  
* On a trailing 12 months basis

What has driven performance in 3QFY11?
  • Elecon's sales grew by 20% YoY during 3QFY11. The growth was mainly led by a 35% YoY growth in the transmission equipment (TE) business, and a 9% growth in the material handling equipment (MHE) business. As a result, the TE business increased its share in the company's total revenue to nearly 46.5% from 41.3% last year, while the MHE business contributed to the balance 53.5% during the quarter (58.7% in 3QFY10).

    Segment-wise performance
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Material Handling Equipment (MHE)
    Revenue      1,498    1,639 9.4%    4,449    4,747 6.7%
    % share 58.7% 53.5%   60.5% 56.3%  
    PBIT margin 12.1% 13.4%   12.6% 13.0%  
    Transmission Equipment (TE)
    Revenue      1,052    1,423 35.2%    2,901    3,683 26.9%
    % share 41.3% 46.5%   39.5% 43.7%  
    PBIT margin 16.5% 17.8%   16.2% 15.9%  
    Revenue*      2,551    3,062 20.0%    7,350    8,431 14.7%
    PBIT margin 13.9% 15.5%   14.0% 14.3%  
    * Excluding inter-segment adjustments
  • Expenditure grew slower than sales leading to a 1% expansion in operating margins during 3QFY11 as compared to 3QFY10. The expansion in operating margins was supported by an improvement in both the TE and MHE business.

  • Net profit margins expanded by 4.3% on account of a whopping 142% YoY increase in other income and a lower rise in interest costs during 3QFY11.

What to expect?
At the current price of Rs 65, the stock is trading at a multiple of 7 times our FY13 earnings estimates. The growth reported during 9mFY11 was ahead of our FY11 estimates. The company maintained a strong growth momentum in the TE business. Though the growth in MHE business was slow in comparison to the TE business, however the performance of the MHE business was in line with our expectations. The margins expanded in both the TE and MHE business. Overall, the company delivered a strong performance despite the macro-economic headwinds.

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