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Elecon Engg.: Slowdown in new orders - Views on News from Equitymaster

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Elecon Engg.: Slowdown in new orders
May 12, 2009

Performance summary
  • Net sales grow by 16% YoY in FY09, drop by 12% YoY in 4QFY09. Growth during the fiscal aided by traction in the companyís material handling segment. Reported FY09 sales lower by 5% as compared to our estimates.
  • Operating margins expand by 1.2% YoY during the year, 2.9% YoY during 4QFY09. Expansion in margin for the year is mainly on account of lower other expenditure and raw martial costs (both as percentage of sales).
  • Net profits decline by 15% YoY in FY09, and 26% YoY in 4QFY09. However, on excluding the extraordinary adjustments, profits for the year increase by 11% YoY and drop by 18% YoY during the quarter. Reported FY09 profits higher by 14% as compared to our estimates.
  • Order backlog at the end of March 2009 stood at Rs 16.3 bn (about 1.7 times the companyís FY09 sales).
  • Announces dividend of Rs 1.5 per share

Standalone financial snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 3,285 2,885 -12.2% 8,264 9,551 15.6%
Expenditure 2,843 2,416 -15.0% 6,959 7,925 13.9%
Operating profit (EBDITA) 442 469 6.3% 1,305 1,626 24.5%
Operating profit margin (%) 13.4% 16.3% 15.8% 17.0%
Other income 22 50 132.8% 63 96 52.8%
Interest 85 158 85.8% 274 484 76.4%
Depreciation 36 70 93.3% 142 221 56.0%
Extraordinary items (1) (19) 35 (135)
Profit before tax 341 272 -20.2% 987 881 -10.7%
Tax 111 102 -7.9% 315 306 -2.6%
Profit after tax/(loss) 230 170 -26.1% 672 575 -14.5%
Net profit margin (%) 7.0% 5.9% 8.1% 6.0%
No. of shares (m) 92.9 92.9
Diluted earnings per share (Rs)* 7.6
P/E ratio (x)* 6.2
* On a trailing 12-month basis; adjusted for extraordinary items

What has driven performance in FY09?
  • Eleconís revenues grew by 16% YoY during FY09. The company was able to manage this growth largely due to a strong growth in its material handling equipment (MHE) business (which recorded a 25% YoY growth during the year). On the other hand, its transmission equipment (TE) business grew by a mere 1% YoY. As such, the MHE business increased its share in the companyís total revenue to nearly 60% from 55% last year, while the TE business contributed to the balance 40% (45% in FY08).

    Segment wise performance
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Material Handling Equipment (MHE)
    Revenue 2,024 1,991 -1.6% 4,705 5,876 24.9%
    % share 59.1% 67.1% 54.7% 59.8%
    PBIT margin 11.8% 13.1% 13.3% 12.2%
    Transmission Equipment (TE)
    Revenue 1,402 976 -30.4% 3,891 3,944 1.4%
    % share 40.9% 32.9% 45.3% 40.2%
    PBIT margin 19.1% 19.1% 20.4% 18.4%
    Revenue* 3,426 2,967 -13.4% 8,596 9,820 14.2%
    PBIT Margin 14.8% 15.1% 16.5% 14.7%
    * Excluding inter-segment adjustments, including extraordinary items

  • Eleconís operating margins expanded by 1.2% YoY during FY09. The reason behind this was lower other expenditure and raw martial costs (both as percentage of sales). Employee costs on the other hand, increased (as a percentage of sales) as compared to last year. During the year, the companyís net profits (15% YoY decline) were impacted by forex losses to the tune of Rs 135 m as against an Rs 35 m gain in the last year. However, on excluding these extraordinary items (for both the years), profits for the year increase by 11% YoY. In addition, the company was also impacted by higher other depreciation, interest and tax. Interest costs increased to 5.1% of sales during FY09 (3.3% during FY08), depreciation charges increased to 2.3% in FY09 (as against 1.7% in FY08) and the effective tax rate increased to 34.8% during FY09 (as against 31.9% in FY08).

What to expect?
At the current price of Rs 47, the stock is trading at a multiple of 5.5 times our estimated FY11 earnings. At the end of the quarter, Elecon had an order backlog of about Rs 16.3 bn (nearly 1.7 times its FY09 sales). Out of this, nearly 85% comes from the companyís MHE business, while the balance is shared by its TE business. The company has seen a drastic drop in order inflows in its MHE business during the last quarter. As a result, order inflows during 4QFY09 have fallen by almost 60% compared to the order inflow during the December quarter (3QFY09). While the companyís capex during FY09 was Rs 1,279 m, its estimated capex for FY10 stands at about Rs 958 m.

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