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Elecon Eng.: Profits surge on lower interest - Views on News from Equitymaster

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Elecon Eng.: Profits surge on lower interest

Aug 3, 2010

Elecon Engineering has announced its 1QFY11 results. The company has reported 16% YoY and 57% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 16% YoY in 1QFY11. Growth during the quarter aided by traction in the company's material handling equipment segment which grows 16% YoY during the quarter.
  • Operating margins contract by 0.3% YoY during the quarter. This is on account of higher raw material costs as also higher staff expenses (as percentage of sales).
  • Net profits grow by 57% YoY in 1QFY11 despite the fall in operating margins. This was mainly due to a big fall in interest expenses during the quarter.

Performance snapshot
(Rs m) 1QFY10 1QFY11 Change
Sales 2,123 2,460 15.9%
Expenditure 1,797 2,093 16.4%
Operating profit (EBDITA) 326 368 12.9%
Operating profit margin (%) 15.3% 15.0%  
Other income 22 11 -48.2%
Interest 144 98 -31.7%
Depreciation 75 89 19.1%
Profit before tax 129 192 48.8%
Extraordinary income/(expense) - -  
Tax 44 58 33.6%
Profit after tax/(loss) 85 133 56.7%
Net profit margin (%) 4.0% 5.4%  
No. of shares 92.9 92.9  
Diluted earnings per share (Rs)*   7.6  
P/E ratio (x)*   12.0  

What has driven performance in 1QFY11?
  • Elecon Engineering's revenues grew by 16% YoY during 1QFY11. The company was able to manage this growth largely due to growth in its material handling equipment (MHE) business (which recorded a 16% YoY growth during the quarter and contributed to 60% of the period's topline). On the other hand, its transmission equipment (TE) business saw a growth of 11.4% YoY with a 40% share of the company's revenues.

    Segment-wise performance
    (Rs m) 1QFY10 1QFY11 Change
    Material Handling Equipment (MHE)      
    Revenue 1,291 1,498 16.0%
    % share 59% 60%  
    PBIT margin 12.2% 12.8%  
    Transmission Equipment (TE)      
    Revenue 907 1,010 11.4%
    % share 41% 40%  
    PBIT margin 16.1% 15.1%  
    Revenue* 2,198 2,508 14.1%
    PBIT margin 13.8% 13.7%  

  • Elecon's operating margins contracted by 0.3% during 1QFY11. The reason behind this was much higher raw martial costs as also higher employee costs (as percentage of sales). On the other hand, other expenditure saw a fall as a percentage of sales during the quarter.

  • During the quarter, the company's net profits grew by 57% YoY. This was despite the fall in operating margins. The primary reason for this was a 32% fall in interest costs. Also, the company's other income almost halved during the quarter, without the effect of which the bottomline growth would have been even higher.

What to expect?
At the current price of Rs 92, the stock is trading at a multiple of 12.5 times our FY13 earnings estimates. At this level, we hold a cautious view and would advise against taking fresh positions in the stock (Research Pro subscriber kindly click here).

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Mar 22, 2019 (Close)


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