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Elecon Eng.: Falling into a lower gear - Views on News from Equitymaster

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Elecon Eng.: Falling into a lower gear
Nov 9, 2009

Performance summary
  • Net sales grow by 1.1% YoY in 2QFY10, grow 11.1% YoY in 1HFY10. Growth during the fiscal aided by traction in the companyís material handling segment which grows 16% YoY during the quarter.
  • Operating margins contract by 1.2% YoY during the quarter on account of higher raw martial costs (as percentage of sales).
  • Net profits decline by 33% YoY in 2QFY10 due to the fall in margins, higher interest costs, and higher depreciation costs.


Performance snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Sales 2,522 2,551 1.1% 4,209 4,674 11.1%
Expenditure 2,139 2,194 2.6% 3,538 3,991 12.8%
Operating profit (EBDITA) 383 357 -6.9% 670 683 1.8%
Operating profit margin (%) 15.2% 14.0%   15.9% 14.6%  
Other income 26 18 -30.8% 35 40 13.2%
Interest 114 134 17.3% 184 278 51.5%
Depreciation 51 78 53.3% 95 153 60.2%
Profit before tax 244 163 -33.3% 427 292 -31.7%
Extraordinary income/(expense) - -   - -  
Tax 84 55 -34.5% 147 99 -32.8%
Profit after tax/(loss) 160 108 -32.8% 280 193 -31.1%
Net profit margin (%) 6.3% 4.2%   6.6% 4.1%  
No. of shares       92.9 92.9  
Diluted earnings per share (Rs)*         5.3  
P/E ratio (x)*         15.4  
* On a trailing 12 months basis

What has driven performance in 2QFY10?
  • Eleconís revenues grew by 1.1% YoY during 2QFY10. The company was able to manage this growth largely due to a strong growth in its material handling equipment (MHE) business (which recorded a 16% YoY growth during the year). On the other hand, its transmission equipment (TE) business saw a fall of almost 18% YoY. As such, the MHE business increased its share in the companyís total revenue to nearly 64% from 56% last year, while the TE business contributed to the balance 36% (44% in 2QFY09).

    Segment-wise performance
    (Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Material Handling Equipment (MHE)            
    Revenue 1,430 1,659 16.0% 2,419 2,950 22.0%
    % share 55.6% 63.8%   56.0% 61.5%  
    PBIT margin 12.1% 11.4%   11.9% 11.8%  
    Transmission Equipment (TE)            
    Revenue 1,144 943 -17.6% 1,897 1,849 -2.5%
    % share 44.4% 36.2%   44.0% 38.5%  
    PBIT margin 19.0% 16.7%   20.0% 16.4%  
    Total            
    Revenue* 2,574 2,602 1.1% 4,316 4,799 11.2%
    PBIT margin 15.2% 13.4%   15.5% 13.5%  
    * Excluding inter-segment adjustments

  • Eleconís operating margins contracted by 1.2% YoY during 2QFY10. The reason behind this was higher raw martial costs (both 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 companyís net profits (33% YoY decline) saw a substantial fall due to a to three factors, namely, the fall in operating margins, higher interest costs, and much higher depreciation expenses.

What to expect?
At the current price of Rs 81, the stock is trading at a multiple of 15.4 times its trailing twelve months earnings. We shall update this analysis post receipt of further details from the company.

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