Elecon Engineering Company (Elecon), one of the leading manufacturers of industrial gears and material handling equipment in India has registered flat growth in consolidated sales for the quarter ended June 2016 to Rs 260.52 crore. But with 300 bps expansion in operating profit margin has powered operating profit up by 30% to Rs 32.96 crore. After accounting for higher other income (up 53% to Rs 3.65 crore), higher interest (up 32% to Rs 20.94 crore) and lower depreciation (down 9% to Rs 14.32 crore); the PBT was a profit of Rs 1.35 crore compared to a loss of Rs 3.81 crore in the corresponding previous period. EO income for the quarter as well as corresponding previous period was nil. After accounting for tax provision of Rs 3.73 crore (up 204%) it was a loss of Rs 2.38 crore at PAT level compared to a loss of Rs 5.04 crore at corresponding previous period. Minority interest was a share of loss of Rs 2.90 crore (down 57%) and the share of profit from associates was up by 44% to Rs 0.28 crore. Thus the net profit (after minority interest) was down by 59% to Rs 0.81 crore.
- The segment revenue of transmission equipment was flat at Rs 187.41 crore and the segment revenue of material handling equipment (MHE) business was down by 4% to Rs 84.44 crore.
- The PBIT was up by 67% to Rs 20.18 crore and that is largely as the MHE business turnaround to report a profit for the quarter. Despite lower sales the MHE business registered a marginal profit of Rs 0.66 crore for the quarter against a loss of Rs 10.04 crore in the corresponding previous period. However On flat sales, the segment profit of transmission equipment was lower by 12% (to Rs 19.52 crore) as its segment margin contract by 140 bps to 10.4%.
Management comment
Prayasvin Patel, CMD commenting on the performance of the company has said, "The first quarter of the fiscal 2017 was a mixed quarter for the business, while we have grown in the standalone gear business, the headwinds continue for our MHE business. During the quarter, the execution at the gear business remained robust and we continued to see traction in the core sectors. The economic activity remains weak; however, we are firm that our business will be a direct beneficiary to any constructive movement in the capital goods industry"
Update on merger
The Board of Directors (BoD) at their meeting on April 27, 2016 approved the scheme of amalgamation of Elecon EPC Projects with Elecon Engineering Company subject to necessary approvals. The appointed date of the said scheme is March 30, 2015. Shareholders of Elecon EPC (except Elecon) will receive 37 equity shares of Rs 2 face value of Elecon Engineering for every 2 equity shares of Elecon EPC held by them. No Shares will be issued by Elecon towards shares held by it in Elecon EPC and all those shares would be cancelled as part of the scheme. Under this arrangement the promoters share holding in Elecon will increase from 57.34% to 58.58%.
Pending the approval from shareholders, the Board of Directors of the Company unanimously recommended the proposed combination of Elecon Engineering Company Limited with Elecon EPC Projects Limited. This was to consolidate the businesses into one entity thereby creating a vertically integrated engineering company and strengthening the position of the merged entity by enabling synergies. This was also in line with global trends to achieve size, scale, integration and greater financial strength.
By Order of the Hon'ble High Court of Gujarat at Ahmedabad had directed that a Meeting of the Equity Shareholders of the Elecon Engineering Company Limited has been convened on August 19, 2016 at 11:00 A.M. for the purpose of considering and, if thought fit, approving proposed amalgamation embodied in the Scheme. The approval of Equity Shareholders of the Company can be done by way of postal ballot and e-voting pursuant to the applicable provisions of the Companies Act, 2013 read with the Companies (Management and Administration) Rules, 2014, Regulation 44 and other applicable provisions of the SEBI Listing Regulations, the SEBI Circular and under relevant provisions of the applicable laws.
Order book & Outlook
From an order book perspective, the company booked Rs 111 crore worth of orders in gear business. This translates to an order backlog of Rs 711 crore for execution in the coming period. In the material handling business, it closed orders worth Rs 43 crore which is in line with its revisited strategy of its focus on profitable and product based projects. The pending order book for MHE business now stands at Rs 889 crore Overall, the company remain confident on the long term prospects of the business however an upside to its performance would directly correlate to the way overall economy performs.
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