Elecon Engineering Company hosted a conference call on Oct 23, 2023. In the conference call the company was represented by Prayasvin B. Patel, CMD; Aayush Shah, Non Executive Director;  MM Nanda, head Gear Division; PK Bhasin, Head MHE Division; Kamlesh Shah, Group CFO and  Narashimhan Raghunathan, CFO.

Key takeaways of the call

Strong revenue growth in Q2FY24 (up 25%YoY) is majorly attributable to increase in order inflows across industries, increasing wallet share among existing customers & on boarding of new customers.

Consolidated order intake in Q2FY24 was Rs 416 crore [ Gears Rs 375 crore; MHE Rs 41 crore] and the orders in hand as end of Sep 2023 was Rs 738 crore [ Gears Rs 615 crore; MHE Rs 123 crore].

Of the MHE order intake in Q2FY24 about 62% power, 16% fertilizers, 11% construction & Engineering, 9% cement, 1% steel and 1% others.

Of the gears order intake in Q2FY24 about 22% steel, 7% sugar, 10% cement, 6%  power, 5% MHE, 3% marine, 4%  construction & Engineering  and 43% others.

The company remains optimistic about sustaining its growth momentum in the future with  increasing enquiries across various product categories and industries, coupled with a robust executable order book. 

The company remains optimistic of outperforming the Industry with a robust order book spanning various segments, a steadfast focus on penetrating overseas markets, and commitment to maintaining a leadership position in the domestic market. 

Revenue Guidance for FY24: Expect a revenue of Rs 2000 crore  [Gears Rs 1700 crore; MHE Rs 300 crore].   Margins will stay within the guided range gained by improving operating leverage and better product mix.

Capex incurred Rs 24.0 crore upto H1FY24 out of the Rs 70.0 crore planned for FY24.

In gears the company maintains its leadership position offering industry agnostic gears solutions. Its market share in domestic organized market for gears is about 39% in FY23. 

Signed-off Six OEM Business in European market, having annual estimated business volume of Euro 5.5 Million.  Prototype is under development and to be supplied to the OEMs by Q3FY24, commercial production expected to start from FY25.  

Continue to build brand globally and try to emerge preferred supplier for OEMS globally with wide range of products.

Introduced two new products in Q2FY24 i.e. RTC gear box (that find application in rubber industry) and screw jet gear box (that find application in steel industry).  It also upgraded crane gearbox.

Catalogue Products and Engineered Products mix in standalone gear revenue in H1FY24 was 45% and 55% respectively. 

Seeing notable uptick in demand for gears with substantial influx of promising enquiries from both established customer base and emerging niche sectors. Over the quarter the company expects the influx of enquiries will get converted to orders boosting the order book.

After discontinuing EPC business, the MHE division turned around and continues to improve through efficient operations with strategic focus on product supply and aftermarket services.  Order book of MHE division remains strong gained by ongoing capex growth. 

Update on arbitration awards: Successfully realized Rs. 30.9 crore from the arbitration award as of September 2023, out of the total award amount of Rs 63.0 crore, with an additional Rs. 1.0 Cr expected to be realized in October 2023. Fresh arbitration proceedings initiated having the value of Rs  31.0 crore during Q1FY24, optimistic of favorable outcomes.

Continue to look to offer high-quality, technologically advanced, and globally competitive product range. Its strategic approach involves exploring new geographic markets, maximizing opportunities within the existing markets, and expanding presence across newly added industries by delivering top-notch services with the lowest possible lead times.

Foreign subsidiary that market its products sees strong activity they signed lot of agreements with various OEMS,  expanding distribution network to achieve getting deeper reach and increasing required manpower. Forming an entire group which will evaluate and  recruit more manpower to enhance the reach and dealer and distribution network. Expect this will see strong growth going forward.  This year will achieve the export target and going forward see strong growth.

Capacity utilization for H1FY24 is about 76%.

Export of standalone entity is Rs 20 crore in Q2FY24 and Rs 42 crore in H2FY24.

Share of overseas revenue declined to 20% in Q2FY24 (from 30% in Q2FY23). The company is focused on improving the revenue share from overseas market. Current decline in overseas revenue is attributed to rollover of order execution to H2FY24 and the impact of export revenue recognition under IND AS.

Other income includes one offs of about Rs 5.7 crore due to profit on sale of assets amounting Rs 3 crore and insurance claims against fires of last year.