Eimco Elecon (India), the mining machinery major has turned in pallid performance for the quarter ended Dec ’05. Sales grew by 5% to Rs 20.93 crore on a high base. Plagued by just a modest growth in sales and contraction of margin by 830 basis points to 18.1%, the operating profit has declined by 28% to Rs 3.78 crore. Compounded further by lower other income, higher interest and depreciation cost the PBT has experienced steep decline. The PBT was lower by 50% to Rs 1.96 crore. At net profit level the decrease was 46% to Rs 1.25 crore as taxation being lower by 55%.
- Sales grew by 5% to Rs 20.93 crore on a high base. Value of production risen by 10% to Rs 25.27 crore, which is 20% higher than the sales. The inventory pile up and WIP is expected to be booked during the quarter ended Mar ’06.
- Pressure on margin could be explained by higher material cost which as a proportion of sales (adjusted to stock) has risen by steep 1259 basis points to 58.1% during the quarter. Along with material cost the staff cost too gone up by 153 basis points to 5.2%. Even though distributor compensation and other expenses were down by 149 bps to 11.4% and 473 bps to 10.3% respectively that could not fully cushion the rise in material and staff cost head leaving operating margin to tumble by 830 bps to 18.1%.
Eimco Elecon (India) (Eimco Elecon) was incorporated in 1974 and is a joint venture between Tamrock OY, Finland (25% equity stake) and Elecon Engineering Company, India, and its associates (47%). It produces a wide range of underground mining machinery. The range of products includes Electro hydraulic side dump loaders, load haul dumpers, air powered rocker showel loaders and low profile dump trucks. It also manufactures blasthole drills, hydraulic cylinders and air motors.
Eimco Elecon's major clients are the subsidiaries of Coal India Limited Viz. Bharat Cooking Coal. Eastern Coalfield etc. Other clients include Singanery Collieries Co.. Uranium Corporation of India. Bharat Gold Mines, Hindustan Copper, Hindustan Zinc, Larsen & Toubro. Ferro Alloys Corporation etc.
Nine-month results
Sales for the nine-month ended Dec ’05 went up by 6% to Rs 62.55 crore. Operating profit was up by modes 5% to Rs 13.96 crore with OPM down by 20 bps to 22.3%. Other income was lower by 46% to Rs 1.29 lakh and interest was higher by 20% to Rs 2.00 crore. Depreciation was higher by marginal 8% to Rs 4.84 crore. Thus PBT was up by 12% to Rs 8.41 crore. After providing for taxation (down 6% to Rs 2.86 crore) the net profit was down by 16% to Rs 5.55 crore.
Outlook & Valuation
Going forward, the company is expected to gain by way of strong demand for mining equipment backed by strong appetite for metals, coal Lignite etc in the country. With reforms in mining sector like allotment of captive coal mines will bring more investment into the mining sector auguring well for equipment suppliers like Eimco Elecon. Moreover strong investment in ferrous, non-ferrous and thermal power sector continue to provide momentum for the mining sector in the country resulting in replacement demand. All these are likely to result in strong flow of order for the company.
Historically fourth quarter being a good one for engineering players and also Eimco Elecon the company is expected benefit out of strong volume and liquidated earlier quarter works.
On an equity paid-up of Rs 5.77 crore (face value of 10), the EPS for FY ’05 works out to Rs 15.2. The stock quotes around Rs 316.90.
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