Elecon Engineering Company hosted a conference call on Nov 4, 2022. In the conference call the company was represented by Prayasvin Patel – CMD;  Kamlesh Shah – Group CFO; and  Narasimhan Raghunathan – CFO.

Key takeaways of the call

Consolidated order inflow in Q2FY22 was Rs 838 crore [Gears RS 744 crore; MHE Rs 94 crore] and the consolidated order book as end of Sep 2022 was Rs 714 crore [ Gears Rs 602 crore; MHE Rs 112 crore].

Standalone gears order intake in Q2FY22 was Rs 307 crore and the order backlog as end of Sep 2022 was Rs 452 crore. 

Gears witnesses strong demand and orders bookings are largely from industries Steel, cement, power and sugar.  MHE Consistent improvement and sustain positive momentum.

Retains FY24 revenue guidance of Rs 1500 crore for Standalone and Rs 2000 crore for consolidated basis.  The company is expected to sustain current level of margins.

The company is focused on profitability growth and will not compromise profitability for revenue growth. 

MHE – Margin was expected to improve to 15-17% going forward as the company expect a sales turnover to Rs 400 crore.

Currently exports account for 10-12% and the company looks to increase to 50% and it will be gradual and not like to put a timeline right now.   Export entities are doing well compared to what they done in the past. Believe that they are poised for growth as the company has invested in manpower as well as marketing initiatives especially in Europe and USA which lead to further improvement in sales.

Outstanding retention money as end of Sep 30, 2022 stood at Rs 68 crore.

In terms of volume wise 60% is from small/medium gears and 40% is from large gear boxes but interms of value about 70% of revenue come from large gear boxes and 30% from small/medium.

Current defence order book is about Rs 80 crore.  Some programmes are called by Indian Navy and for which the company will be bidding for.

Leader in customized gears manufacturer for Indian defence sector.  It has successfully supplied   CODOG (Combined Diesel or Gas Turbine) type gearboxes for stealth frigates of Indian navy. 

New product development: Planetary gear boxes are gears used in practically in all kind of industries. Specializes in large sizes gears that are extremely competitive and light weight.  It is an import substitution product. The company develops these gears for  cement, wind mill, coal handling plants,   sugar and various  many applications.  The market size is about Rs 200-300 crore for the company. Vertical roller mill drives for leading cement mills.

Freight cost has rationalized, but longer lead times in transportation continue.

Committed to Rs 100 crore of capex of which substantial into renewable energy generation.

After diwali the economy normally pickup. Expecting whatever the projects running bit slow will pick up steam.  The impact of interest rate rise has to be seen on demand.

Steel and power are the dominant key client industries for MHE and fertilizer once in three year capex cycles will show for MHE.

Exploring possibility of getting into manufacture of EV gear boxes and speaking to Indian auto EV manufacturers.

Elecon is the largest manufacturer of gears in Asia with 36% market share of organized gear market in India.