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Elecon Engineering hosted a
conference call on July 12, 2023. In the conference call the company was
represented by Prayasvin B. Patel, CMD; Aayush Shah, Director; Nanda, Head Gear
Division; Kamlesh Shah, Group CFO and
Narasimhan Raghunathan, CFO.
Key takeaways
Order inflow for Q1FY24 was up
22%YoY to Rs 497 crore [Rs 51 crore (up
13%YoY for MHE & Rs 446 crore (up 24%YoY) for Gears]. Open order book as
end of June 30, 2023 was Rs 793 crore (Rs 655 crore for gears and Rs 138 crore
for MHE).
Expect consolidated revenue of Rs
2000 crore with an EBITDA margin of 22% in FY24. The gears division is expected
to clock a consolidated revenue of Rs 1700 crore for FY24.
There is room for expansion of
margin beyond 22% but the company currently confident of sustaining 22% and
will revise it by Q2FY24 conference call.
Cost on brand building in overseas market is not kicked in so far in
P&L and it will start to get reflected in coming quarters. The 22% EBITDA
margin guidance for FY24 factors in of that cost.
Lot of emphasize on exports. The
company is taking two actions in growing its overseas business. The first is
adding more OEM clients which provide steady volume. Secondly the company looks
to increase its market share in market it already present and foray into newer
markets backed by investment in brand and adequate marketing resource/infra.
The company is building marketing infrastructure and resources overseas which
will generate more enquiries and conversion into orders. The company will be setting
up a wholly owned step down subsidiary in
South Africa to tap into opportunities in African Continent.
OEM business - Signed-off 5 OEM businesses
in European market, having annual estimated business volume of about Euro 5
Million. Prototype is under development and to be supplied to the OEMs by
Q3FY24, commercial production expected to start from FY25. These are custom
made product and supply will start after prototypes are approved by the
clients. The volume from these OEMs is largely depending on the demand for
their respective products where the products of the company are supplied.
By end of the year the company
expects some orders coming from marine/defence sector.
Arbitration awards: Out of Rs 63
crore of arbitration claim for which orders are in favour of the company, it
has received Rs 27.4 crore upto Jun 30, 2023 and expect to realize another Rs 4
crore by Q2FY24. It has also initiated fresh
arbitration proceedings having the value
of Rs 31 crore during Q1FY24, optimistic of favorable outcomes.
Outstanding Retention as on 30th
June 2023 stands at Rs 52 crore.
Capex spent in Q1FY24 stood at Rs
20 crore.
Net cash surplus of Rs 250 crore
as end of Jun 2023.
Enhanced operational efficiency
and reduced lead time in gears division.
Have successfully revitalized the
MHE Division, making it profitable once again. The company continues to focus
on supply of Products & aftermarket business in its MHE business. Power,
fert, cement and others are driving demand growth for MHE division. Fully committed to continued growth of MHE Division.
The company now commands 39%
market share in Tier I domestic market supply for gears against 34-35% market
share last year.
Capacity utilization is about 76%
and there is no subcontracting as of now by the company. With substantial sub
contracting and moderate capex could support growth for next 3-5 years.
About 70% of customers are
repetitive customers.
Traction gears are supplied to
railways/metros the company is tied up with an international player.
With strong order book in hand
across segments, continued focus to penetrate the exports markets and
maintaining its leadership position in the domestic geography, the company is optimistic
of sustaining the growth momentum going forward.
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