Elecon Engineering Company hosted a conference call on April 27, 2023. 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

Has most comprehensive range of Industrial Gears under one roof in the world and commands about 34% share in organized market in India.

Consolidated order inflow in Q4FY23 and FY23 was Rs 419 crore [Gears Rs 373 crore; MHE Rs 46 crore] and  Rs 1619 crore [Gears Rs 1396 crore; MHE Rs 223 crore]. Consolidated order book as end of Mar 2023 was Rs 714 crore [ Gears Rs 569 crore; MHE Rs 145 crore].

Of the FY23 revenue about 71% is domestic; 7% is from exports out of India and 22% from sales from overseas.

Expect consolidated revenue of Rs 2000 crore [Rs 1700 crore  for gears and Rs 300 crore for MHE] for FY24.

Introduce few more products in FY23 for industries that is not catered to right now. Introduced 6 new products in FY23 and in last 3 years it has introduced 8 new products. High speed gearbox, vertical roll mill gearbox, roller press gearbox, dual tandem gearbox, central drive planetary gearbox and sugar planetary gearbox.

Approval from overseas new customers is a continuous process. It’s easy to get approvals given the vast experience of the company in India. Recently the company got significant approval from paper and pulp machinery manufacturers based out of Europe.

The company has accounted one off expenses (net of income) of about Rs 6 crore in Q4FY23.   Made provision of Rs 7.28 crore towards Raw Material GST input credit from other states that takes time. Further it has made provision of Rs 2.5 crore towards inventory held for after service requirements for contracts of more than 2 years. 

Provision of Rs 2.6 crore related to earlier period not required were written back.    

Capacity utilizations is at 70% as of now.  Optimum capacity utilization is 85% and it can get another Rs 300-400 crore incremental revenue.  MHE capacity utilization is at about 30-40% currently. 

Planned capex is Rs 50-60 crore.

The company is net Cash Surplus as on March 31, 2023.

Arbitration Awards: About Rs 12 crore settled out of court, of which Rs 5 crore realized in Q4FY23 & balance to be realized in EMIs by Q2FY24. About Rs 18 crore is allowed by the court to withdraw against submission of BG, of which Rs. 10 Cr. recovered in Q4FY23 & balance to be recovered by Q2FY24. About  Rs 33 crore under negotiation.

Competency wise the company is not less for any one and can sell technology to any overseas countries including European players.

Replacement business constitute about 20-30% of the company.

EV side trying to make inroads but the size seems to be smaller for the company. 

Power sector expected to give good orders. Exports also expected to give some boost for this year.

Elecon expects around 3 more thermal power plants to come up in the coming financial year. Elecon is the leading supplier in India for Coal Pulverizer, VRM gearboxes and also has major share in the FGD business in Power sector.

Steel & Mineral Industry has been consistently doing well for the past 3 years. Elecon is the leading and only supplier of 900 TPD sponge iron plant in India. Both Iron-ore and finished steel segment are growing at a faster pace and is expected to grow ~9% in the coming year and Government also focusing on infra development and as a result expansion of production capacity. In Overseas market there are also some opportunities in Steel Industry like in Africa.

Cement consumption in India is expected to grow by ~6 to 7% in the coming year. Elecon has increased its market share with some of the major OEM’s in this segment. The trend in the Cement Industry is shift towards Roller Press Gearboxes for Raw mill & Cement mill application and Elecon is the only Indian manufacturers for Roller press gearboxes.

The government has helped in reviving the Sugar industry by supporting Ethanol production and the industry has been doing well for the past 2 years. The growth momentum of the industry is likely to continue for another 3 to 4 years. Elecon is the leading Planetary Sugar mill gearboxes manufacturer with a market share of about 60% and also trying to capture overseas market like in South East Asia.