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Analyst Meet / AGM
11-Aug-12
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Conference Call
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Elgi Equipment
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Exports grew 30% in Q1 and will continue to grow for rest of FY'13
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Elgi Equipments held a conference call on 7th Aug'12 and was addressed by Jairam Varadaraj, MD.
Key highlights
- Elgi Equipment reported 2% growth in standalone net sales for Q1 FY'13. Domestically all the segments were almost flat and some sectors were down, while the export sales which constitute about 20% of turnover grew by 30%.
- The company had an increase in salary costs together with lower product mix leading to lower OPM. There was a forex gain of about Rs 2 crore which restricted the fall in OPM due to above reasons.
- At consolidated level, while sales were flat, subsidiaries in Middle East, US and in Australia did well. While China was down and so was Brazil. However with orders from Indonesia, China, South African markets coming up, management expects strong export growth to continue going forward.
- Domestically, management says that we are almost at stagflation stage where there are plenty of enquires but no confidence to go for orders. In fact the SME and small players are better off during the quarter compared to large players.
- Water well segment is not expected to grow in FY'13 as well and this is irrespective of monsoon.
- In exports, management is following more penetration policy as it does not have a strong brand and is taking orders at low margin compared to others. As per the management, going forward in next couple of years, the margins will improve, as the scale and volume kicks in together with establishment of strong brand and repeat orders at international markets.
- There is no traction of orders from Railway segment as well. For large metro rail projects, the company is yet not qualified and is in active dialogue with some of large players like Bombardier for the compressor requirements.
- According to the management Ingersoll Rand has entered into a very niche market of small compressor where Elgi Equipment was not present. Hence the Ingersoll Rand's entry will not affect the company's business.
- The company plans to incur capex of about Rs 50 crore in FY'13 as well, which will complete the green field expansion project of Rs 130 crore incurred over period of 18 months. The capacity is basically in the form of building, sheds rather than new machines at this point in time. Going forward, the ramping up would purely depend upon the demand and domestic confidence.
- On Tax front, the company's standalone tax rate will remain around 28% and about 31% at consolidated level.
- Overall, despite all challenges, based on strong export growth, management expects double digit sales growth and margins to improve from here on for FY'13.
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