Elecon Engineering Co Ltd. - Nayan M Vala Securities Pvt. Ltd.
Elecon Engineering Co Ltd. - Nayan M Vala Securities Pvt. Ltd.
Elecon Engineering Co Ltd. - Nayan M Vala Securities Pvt. Ltd.
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Telephones NAYAN M. VALA SECURITIES PVT. LTD.<br />
022-26105973/74/32549230/32448788 403-404, <strong>Co</strong>smos <strong>Co</strong>urt<br />
Fax.26124310/E-Mail: vala@bom3.vsnl.net.in<br />
Above Waman Hari Pethe Jewellers<br />
Website: www.nayanmvala.com<br />
S. V. Road, Vile-Parle (west)<br />
Mumbai-400056<br />
Key Indicators as on 06/08/2010<br />
Closing Price ` 91.9<br />
EPS ` 7.64<br />
P/E 12.02<br />
BV per Share ` 36.55<br />
PB 2.51<br />
Mkt Cap ` in Crores 853.4<br />
Mkt Cap/Sales 0.76<br />
Mkt Cap/PBIDTA 4.86<br />
Mkt Cap/PBDT 6.83<br />
Mkt Cap/Cash Profit 8.31<br />
Debt/Cash Profit 5.08<br />
Interest <strong>Co</strong>verage Ratio 3.51<br />
PBDITA ` in Crores 175.76<br />
Face Value ` 2<br />
Equity Capital ` in Crores 18.57<br />
Share holding (%)<br />
Jun-10<br />
Promoters 45.71<br />
Public 28.78<br />
FIIs 1.33<br />
Others 24.18<br />
Source: CMIE<br />
<strong>Elecon</strong> <strong>Engineering</strong> <strong>Co</strong> <strong>Ltd</strong>.<br />
BUY<br />
Highlights:<br />
<strong>Co</strong>mpany is 60 years old with<br />
sales increasing at the rate of<br />
18.78 CAGR since it got listed<br />
in the year 2000 at BSE.<br />
<strong>Co</strong>mpany has a good dividend<br />
track record as in the past 4<br />
years it has posted dividend of<br />
75%.<br />
<strong>Co</strong>mpany primarily operates in<br />
Materials handling equipment<br />
& Industrial gears area the<br />
future of which is very<br />
promising.<br />
<strong>Co</strong>rporate restructuring: The<br />
management is planning to<br />
restructure its business to<br />
develop better tax structure &<br />
reduce debt.<br />
Better margins for FY11:<br />
Majority of order received in<br />
FY11 are equipment based which provide better margins compared to<br />
project-based contracts which were executed in FY10.<br />
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10<br />
EBIDTA Margin 8.92% 10.64% 12.78% 13.73% 14.63% 14.78% 15.21%<br />
P/E Multiple: The companies current P/E is 12.76 which is near to its average<br />
low P/E of the past seven year as seen in the table below and hence we<br />
consider the stock less risky as the companies P/E is also below industry P/E<br />
which is 17.93 as per CMIE.<br />
Source: CMIE<br />
Years Low P/E High P/E<br />
2003-2004 2.78 7.47<br />
2004-2005 4.12 27.65<br />
2005-2006 7.87 30.73<br />
2006-2007 15.6 32.52<br />
2007-2008 20.36 50.52<br />
2008-2009 3.59 26.25<br />
2009-2010 5.25 20.69<br />
Average 8.51 27.98<br />
MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD<br />
CODE NO.23/13511/13
Telephones NAYAN M. VALA SECURITIES PVT. LTD.<br />
022-26105973/74/32549230/32448788 403-404, <strong>Co</strong>smos <strong>Co</strong>urt<br />
Fax.26124310/E-Mail: vala@bom3.vsnl.net.in<br />
Above Waman Hari Pethe Jewellers<br />
Website: www.nayanmvala.com<br />
S. V. Road, Vile-Parle (west)<br />
Mumbai-400056<br />
Investment Rationale:<br />
‣ Healthy order book: It has already bagged order worth of ` 578 crores till<br />
Q1FY11. The management expects new orders worth `10 and `6.5 billion<br />
from MHE and gears segments respectively in FY11. The company has live<br />
enquiries for orders worth ` 4000 crores as on 30 th June, 2010. This shows a<br />
visibility in earnings for the next 2 – 2.5 years.<br />
‣ Opportunity in Material Handling Equipment Industry: Traditionally the power<br />
sector has accounted for the largest constituent of <strong>Elecon</strong> <strong>Engineering</strong>’s order<br />
book and things are certainly flourishing in the power sector in India. Other<br />
sectors where too <strong>Elecon</strong> caters are STEEL & CEMENT both of which are<br />
seeing huge capacity expansion in the foreseeable future.<br />
‣ Diversified business: EEL has not laid all its egg in a single nest. Its product<br />
caters to various sectors as seen in the table below. Hence, the company’s<br />
growth story does not depend on the growth of a particular sector.<br />
Segment wise performance:<br />
MHE:<br />
Source: CMIE<br />
` in Crores Sales PBIT<br />
Material Handling Equipment 654.91 83.08<br />
Transmission Equipment 425.92 68.62<br />
Total 1080.83 151.7<br />
Products<br />
Stacker<br />
Wagons Tipplers<br />
Crushers & Impactors<br />
Trippers<br />
Apron, Vibrating& Paddle Feeders<br />
Screens, pulley, <strong>Co</strong>nveying system<br />
Wagons marshalling system<br />
Industry<br />
Power, Cement, Steel, Ports<br />
Power, Cement, Steel, Ports & Mining<br />
Power, Cement, Steel, Ports<br />
Open Cast Mines<br />
Power, Cement, Steel, Ports & Mining<br />
Power, Cement, Steel, Ports & Mining<br />
Power, Cement, Steel, Ports & Mining<br />
Industrial Gears:<br />
Products<br />
Helical<br />
Worms<br />
Lift Gears<br />
<strong>Co</strong>upling<br />
Industry<br />
Sugar Industry, MHE ( Stacker reclaimers), marine application,<br />
cooling towers in power plant, Wind mills, tube mills (steel)<br />
Rolling Mills (Steel), MHE(<strong>Co</strong>nveyor systems)<br />
Elevators<br />
MHE(<strong>Co</strong>nveyor systems)<br />
MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD<br />
CODE NO.23/13511/13
Telephones NAYAN M. VALA SECURITIES PVT. LTD.<br />
022-26105973/74/32549230/32448788 403-404, <strong>Co</strong>smos <strong>Co</strong>urt<br />
Fax.26124310/E-Mail: vala@bom3.vsnl.net.in<br />
Above Waman Hari Pethe Jewellers<br />
Website: www.nayanmvala.com<br />
S. V. Road, Vile-Parle (west)<br />
Mumbai-400056<br />
‣ <strong>Co</strong>rporate restructuring: <strong>Elecon</strong> has initiated a corporate restructuring<br />
exercise with a view to consolidate the business with in the group companies.<br />
This will result in enhancing the shareholder’s value, synergy & will provide<br />
financial stability going forward. The process of restructuring would involve<br />
merging operating entities manufacturing similar equipment.<br />
<strong>Co</strong>mpany Name<br />
Eimco <strong>Elecon</strong><br />
Powerbuild<br />
Emitci <strong>Engineering</strong><br />
Ringspann <strong>Elecon</strong><br />
Prayas <strong>Engineering</strong><br />
<strong>Elecon</strong> Information Tech<br />
Operations<br />
Underground mining equipment<br />
Geared motors and gear boxes<br />
Selling agents of <strong>Elecon</strong> <strong>Engineering</strong><br />
Manufacturing and marketing transmission products<br />
Non ferrous castings<br />
Hardware, Software and networking technologies<br />
‣ Strong Client base: <strong>Elecon</strong> <strong>Engineering</strong> has been involved in the capital goods<br />
and engineering space for over 5 decades now so clearly, the company<br />
knows its territory well, having accumulated considerable experience over<br />
the years. During this time period, the company has carved a niche for itself<br />
by designing and manufacturing specialized and hi-tech material handling<br />
equipment in addition to power transformers (gears). This had lead to the<br />
company being the preferred choice for some high profile companies in<br />
sectors as diverse as the sugar industry to the power industry. <strong>Elecon</strong>’s list of<br />
clients include Reliance Power and NTPC from the power sector, Steel<br />
Authority of India and Indian Iron and Steel from the steel sector, the Indian<br />
railways, Neyveli Lignite <strong>Co</strong>rporation and NMDC from the mining and coal<br />
sector and JK Cement and ACC Cement from the cement sector.<br />
‣ Peer <strong>Co</strong>mparison: EEL is in better position for FY10 when compared to its peer<br />
as seen in the table below:-<br />
Source: CMIE<br />
` in Crores <strong>Elecon</strong> <strong>Engineering</strong> <strong>Co</strong>. <strong>Ltd</strong>. T R F <strong>Ltd</strong>.<br />
Sales 1129.99 878.39<br />
EBIDTA 175.76 92.58<br />
EBIDTA Margin 15.55% 10.54%<br />
P/E 11.9 17.88<br />
Dividend Yield 1.87% 1.39%<br />
Market Capitalization 853.4 914.74<br />
Borrowings 521.55 216.63<br />
Minority Reserve 0 59.75<br />
Cash and cash equivalent 38.81 43.46<br />
Enterprise Value 1336.14 1147.66<br />
EV/EBIDTA 7.60 12.40<br />
MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD<br />
CODE NO.23/13511/13
Telephones NAYAN M. VALA SECURITIES PVT. LTD.<br />
022-26105973/74/32549230/32448788 403-404, <strong>Co</strong>smos <strong>Co</strong>urt<br />
Fax.26124310/E-Mail: vala@bom3.vsnl.net.in<br />
Above Waman Hari Pethe Jewellers<br />
Website: www.nayanmvala.com<br />
S. V. Road, Vile-Parle (west)<br />
Mumbai-400056<br />
‣ <strong>Co</strong>nsistency in Financial Performance: The companies past performance can<br />
be inferred from the tables given below:-<br />
Source: CMIE<br />
` in crores Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 CAGR<br />
Income 191.33 325.63 516.07 847.69 960.18 1058.88 1155.5 29.29%<br />
Sales 187.7 322.57 507.74 839.46 950.38 1049.3 1130 29.23%<br />
PBIDTA 17.06 34.64 65.96 116.42 140.51 156.53 175.76 39.54%<br />
PBDTA 10.14 25.39 50.8 97.06 113.08 108.16 124.87 43.14%<br />
PBT 2.3 17.16 41.01 84.39 98.67 85.61 91.09 69.14%<br />
PAT 2.17 9.79 27.92 54.89 67.2 54.97 66.95 63.21%<br />
Source: CMIE<br />
Years ROCE % ROE % Dividend Yield % Dividend Rate %<br />
2003‐2004 1.05 1.55 0 10<br />
2004‐2005 10.81 16.47 0.34 25<br />
2005‐2006 19.14 31.49 0.25 50<br />
2006‐2007 24.17 35.89 0.2 75<br />
2007‐2008 21.32 30.64 1.12 75<br />
2008‐2009 13.38 22.24 3.32 75<br />
2009‐2010 13.64 21.78 1.65 75<br />
Areas of <strong>Co</strong>ncerns:<br />
‣ Raw material price: <strong>Co</strong>mpanies majority contracts do not have any price<br />
variation clause so any increase in the raw material prices would hamper<br />
company’s margin.<br />
‣ Delay in execution of projects: Delay in execution of the projects on account<br />
any resource constraints or otherwise might impact the revenue of the<br />
company.<br />
<strong>Co</strong>mpany Profile:<br />
<strong>Elecon</strong> <strong>Engineering</strong> <strong>Co</strong>. <strong>Ltd</strong>. (EEL) was incorporated on 11 January 1960 in<br />
Goregaon, Mumbai. In 1966, the company shifted its registered office from<br />
Goregaon, Mumbai to Vallabh Vidaynagar, Gujarat. <strong>Elecon</strong> <strong>Engineering</strong> was<br />
promoted by Late Bhanubhai I. Patel his son - Prayasvin B. Patel, is the Chairman<br />
and the managing director of the company. The company manufactures<br />
engineering products for core industry sectors like steel, fertilizer, cement, mining,<br />
power, ports and defense. The company has three main business portfolios, namely,<br />
bulk material handling plant (contributes 60.59% to sales), industrial gears<br />
(contributes 39.41% to sales) and windmills. It designs and manufactures all type of<br />
bulk material handling equipments like belt conveyors, pusher cars, idlers and<br />
pulleys, ship loaders and unloaders, feeders. It also manufactures transmission<br />
gears like worm gears, parallel shaft and right angle shaft, helical and spiral bevel<br />
helical gears, fluid, geared & flexible couplings and planetary gear boxes. It set up<br />
an alternate energy division for manufacturing and supply of wind turbine<br />
generators in 1995. The company has a pan India presence and also has offices in<br />
the UAE, Singapore and South Africa.<br />
MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD<br />
CODE NO.23/13511/13
Telephones NAYAN M. VALA SECURITIES PVT. LTD.<br />
022-26105973/74/32549230/32448788 403-404, <strong>Co</strong>smos <strong>Co</strong>urt<br />
Fax.26124310/E-Mail: vala@bom3.vsnl.net.in<br />
Above Waman Hari Pethe Jewellers<br />
Website: www.nayanmvala.com<br />
S. V. Road, Vile-Parle (west)<br />
Mumbai-400056<br />
Last six quarters results:<br />
Source: CMIE<br />
` in crores Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10<br />
Total Income 293.56 214.48 256.93 259.24 341.19 247.19<br />
Net Sales 293.54 214.48 256.93 251.23 332.44 247.18<br />
Other Income 0.02 0 0 8.01 8.75 0.01<br />
Change in stock 33.8 7.77 -12.22 -21.03 -9.19 5.84<br />
Expenditure 310.38 213.75 233.94 218.38 304.93 239.71<br />
<strong>Co</strong>nsp raw mat. 229.63 150.19 167.9 150.28 225.41 175.04<br />
Personnel cost 9.89 8.93 11.87 13.07 9.66 11.96<br />
Other expenses 37.81 28.35 27.45 28.19 41.56 28.11<br />
PBDIT 50.03 34.78 37.49 46.67 55.37 37.92<br />
Interest 15.82 14.42 13.4 11.34 11.73 9.85<br />
PBDT 34.21 20.36 24.09 35.33 43.64 28.07<br />
Depreciation 6.99 7.49 7.8 8.29 9.53 8.92<br />
PBT 27.22 12.87 16.29 27.04 34.11 19.15<br />
Tax 10.24 4.37 5.52 7.21 7.04 5.83<br />
PAT 16.98 8.5 10.77 19.83 27.07 13.32<br />
From NAYAN M. VALA SECURITIES PVT.LTD.RESEARCH<br />
By Dharmesh N. <strong>Vala</strong> & Harsh B. Chauhan<br />
Disclaimer: The information contained herein is confidential and is intended solely for the addressee(s). Any<br />
unauthorized access; use, reproduction, disclosure or dissemination is prohibited. This information does not constitute<br />
or form part of and should not be construed as, any offer for sale or subscription of or any invitation to offer to buy or<br />
subscribe for any securities. The information and opinions on which this communication is based have been complied<br />
or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or<br />
implied, is made as to their accuracy, correctness and are subject to change without notice. NAYAN M. VALA<br />
SECURITIES PVT.LTD. and/ or its clients may have positions in or options on the securities mentioned in this report<br />
or any related investments, may effect transactions or may buy, sell or offer to buy or sell such securities or any related<br />
investments. Recipient/s should consider this report as only a single factor in making their investment decision. Neither<br />
NAYAN M. VALA SECURITIES PVT.LTD. or any of its affiliates shall assume any legal liability or responsibility<br />
for any incorrect, misleading or altered information contained herein.<br />
MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD<br />
CODE NO.23/13511/13
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