Introduction
Current market price on the date of publishing this report: 1036
Established in 1951, Elecon Engineering Company Ltd. has consistently led the industry as pioneers in the manufacturing of a wide array of industrial equipment. Over the years, they have carved a niche for themselves in the production of Industrial Geared Motors and Reducers, Material Handling Equipment, Mining equipment, and casting processes, among others. Elecon proudly stands as one of the largest manufacturers of industrial gears in Asia, and their Material Handling Equipment division is equally renowned.
Elecon Engineering, established after India’s independence in 1951, began as a small firm in Bombay, manufacturing conveying equipment. It transformed into a private limited company in 1960, then moved to Vallabh Vidaynagar in Gujarat, becoming a public limited company. The company excelled in producing various gears and related products, contributing significantly to India’s industrial growth. Elecon expanded its product range over the years, including high-precision and specialized equipment. Significant milestones include setting up a Gear Division in 1976, receiving ISO certification in 1994, and venturing into alternate energy with wind turbine generators in 1995. The company also made its first international acquisition in 2010 and continues to grow globally.
Elecon’s reputation for excellence is rooted in their expertise in crafting custom gearboxes tailored to the unique requirements of steel mills, high-speed turbines, naval aircraft carriers, and various growth sector industries. A significant milestone in their journey came in 2010 when they acquired the Benzlers-Radicon Group from David Brown Gear Systems, further bolstering their capabilities.
As a unit of Elecon Engineering Company Ltd., they also hold the distinction of being the third-largest Material Handling solutions company in the country. What sets them apart is their commitment to a vertically integrated model, encompassing in-house design, manufacturing, fabrication, component production, and a robust support system.
Elecon Engineering Company Ltd. made history as the first Indian company to manufacture sophisticated equipment for bulk Material Handling. Their diverse product range caters to nearly every industrial sector within India. Their comprehensive solutions span the entire spectrum, from initial design through manufacturing, supply, erection, and commissioning of their products.
Elecon’s Gear Division is renowned for its modernity, using computer-controlled machinery and testing equipment for precision gear manufacturing. They deploy rare 3 Axis Co-ordinate Measuring Machines, have a significant CNC machine presence, advanced gear testing tools, and sophisticated quality control. Their new manufacturing plant, BMCE, aims to double capacity and uphold quality. Continuous technological advancement, particularly CAD/CAM, is a priority at Elecon.
Elecon’s legacy in the industry is a testament to their unwavering commitment to quality, innovation, and their pivotal role in shaping India’s industrial landscape. Company’s market share in India is 39% as of now in the organized sector.
Business Products
Power Transmission
Elecon engineering is Ind.ia’s largest industrial gearbox manufacturer & power transmission solution provider
Elecon produces a wide range of gears, including worm, parallel shaft, helical, and spiral bevel helical gears in various sizes. Their helical gearboxes are compact, lightweight, and efficient, serving various industries like power stations, mines, cement, steel, and more.
Its product range that includes:
1. SNU Worm Gears
2. Helical Gears
3. Fluid, Geared & Flexible Couplings
4. Planetary Bucket Wheel Gearboxes
5. Specialized Gears tailored for specific applications in industries such as tube mills, steel plants, windmills, sponge iron kilns, marine propulsion, and more.
Elecon has introduced the EON/EOS series of industrial gearboxes, featuring enhancements like increased torque ratings, improved thermal characteristics, versatile mounting options, and the capability to produce larger spiral bevel gears through skiving technology. Furthermore, they offer synthetic long-life lubrication in their Super NU Series, enhancing power transmission capacity in select sizes.
Material Handling Equipment
Elecon stands as a leading material handling equipment manufacturer and solutions provider with an unmatched product range and field expertise. They pioneered Mechanized Bulk Material Handling Equipment in India and have since become the largest company offering a comprehensive selection of such equipment across various industries, including steel, power, marine, chemical, cement, and coal.
Their extensive product portfolio includes Belt Conveyors, Idlers, Pulleys, Elevators, Chain Conveyors, Stackers, Reclaimers, Wagon Tipplers, and a variety of other equipment for material handling. Whether it’s open-cast mines, surface mining, or specialized conveying systems, Elecon provides tailored solutions, including Drive heads, Salt Scrapers, Apron Feeders, and more. They also offer a range of crushers, impactors, wind turbine generators, and other equipment to cater to diverse industrial needs.
Foundry Divison
Elecon’s Foundry Division (EFD), an ISO 9001-2008 certified unit, offers casting and machining services for Elecon Engineering and external companies. With seven decades of experience, EFD excels in Ferrous and Non-Ferrous castings. Their facilities include induction and gas-fired furnaces, continuous mixers, and advanced testing capabilities. They hold ISO 9001:2008 certification, IRS approval for marine applications, PED certification, and NABL accreditation in the Gear Division.
It clients include:
Quality Certifications:
- ISO 9001:2008 by TUV Rheinland
- Indian Registrar of Shipping (IRS) approved Foundry for Marine Applications
- PED Certification for Pressure Parts
- NABL Accredited Laboratory in Gear Division
Industries it serves
Clients
Capex
The company is currently operating at a capacity utilization rate of 75%, and the management is at ease with the potential to reach 85-90%. They intend to reserve some capacity for research and development purposes. Furthermore, the management does not foresee an immediate need for capital expenditure since they have reliable contract manufacturers to rely on in case of full capacity utilization.
Order Book
As of March 31, 2023, the company possesses unexecuted orders totaling Rs. 63,443 Lakhs, with Rs. 48,913 Lakhs attributed to the Gear Division and Rs. 14,530 Lakhs to the MHE Division
Financials
For the year ended March 23
– In March 2023, Net Sales reached an impressive Rs. 1,530 crore, showing substantial growth of 26% compared to March 2022 when it was Rs. 1,212 crore.
– March 2023’s Net Profit amounted to Rs. 237 crore, marking a significant increase of 70% compared to March 2022 when it stood at Rs. 140 crore.
– EBITDA for March 2023 reached Rs. 341 crore, indicating substantial growth of 35% from March 2022 when it was Rs. 252 crore.
– Elecon Eng’s EPS (Earnings Per Share) increased to Rs. 21 in March 2023, up from Rs. 12 in March 2022.
– As of March 2023, the company held cash and equivalents totaling 210 crores.
– The company’s Return on Capital Employed (RoCE) improved from 17% to 25% as of March 2023.
– The company achieved a debt-free status.
– Over a three-year period, sales growth stood at 12%, while compounded profit growth was an impressive 38% over the same period.
For Q2FY24
- Q2 FY24 saw consolidated revenue from operations reaching Rs. 485 crores, marking a solid 25% YoY growth.
- The domestic market accounted for a substantial 80% of the revenue, with the remaining 20% coming from international markets.
- EBITDA for Q2 FY24 stood at Rs. 119 crores, demonstrating a strong 28% growth compared to the same quarter in the previous year.
- The EBITDA margin for the quarter reached 24.5%, primarily attributed to an improved product mix and enhanced supply chain management.
- The PAT margin for Q2 FY24 showed significant improvement, reaching 18.3%, compared to 16.6% in Q2 FY23, reflecting a notable increase of 170 basis points.
Gear Segment
– The Gear division contributed 87% of the revenue, with the MHE division contributing 13% during both Q2 and H1 FY24.
– In the Gear segment, consolidated revenue from operations reached Rs. 423 crores in Q2 FY24, marking a substantial 27% growth compared to Rs. 333 crores in the previous year.
– Q2 FY24 EBIT stood at Rs. 110 crores, reflecting robust growth of 38% YoY.
– The EBIT margin for Q2 FY24 reached 26%, compared to 23.9%, demonstrating an impressive improvement of 210 basis points.
For H1 FY24
– During the half-year ending in September 2023, consolidated revenue from operations reached Rs. 899 crores, reflecting a substantial 26% year-on-year growth.
– EBITDA for the same period stood at Rs. 219 crores, marking an impressive 39% growth compared to H1 FY23.
– The EBITDA margin for the period stood at 24.3%.
– The half-yearly PAT (Profit After Tax) amounted to Rs. 162 crores, indicating a remarkable 51% year-on-year growth.
Gear Segment
– For the six months ending in September 2023, revenue amounted to Rs. 784 crores, indicating a significant 27% YoY increase.
– H1 FY24 EBIT was Rs. 199 crores, a notable growth of 47% YoY. The EBIT margin for the six months ending in September 2023 was 25.4%, marking a substantial growth of approximately 350 basis points.
– The order intake for H1 FY24 amounted to Rs. 821 crores, a 10% YoY increase, with orders in hand totaling Rs. 615 crores as of September 30, 2023, highlighting strong demand across sectors.
Management’s comments
- Elecon’s focus on global relationships has led to signing agreements with 6 OEM businesses overseas, valued at Euro 5.5 million.
- The company is dedicated to building its global brand and aims to become a preferred supplier known for its extensive product range and technical competitiveness.
- Elecon maintains a strong focus on research and development, aiming to expand its product range. In the last quarter, the company introduced two new products: the RTC gearbox for the rubber industry and Screw Jack Gearbox for the steel industry.
- Elecon has successfully upgraded the Crane gearbox.
- Management is confident about achieving the FY24 revenue target of Rs. 2,000 crores and expects that margins and profitability will outperform the guided margins. They anticipate sustained margin improvements in the future, acknowledging that shifts in the revenue mix may contribute to margin enhancements or maintain them at their current level.
- Company is working on the new product, Once the prototype is finalized, a formal order with the specified volume is expected to be placed, as previously indicated, likely to occur in FY25.
- Elecon is supplying the prototypes to 6 Oem’s and anticipates the first orders for a particular scale-up to start flowing in by FY24.
- Management is is experiencing positive momentum in the cement and power sectors, in addition to the steel sector, which is expected to continue. The sugar industry’s cycle for the current calendar year has ended, but traction is anticipated to pick up again at the start of the next year. The sugar industry holds significant potential, particularly in the manufacturing of ethanol as a fuel.
Exports
- The management is dedicated to enhancing exports, with a belief that this strategy will yield significant results in the future.
- Although it may currently take some time to gain traction, the management expects substantial enhancements in exports within the next 12 to 24 months.
- Currently, 23% of the company’s revenue comes from export and overseas businesses.
- The management is actively working towards its target of achieving 50% of revenue from overseas and export business by FY30 and expresses confidence in achieving this goal.
Sectorial Outlook
The Indian Engineering sector has experienced growth driven by increased government spending in core areas like power, railways, and infrastructure, as well as private sector investments in cement and steel. Despite challenges including higher commodity and fuel costs due to global disruptions and COVID-19-induced lockdowns in China, the sector remained resilient with support from government policies like PLI and increased infrastructure development. The Engineering sector benefits from cost-effective manufacturing, technology, and innovation, with a shift in industrial exports towards India. Demand is expected to remain robust due to government emphasis on infrastructure development. While the sector invests in technology and automation for efficiency and competitiveness, rising interest rates and inflation pose potential headwinds.
The global industrial gearbox market is driven by government investments in power generation, construction activities, and automation. Renewable energy investments, industry 4.0, IoT, and AI contribute to market growth. Increasing use of automated gearboxes in various industries such as food processing, agriculture, automotive, and machinery further boosts the global industrial gearbox market.
- Elecon’s CAPEX cycle remains strong due to robust demand in sectors like power, steel, cement, and sugar.
- The company capitalizes on disruptions in international supply chains, positioning itself as a reliable supplier during crises.
Conclusion
Elecon Engineering, a venerable 74-year-old company, a completely debt-free and cash-rich comapny with a substantial cash reserve exceeding 200 crores. Under the guidance of its forward-thinking management, Elecon Engineering has set an audacious revenue target of 2000 crores for FY24, fueled by its existing robust margins, which promises significant growth in both top-line and profitability. This makes the company worth exploring.