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Elecon Engineering (EECL) registered 3.4% YoY growth in
revenue to Rs2.5bn (PINCe - Rs2.7bn) which was below our
expectations. OPM improved by 267bps YoY to 17.7% due to
decline in RM cost as a % of sales. Adjusted profit grew by
12% to Rs149mn (PINCe - Rs153mn) which was inline with
our estimates. Order inflows witnessed de-growth of 20% in
Q1FY12 (YoY Basis).
Transmission Equipments (TRE) continues to perform well
Revenues in the MHE division declined by 5% to Rs1.4bn but
margins improved by 80bps. TRE witnessed a healthy growth of
20% to Rs1.2bn and margins remained stagnant at 15.2%. We
believe better product mix and efficient cost management have
resulted in decline in RM cost as % of sales by 600bps to 62.7%.
Consequently, margins improved by 267bps to 17.7% at operating
level. Higher interest cost (up by 35%) impacted the bottom line
adversely and net profit registered a growth of 12% to Rs149mn.
Healthy Order Book but inflows on a lower side
Order inflows were down by 20% YoY (up by 8% QoQ) to Rs4.8bn
(Rs3.3bn from MHE division and Rs1.5bn from TRE division). Order
inflow in the first 4 months stood at Rs5.2bn. Management indicated
live enquiries worth Rs40bn. The current order book at end of Q1FY12
stands at Rs16bn (Rs12.3bn for MHE and Rs3.8bn for TRE division)
excluding the order from Brahmani Steel (worth Rs3.2bn). The order
book was up by 27% YoY and 16% QoQ.
VALUATIONS AND RECOMMENDATION
The current order book at Rs16bn provides good revenue visibility.
The improvement in margins reflects management’s focus on
sustainability of margins rather than growth. Company maintains
its sales guidance of 25% growth in FY12. We maintain our
estimates and expect sales CAGR of 21% (FY11-13E). At CMP
the stock is attractively valued at 7xFY13E given healthy order
book, increasing focus on project business, robust order pipeline
and sustainable margins. We roll forward our target valuation to
FY13 and maintain our ‘BUY’ recommendation with an increased
target price of Rs100 (9xFY13E).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Elecon Engineering (EECL) registered 3.4% YoY growth in
revenue to Rs2.5bn (PINCe - Rs2.7bn) which was below our
expectations. OPM improved by 267bps YoY to 17.7% due to
decline in RM cost as a % of sales. Adjusted profit grew by
12% to Rs149mn (PINCe - Rs153mn) which was inline with
our estimates. Order inflows witnessed de-growth of 20% in
Q1FY12 (YoY Basis).
Transmission Equipments (TRE) continues to perform well
Revenues in the MHE division declined by 5% to Rs1.4bn but
margins improved by 80bps. TRE witnessed a healthy growth of
20% to Rs1.2bn and margins remained stagnant at 15.2%. We
believe better product mix and efficient cost management have
resulted in decline in RM cost as % of sales by 600bps to 62.7%.
Consequently, margins improved by 267bps to 17.7% at operating
level. Higher interest cost (up by 35%) impacted the bottom line
adversely and net profit registered a growth of 12% to Rs149mn.
Healthy Order Book but inflows on a lower side
Order inflows were down by 20% YoY (up by 8% QoQ) to Rs4.8bn
(Rs3.3bn from MHE division and Rs1.5bn from TRE division). Order
inflow in the first 4 months stood at Rs5.2bn. Management indicated
live enquiries worth Rs40bn. The current order book at end of Q1FY12
stands at Rs16bn (Rs12.3bn for MHE and Rs3.8bn for TRE division)
excluding the order from Brahmani Steel (worth Rs3.2bn). The order
book was up by 27% YoY and 16% QoQ.
VALUATIONS AND RECOMMENDATION
The current order book at Rs16bn provides good revenue visibility.
The improvement in margins reflects management’s focus on
sustainability of margins rather than growth. Company maintains
its sales guidance of 25% growth in FY12. We maintain our
estimates and expect sales CAGR of 21% (FY11-13E). At CMP
the stock is attractively valued at 7xFY13E given healthy order
book, increasing focus on project business, robust order pipeline
and sustainable margins. We roll forward our target valuation to
FY13 and maintain our ‘BUY’ recommendation with an increased
target price of Rs100 (9xFY13E).
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