Elecon Engineering Leverage risk persists; Retain Hold ::Emkay

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Elecon Engineering

Leverage risk persists; Retain Hold

HOLD

CMP: Rs69                                        Target Price: Rs61

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n     Meets expectations – (1) Revenue up 20% yoy to Rs3.4 bn led by TE div. (+22%); MHE div. (+19%) (2) EBITDA mgn up 50 bps, TE EBIT mgn fall 70 bps (3) APAT up 10% to Rs156 mn

n     Order inflows at Rs2.6 bn (down 47% qoq) – YTD secured 52% of FY12E target. Order book healthy at Rs14.4 bn

n     Debt remains high at 1.3X. EEL in high capex mode despite strained cash flow position – plans to spend Rs1-1.2 bn in FY12E (equal to past 2 years capex spends)

n     We maintain our earnings estimates with H2FY12E asking rate undemanding at 14% yoy, but risks to earnings remain. Retain HOLD rating with price target of Rs61 per share