Elecon Engineering Reducing visibility, Retain Hold :Emkay

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n Meets expectations – (1) Revenue up 26% yoy to Rs4.4 bn (2)
EBITDA margin down 360 bps 14.5% (4) EBITDA up 16% yoy
(3) Adjusting for higher tax rate, APAT meets estimates
n MHE division surprised positively with 41% yoy revenue
growth to Rs2.9 bn, EBIT margins at 13.3%. TE division
revenue at Rs1.5 bn (-1%), EBIT mgn at 15.8% - below est.
n Order book increased to Rs15.2 bn (May’12) (1.2X revenues)
on back of Rs5.5 bn orders secured in Apr-May’12 period. Cut
FY13E earnings by 13%
n Retain negative bias amidst risks to earnings estimates –
both macro and micro level. Maintain HOLD rating with price
target of Rs61 per share
Meets estimates – EBITDA margins at 14.5%, PBT up 18% yoy
After 4 quarters of subdued revenue growth, Elecon saw posted strong revenue growth
at 26% yoy to Rs4.4 bn, above estimates – led by robust execution in MHE business
(+45% yoy). But, 130 bps yoy drop in EBITDA margins to 14.5% offset strong revenue
growth. Drop in EBITDA margins was due to un-favourable revenue mix and sharp rise
in input costs (up 360 bps yoy from 65.3% in Q4FY11 to 68.9% in Q4FY12).
Consequently, EBITDA growth was lower at 16% yoy to Rs639 mn – in line with
estimates. However, APAT growth was lower at 1% yoy – due to higher tax incidence
(39% Vs 29% in Q4FY11). Adjusting for the higher tax charge, APAT was in line with
estimates.
MHE surprises positively, TE division meets expectations
§ After 10 quarters of muted performance, Material Handling Equipment (MHE)
division surprised positively with strong 41% growth in revenues to Rs2.9 bn –
above estimates. Strong growth in revenues was due to key project reaching
revenue booking threshold and low base effect. Led by strong revenues, decline in
EBIT margins was lower at 60 bps yoy to 13.3% - ahead estimates.
§ Led by slowdown in demand momentum, Transmission Equipment (TE) division
revenues declined marginally by 1% yoy to Rs1.5 bn – below estimates. EBIT
margin declined 30 bps yoy to 15.8% - in line with estimates.
Secures orders worth Rs5.5 bn in Apr-May’12 period
After continuously declining for past 3 quarters, Elecon’s order book increased to Rs15.2
bn (May’12) with order book cover at 1.2X revenues . This was on the back of strong
orders worth Rs5.5 bn secured in Apr-May’12 period and after low order inflows in Jul-
Dec’12 period – thus reducing risks to earnings estimates from reducing order book
cover. Major orders secured include (1) NTPC Mauda STPP – Rs2.7 bn (2) NMDC
Kumarswamy Iron ore project – Rs1.8 bn.