Elecon Engineering hosted a conference call on May 11, 2022. In the conference call the company was represented by   Prayasvin B. Patel, MD & CEO and Narasimhan Raghunathan, CFO.

Key highlights of concall

Gears order backlog as end of Mar 31, 2022 stood at Rs 410 crore with order inflow in Q4FY22 being Rs 212 crore.  Subsequently in April 2022, the gears business has bagged orders worth Rs 134 crore.

MHE business order backlog as end of Mar 31, 2022 stood at Rs 127 crore with order inflow during Q4FY22 being Rs 114 crore.  This order book will be executed over next 7-8 months.

Continue to focus on cost reduction, optimum utilisation of capacity and improvement of efficiency.

MHE Legacy Project completion status – Pending work of all three legacy projects out of which balance amount for one project already received. Documentation for balance two projects are under progress and expected to be cleared in FY23.

It has successfully completed one of the most complex & sophisticated defence gear box, as a part of “Made in India” initiative.

The MHE business of the company is exploring new growth avenues to augment capacity utilization.

Arbitration award worth Rs 63+ crores granted in company's favour, against which customers have pursued further appeal. Recently, the Company has received a favourable judgement by the Court for one of the appeal.

Overseas operations: All overseas entities have made profits despite the impact of Covid-19 pandemic. Witnessing positive momentum in the order intake and revenue in the US, Latin America and Canada operations. Improved market reach in USA, Canada and Latin America. Fully repaid debt and other facilities in overseas entity to the tune of Rs. 95 crores in FY22. The Company is taking efforts in expanding footprints like Latin America, Africa and other countries by pursuing global branding and other marketing and business development initiatives. Overseas entities reported an EBITDA of Rs 18.2 crore on a sales of Rs 86.8   crore.  Expect further improvement in profitability going forward.

Demand environment continue to improve.   Both Gears and MHE segments are expected to gain from robust demand from mining, steel, power and other infrastructure industries. Proposed increase in the outlay for capital expenditure by 35.4% from Rs 5.54 lakh crore in the current year to Rs 7.5 lakh crore in 2022-23 augurs well for the engineering industry. The PLI scheme by Government is going to boost the domestic manufacturing output and in turn provide tremendous growth opportunities to the Engineering industry. GOI has announced Rs 1.45 trillion worth of Production Linked Incentive (PLI) scheme in manufacturing industry with an aim to make it globally competitive and that also to boost demand for engineering industry.

The company has set a standalone revenue target of Rs 1500 crore by FY24.

The company has formulated strategies to improve exports contribution with a target to reach 50% of the overall revenue by FY30. Currently exports account for about 10-12% and the company target to take it to about 15-17% by FY23 end.  See more export enquiries coming and thus the potential. The company is accumulating good reference in USA that will increase exports to USA going forward and similarly the customer in Latam for whom the company is extremely satisfied with the gears of the company.   

Considering the long lead time for key machineries, the company has initiated Capex plan of Rs 100 Crores over a period of two years. This capex will be fully funded through internal accruals.

The company continues to strengthen the balance sheet by way of reducing debt and other liabilities and is working towards becoming a net debt free company by 2023. Interest cost for FY23 will be substantially reduced and is expected to be about Rs 12 crore.  With exports on rise there will be increase in working capital going forward even though term debts are retired.

New orders bagged by MHE are of products and with good margin and good payment terms.  So apart from revenue growth the profitability of MHE will improve going forward. The company expect the EBITDA margin of MHE business will be about 15-20%.

Expect 30% plus growth in gears business for FY23 with further improvement in margin.  Current order book is with healthy margin and will be executed in next 5 months.  Increased utilisation of assets will also boost margin going forward.

No further cost overrun is expected at legacy MHE projects as execution is completed. The company has to complete the process of exit from the project which is underway and once that is done the pending retention money of Rs 100 crore will be received from customers.

Gear division capacity utilisation is currently at about 65%.

Expect to receive retention money on MHE legacy projects by Sep 2022 or by end of current fiscal.