Elecon
Engineering Company hosted a conference call on Jan 29, 2024. In the conference
call the company was represented by Prayasvin B. Patel, CMD; Aayush Shah, Non
Executive Director; MM Nanda, Head Gear
Division; PK Bhasin, Head MHE Division; Kamlesh Shah, Group CFO and Narashimhan Raghunathan, CFO.
Key takeaways of the
call
Consolidated orders book on hand as
end of Dec 31, 2023 stood at Rs 791 crore [gears at Rs 572 crore; MHE at Rs 219
crore].
Order intake for 9 month ended
Dec 2023 stood at Rs 1438 crore [gears at Rs 1189 crore (up 16%YoY); MHE stood
at Rs 249 crore (up 41%YoY)].
Gears – Aability to evolve with the
changing industry needs, steering towards tailor-made solutions, has enabled it
to expand wallet share among existing customers, while successfully on boarding
new clients across geographies.
Gears - The company continues to
maintain a leadership position in the domestic market. Domestic operations have
demonstrated robust demand across diverse sectors such as steel, cement, power
and sugar with a promising outlook for the future. The company continues with
its strategic approach of actively seeking opportunities in niche industries.
MHE – The company continues to focus on
the business of supplying Products & aftermarket business for its MHE
segment which has led to sharp turnaround in the profitability for this
segment. The company is consistently securing new orders for product supply
across diverse sectors. It is capitalizing on growing opportunities in the
aftermarket business. Notably the MHE division recently won an Rs 134.2 crore
order from single customer from steel sector and an Rs 39.2 crore orders from a
cement customer for supply of equipment aggregating to about Rs 173 crore.
Overseas OEM Business - Signed
four more overseas OEM contracts, bringing total overseas OEM Contracts to 10
in the overseas market. To start with these 10 OEM contracts together are to
result in annual incremental revenue of Euro 6 million and over a period of
time it will keep on increasing. Commercial
production is expected to start from Q3FY25. Further on overseas business,
apart from OEM contracts, the company sees significant growth from replacement
business done through its marketing team, as companies in overseas market are
investing in updating the older machinery rather than investing in newer one. Packaging, steel and plastics are from where new OEMs are added.
Confident of reaching the revenue
of Rs 2000 crore and EBITDA margin of 24% plus for FY24 as guided earlier
despite challenges due to current geopolitical scenario as well as softening of
the steel-based raw material prices.
Considering the current
geopolitical scenario, General election in India, intensifying ongoing West
Asia unrest impacting supply chain and customer sentiment the company shall
provide FY2025 revenue and EBITDA margin guidance in Q4FY24 earnings call.
MHE margins are almost reaching
close to the gears division. The company is confident of maintaining/sustaining
current MHE margins over a period of time, because the company is now picking
and choosing the orders as well as customers.
Capex incurred in 9mFY24 was Rs
26.0 crore out of the Rs 70.0 crore planned for FY24. The capex planned for the
period of 3 years is Rs 300 crore in 3 phases.
Out of the total arbitration
award amount of Rs 63.0 crore, the company as of December 2023 have
successfully realized Rs 37.2 crore and negotiations for the remaining amount
are currently in progress. Fresh arbitration proceedings initiated having the
value of Rs. 31.0 crore during Q1FY24, optimistic of favorable outcomes. But
outcome of new arbitration proceedings may take 1-2 years.
Red Sea crisis – Shipped products
reaching customer takes 2 more weeks than normal due to red seas issues for
both Europe and USA clients. Though clients complains, not resulted in any reduction of orders or cancellation of orders.
The customers are paying the extra freight cost as price of gears is not inclusive of freight cost.
Normally there will be surge in
ordering by the year end. So the company is hopeful that the order book figures will improve in the
last quarter.
Revenue mix – In case of gears about 45% from
catalogue products and balance from customized products. In case of MHE of the
9mFY24 revenue about 39% is from after-market.
Slowly and gradually over a
period of time, it has been able to increase the turnover of both gears and
material handling with high profitability. Going forward, the export focus
(tie-up with OEMs in Europe/USA and tapping greater replacement demand) along
with traction in domestic business is to drive growth.
Capacity utilization is approximately 76%.
Currently the company does in-house manufacturing to the extent of 80-90% and
if it subcontracts more it can increase the capacity to a very, very large
extent.
The company is on track of
achieving overseas/export revenue of Rs 500 crore for FY24.
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