Analyst Meet / AGM     20-Mar-24
Conference Call
Elecon Engineering
Confident of Rs 2000 crore of revenue for FY24

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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