Elecon Engineering

Message

   Elecon Engineering Company established in Bombay in 1951, shifted its manufacturing base to Vallabh Vidyanagar near Anand, Gujarat, in 1962. It manufactures all kinds of mechanical handling equipment such as bucket elevators, belt conveyors, gravity roller conveyors, bag filling machines, bag stacking machines, overhead chair conveyors, etc.

In 1984, the company received government approval for its diversification into the manufacture of 1000 hydraulic fluid couplings pa within its licensed capacity of helical gears. The wholly-owned subsidiary, Elecon (Madras), was merged with it with effect from Jan.'87. 

In 1990-91, the company privately placed 5 lac 14% secured redeemable non-convertible debentures of Rs 100 each, with the SBI Capital Markets and Canara Bank in equal proportions to meet its long-term working capital needs. These debentures are redeemable at a premium of 5% in three equal annual instalments between 19 Sep.'96 and 19 Sep.'98.

The company has diversified into alternate energy systems and has planned a Rs 26-cr wind farm with 17 wind mills. It has a technical collaboration with HMZ, Belgium, to manufacture Wind Master wind generators. In 1994-95, Elecon obtained the ISO 9001 certification for its gear division. It has exeucted orders worth Rs 130 crores for Neyveli Lignite Corporation Ltd. for manufacture, erection and commissioning of 2400 MM drive heads and conveyors for its Mine-II. 

During 1997-98, the company have floated a new company to manufacture geared motors and gear reducers with a wide range, in technical collaboration with a japanese company of international repute. The company has also formed a joint venture company which will initially undertake manufacturing of industrial freewheels overrunning clutches, sprag assembiles, clutches and related parts and components used in power transmission and work holding technology. 

During 1998-99, the company has launched POSIRED 2 Helical/Bevel Gears for which the company has entered into a technical collaboration with P I V Antrieb Werner Reimers GmbH & Co KG, Germany. The Company has simultaneously launched Super NU Universal Mounting Worm Gears which is newly designed and developed series.

To market its products in Australia the company has set up wholly owned subsidiary company namely Elecon Australia Pte Ltd. It is also in the process of setting up a subsidiary in South Africa. 

Elecon has eveolved from a traditional 2 product manufacturing company to a full fledged Material Handling Equipment and Transmission Equipment provider. It has 2 divisions:

1. Material Handling Equipment (MHE)
It caters to the core industries i.e. power and steel. It supplies the whole range of products ie. wagon tipplers, crushers, scrapers, cable reeling drum, stackers, reclaimers, feeders, conveyors, etc. It is executing the most number of Coal Handling Plants (CHPs) in the country. It is a preferred bidder in this space.

2. Transmission gears
The company manufactures the whole range of reduction gears, specially helical, worm, planetary, marine, bevel gears,etc. It boasts a dominant position in the respective category and is the market leader with a market share of 26%. Its has one of the most sophisticated and state-of-the-art manufacturing facilities.

Financials:
                                      FY05      FY06      FY07     FY08
Net Sales (Rs cr)            272       442       723      826
EBITDA margin (%)        11.7        13.5      15.5     15.8
PAT Margin (%)              3.7          7.1        7.9       8.1
EPS (Rs)                         1.2          3.7        6.2       7.2
RoE (%)                         16           37         40        32
RoCE (%)                       17          24          26        22
Equity (Rs cr)                 5.6         5.7        6.2        18.6
Debt (Rs cr)                   96          206       284       410
Market Cap (Rs cr)                                                  1,020 

Positives:
1. High input costs have led to a slow down in all infrastructural sectors except power.
2. Company is relatively diversified with an optimum product-projects mix.
3. Company is venturing to enter new growth areas like supply of windmills and windmill gearboxes.
4. Market leader in transmission gears segment.

Risks:
1. High working capital requirement leaves no free cash flows from operations.
2. Low entry barriers in the segment in which it operates.
3. Low pricing power on projects as it is based on competitive bidding.

Memebrs, i feel it is a great stock to invest in at curent levels. Kindly share your views.