Akashdeep Portfolio : Learning along the way

Elecon Engineering Q1FY24

Summary of the concall:

Growth and Future Guidance:

• Elecon Engineering reported strong growth in revenue from operations, adjusted EBITDA, and profit after tax compared to the same period last year.
• The company aims to achieve consolidated revenue of INR 2,000 crores with an EBITDA margin of 22% by FY24.
• The Gear Division targets consolidated revenue of INR 1,700 crores, and the Material Handling Equipment (MHE) division aims for consolidated revenue of INR 300 crores in FY24.
• The company plans to increase marketing and sales activity for its overseas business and set up a wholly-owned subsidiary in South Africa.
• Elecon Engineering has signed agreements with five OEMs in the European market, with an estimated annual business volume of approximately Euro 5 million.
• The company has a net cash surplus of INR 250 crores and plans to utilize it for future opportunities.
• Optimistic about growth potential in sectors such as defense, marine, railways, wind energy, and exports.
• The company aims to enhance operational efficiency, improve margins, and continue its focus on R&D and product development.

Headwinds and Tailwinds:

• Replacement demand for the Material Handling and Gear business varies from year to year but has been healthy in the first quarter.
• The open order book for Gearboxes and MHE division was 793 as of June 30, 2023, with 655 from Gear and 138 from MHE.
• The recent four new orders include a combination of engineered and catalog products.

Overall, Elecon Engineering is optimistic about its growth prospects, focusing on expanding its overseas business, improving operational efficiency, and exploring opportunities in various sectors.
Key Highlights:

1.	New OEMs: Elecon Engineering has successfully won contracts with five new OEMs in Europe, showcasing the company’s ability to secure significant business in a short time frame.
2.	Total Outstanding OEMs: The management did not provide a specific number for the total outstanding OEMs they currently work with. However, they mentioned that the OEMs are spread across regions like the Far East, Singapore zone, Africa (especially South Africa), Europe, South America, and the United States.
3.	Market Potential: The company is optimistic about the potential from the new OEMs in Europe, but exact figures are yet to be ascertained. The management is carefully evaluating the situation considering the economic recession in Europe and the ongoing Ukraine-Russia conflict.
4.	Supply Chain Strategy: Elecon Engineering intends to supply products to the new OEMs both from India and through its subsidiary Benzler Radicon group. The manufacturing location and supply mode will depend on individual client requirements.
5.	Opportunities in Africa: South Africa serves as a strategic hub for the entire African market, especially in the mining and mineral industries. Elecon Engineering aims to penetrate this market, which relies on gearboxes primarily sourced from Europe and the United States. Additionally, there is potential for replacement business and new requirements in South African mines.