Subsidiary of Elecon engineering which is a 2 billion dollar mcap. It’s listed separately becase of a JV with a Swedish company in 1974. Only Indian company to make underground mining equipment, Coal India is it’s major customer in India. It’s a monopoly business in India.
Monopoly business in India: Eimco has a near monopoly in the underground coal mining intermediate technology equipment industry in India
Growth triggers: CIL(Coal India Limited) aims to increase production of UG(Underground) coal from ~35 million tonne (MT) in fiscal 2023 to 100 MT in fiscal 2028 and 120 MT in fiscal 2030. That’s a nearly 4x in 6 years which should help Eimco as they are the sole suppliers of some of the machines. CIL’s Capex to quadruple in 6 years and the phasing out of import is also 6 years.
A mid-to-high double-digit trend in growth could continue as the UG coal mining industry shifts towards newer, technologically advanced products such as continuous miner packages. Operating margin also improved to 16.3% from 14.5% in fiscal 2023 due to improved operating leverage and better product mix.
The company has been able to reduce its dependence on the UG coal mining segment (wherein output has faced a downturn in the past) to less than 80% in fiscal 2024 from over 90% in the years leading up to 2022.
R&D: Continuous improvement in the effectiveness of equipment; while catering to diverse applications further aids established market position. Continuous miner was a result of in-house R&D, this was not available in India and is contributing to order book.
Improving margins: Strong in-house research and development team enables continuous improvement in the effectiveness of equipment; while catering to diverse applications further aids established market position.
Positive industry change:
-
CIL will start tapping into abandoned underground mines. Coal India awarded 23 abandoned underground coal mines to private operators: coal india awarded 23 abandoned underground coal mines to private operators | ICICIdirect
-
Start phasing out of mining equipment in India by next 6 years.
Expected increase in orders from Coal India Ltd following its efforts to enhance output from the underground (UG) mines and focus on reducing import of coal mining machineries. Not limited to just coal but also minerals and metal mining.
Product mix change: Reducing dependence on UG equipment, down to 60 percent from 80. Getting into infra equipment as well – need to check the overlap with existing manufacturers(ex: ACE).
Regulatory reforms – Coal production and emphasis is increasing and is supported by the govt:
-
India approves $1bn budget to support coal gasification: India approves $1bn budget to support coal gasification | Latest Market News
-
Coal reforms 3.0: Coal Reforms 30 Centre aims zero imports more coal for nonpower | News – Business Standard
-
Phasing out of all coal reforms by 2025: India aims to phase out coal imports by 2025, focuses on energy security, ET EnergyWorld
One could expect incentives for coal in the budget in July! Incentivizing the industry, and there is only one player.
Ministry report titled “Special focus on domestic production of mining equipment”
“Currently, Coal India Limited (CIL) imports high-capacity equipment, such as Electric Rope Shovels, Hydraulic Shovels, Dumpers, Crawler Dozers, Drills, Motor Graders, and Front-End Loaders Wheel Dozer, valued at Rs 3500 Crores, incurring additional expenses of Rs 1000 Crores in customs duty. To curb these imports and boost domestic manufacturing, CIL has devised a strategic plan to phase out imports gradually over the next six years.” Even if 10 percent of the capex(minus the customs) comes to Eimco, it will double it’s topline(need to check it’s requirements and Eimco’s product match for a more precise number)
Financials – Not much debt. Decent reserves and almost 180Cr of liquidatable investments. Low float stock, can trade from circuit to circuit, not for the faint hearted. Based on the vaahan website data, the June quarter can be a good one. FY2024 revenue is the highest, increase in sales, margin as demand is increasing. PAT trend is also positive.
Risks: As a B2G business it has stretched creditor days, debtor days, inventory days. Client concentration risk.
| Subscribe To Our Free Newsletter |
