Elantas Beck India Initiating Coverage Report By Angel Broking

Elantas Beck India Ltd.

Leader in liquid insulation

Elantas Beck India (Elantas) is the Indian market leader in liquid insulation segment used in electrical equipments like motors, transformers, generators etc. Part of global specialty chemicals leader ALTANA Group, the company practically has no visible peer in Rs 600 cr+ market in India. Elantas enjoys market leadership in both primary and secondary insulation market with over 35% market share.

Liquid insulation forms small but critical part of the equipment:

Liquid insulation forms a small part of the total equipment cost (<1-2%); however, it performs a critical function. This helps the company in commanding tangible pricing power which helped in improving margins. It has almost doubled its margin to 21% over CY12-16, taking advantage of falling crude prices and premium pricing. This has helped in registering 6% CAGR in revenue and 17% CAGR in PAT over the same period. Demand from user industries likely to be robust:

It derives demand from several industries including electronic equipment’s, power segment and automotive component Industries which are expected to register 10%+ CAGR in demand in the coming years. Elantas with strong R&D support from its global parents and diversified product offerings is likely to benefit from such buoyant demand.

Deleveraged company generates healthy free cash flow:

It is a debt free company which generates robust free cash flows. Its robust business model also helps in limiting its working capital cycle ~65-70 days and its capex requirements. This has led to liquid investments crossing `128cr in H1FY18. The company shares this wealth in every 2-3 years with investors in the form of rich dividends. We expect the company to soon announce a lumpy dividend.

Outlook & Valuation:

Elantas is likely to post subdued CY17 mainly marred by GST woes and poor off take from customer side. The demand to pick up from CY18 onwards which will boost the earnings CAGR to 17% over CY18-20. Current valuations at 22.4x CY19 EPS, looks attractive considering its growth potential and high return ratios. We initiate coverage on Elantas with a Buy recommendation and Target Price of Rs2500 (26x CY19E EPS), indicating an upside of ~16% from the current levels.