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Elecon is a manufacturer of industrial gears (~90% mix) & material handling equipment (MHE) (~10% mix). It is a play on industrial capex across various sectors, especially in cement, steel, power, sugar and other sectors.

Elecon is the leader in industrial gears with a market share of 35% in India. Strong industrial capex is likely to drive higher utilisation in the industrial gear segment. We envisage particularly solid demand from the steel and cement sectors (around 30% of Elecon’s sales) based on announcements made by major players.

After a decade of juggling issues related to liquidity and legacy EPC projects, the MHE segment is finally turning around after the company revised its strategy. Unlike before, it no longer participates in EPC projects for MHE. All new orders are either product-based or aligned towards after-market sales.

Elecon offers strong growth visibility with improving balance sheet. We expect a CAGR of 18% in both revenue & profits, over FY23–25E, driven by robust demand environment. This will be accompanied by ROCE improvement from 17% in FY22 to 29% by FY25E. We assign a TP of Rs. 520/share, valuing the company at 18x FY25E (at 1x PE/G ratio as well as in line with the avg. of other midcap Cap Goods cos.).

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