Buy Elecon Engineering Company Ltd For Target Rs.744 By Sushil Finance
Healthy Order Book Position & pipeline.
Elecon had an order book of Rs.1,110 cr – providing good visibility on the guided revenues (considering orders are executed in a 2-6 months time frame). Order intake momentum is strong: FY25 saw Rs.2,380 cr inflows (+19% YoY) and management commentary points to continued high enquiries. Core domestic sectors (steel, power, cement) are in expansion mode, and Elecon’s products are in demand to equip these new facilities. The steel sector in particular is reaccelerating and Power sector orders (including components) are expected to be a major driver in FY26. Additionally, Elecon is optimistic about aftermarket orders, which tend to be higher margin and recurring – this is a steady growth avenue as their installed base grows. On the international front, Russia has shifted its focus from Europe towards India and China, while Middle East is investing in infrastructure, which should result in opportunities for Elecon. The company expects 50% of the total revenue from the exports by FY30 from 23% in FY25, on account of continuous investment in product innovation and strategic partnership with the original equipment manufacturers (OEM).
Leadership in Gear Division and improving (Material Handling Equipment) MHE metrics to drive growth
Elecon is evolving with the changing industry needs, steering towards tailor-made solutions, which has enabled it to expand the wallet share among existing customers. The company aims to leverage its technological capacity by investing in design, digital integration and modern manufacturing practices. Smart condition monitoring is a system that uses sensors and data analysis to track the health and performance of the equipment, thereby preventing any unexpected downtime. This aids the customer in avoiding any issues in relation to the machine. Apart from this, in 2023, the company showcased an innovative ‘EON2’ industrial gearbox, that is highly efficient, durable and delivers superior performance, which is the best in the global market.
The current challenge in the European market is the availability of the manpower, particularly mechanical engineers. Also, the other challenges of high inflation and disruption in the supply chain impacted the OEM. Elecon is making the most out of it, and as of 1QFY26, it has entered into a strategic partnership with 18 OEMs and expects large-scale production from January 2026.
In the past 2-3 years, the company has successfully turned the MHE division into a profitable business. It has strategically focused on supplying products and the aftermarket business, while discontinuing loss-making EPC business. Elecon’s aftermarket services have been a focus, leveraging its large installed base to provide parts; the company expects strong traction in replacement demand, which has supported profitability.
Improving financial metrics
After the business restructuring in FY20-21 in the MHE division, the consolidated revenue grew by 15% yoy in FY20-25 to Rs.2,297 cr. This growth was on account of higher execution in both the segments, i.e MHE and Industrial Gears. For FY26, MHE divison is expected to continue to report ~40% yoy growth to Rs.650 cr, with strong traction in product and after-sales services. The total revenue should be closer to Rs.2,650 cr, supported by the healthy backlog and tailwinds from industry. EBITDA margins improved from 13% in FY20 to 24% in FY25 due to higher operating leverage and reduced low margin EPC business. ROE surged from low single digit (10%) in FY20 to a healthy 23% in FY25. The company has incurred a capex of Rs.300 cr, by purchasing machines with the latest technology for production and they are confident to generate additional revenue of Rs.500 cr over the next 3 years.
Please refer disclaimer at https://www.sushilfinance.com/Disclamier/disclaimer
Member : BSE/ NSE/ MSEI. SEBI Registration No.-INZ000165135.
