Fundamental Stock Pick:- Elecon Engineering Company Ltd by Nirmal Bang Ltd
* Elecon is a manufacturer of industrial gears (~80% mix) & material handling equipment (MHE) (~20% mix). It is a proxy on industrial capex across cement, steel, mining, power, oil & gas and other sectors.
* Elecon is the leader in industrial gears with a market share of 35% in India.
* Elecon witnessed a temporary slowdown in its gear business during H1FY25 owing to elections which delayed ordering activity during Q1FY25 (inflows down 11% YoY). Order inflows have recovered in Q2FY25 (+15% YoY) and shall gain further momentum and translate to strong execution from Q3FY25.
* After a decade of juggling issues related to legacy EPC projects, the MHE segment has completely turned around from losses in FY22 to reaching segmental margins of ~26% in H1FY25. Unlike before, it no longer participates in EPC projects and all new orders are for products or after-market sales. Order book in MHE has increased by 176% YoY to Rs. 339 Cr in Q2FY25 which provides strong growth visibility.
* We believe Elecon witnessed an election led temporary slowdown during H1FY25 and shall stage a strong comeback from Q3FY25 onwards. We expect a CAGR of 18%/22% in revenue/profits, over FY25–27E along with stable ROCE of 26%. We assign a TP of Rs. 815, valuing the company at 35x Sep 2026E EPS (in line with the avg. of top tier Capital Goods cos).
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