Pick of the Week - Buy Elecon Engineering Company Limited For Target Rs 505 Axis securities
Investment Rationale
A. Record Order Book & Strong Inflows Provide High Revenue Visibility
• Elecon achieved a record consolidated order book of Rs 1,518 Cr along with robust quarterly order inflows of Rs 755 Cr (+23% YoY) during Q1, providing strong multi-quarter revenue visibility.
• Healthy backlog across both the Gear and MHE divisions supports sustained execution. Furthermore, significant export orders secured towards the end of Q1FY27 are expected to drive stronger revenue recognition from Q2FY27 onwards.
B. Gear Division Outperforms; MHE Weakness Remains Execution-Led
• The Gear division continues to act as the primary growth engine, with Q1FY27 revenue rising 16% YoY to Rs 416 Cr and its order book expanding 47% YoY to Rs 1,043 Cr. High-value engineered (customized) products comprised ~73% of the division's quarterly order intake, reflecting strong pricing power and demand.
• Although MHE segment revenue dipped marginally by 2.9% YoY to Rs 105 Cr during Q1 due to delays in project execution, demand remains intact, as evidenced by a 38.1% YoY growth in MHE order intake to Rs 185 Cr and an expansion in the order book to Rs 475 Cr.
C. Exports Emerging as the Next Growth Driver
• Overseas revenue outperformed domestic sales, growing 21.9% YoY to Rs 151 Cr and increasing its contribution to 29% of consolidated revenue from 25% in Q1FY26. The growth was driven by an operational recovery in European subsidiaries, Benzlers and Radicon, along with steady global demand. Recent international wins, including a Rs 21 Cr overseas port equipment order, highlight Elecon’s expanding footprint across international industrial markets.
Outlook & Valuation
• Despite near-term headwinds, the company’s strong order backlog and steady order inflow outlook across domestic and international markets provide healthy earnings visibility over the medium term. Management expects project execution to improve meaningfully from Q2FY27. Export contribution is expected to increase further over the medium term. Order pipeline continues to remain significantly ahead of revenue growth, strengthening earnings visibility.
• Valuation: We value the company at 22x FY28E EPS
Analyst Insights We recommend a BUY with a target price of Rs 505/share, implying an upside of 10% from the CMP.
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SEBI Registration number is INZ000161633
