Positives
For Q1 FY08 Elecon engineering achieved a net turnover of Rs.1.29 billion, a growth of 37.1% Over Q1 FY 07. Operating profit margins expanded significantly during Q1 FY08 to 16.2% from 14.9% in Q1 FY 07 mainly due to a decrease in other costs as a percentage to Sales. The operating profits during the quarter were up by 48.6% y-o-y at Rs. 209.5 million and pat showed an increase of 92.6% to Rs. 104.1 million. Operating profits showed a steady growth commensurate with the overall revenue growth. We expect the operating margins to remain at these levels as the current outstanding order Book position is at higher margins, despite stiff competition from the domestic players in the MHE segment.
Revision in estimates
We are revising our profit estimates for fy09e by 23.3% to Rs. 1.36 billion form our Earlier estimate of Rs. 1.10 billion mainly due to the significant order intake by the Company during last few quarters and also due to revenues accruing from it's new Businesses like windmill gearboxes and windmills. We believe that the current Margins of 15% and above is expected to be maintained going forward due to the Company keeping an appropriate balance between its MHE and gear business.
Outlook & valuation
We believe the performance of the company going forward is likely to grow at a steady pace mainly due to the robust investment Capex lined up by Indian Corporate across industries. This will create huge demand for the company's Products. Eel, given its expertise and scale, is likely to see brisk order flow, Augmenting revenue. Initiatives of the company in tapping growing wind gear Box market and windmills will also result in further revenue flow. At the CMP of Rs.627, the stock is trading at 23x fy2008e Eps and 14.2x its FY 2009e Eps. In the last few years, the stock has got significantly re-rated on the back of robust growth momentum. Thus, with a target P/E of 18xfy09e earnings, We maintain 'buy' recommendation with a price target of Rs. 794 (an upside Of 26%).
Others
The company has a strong order backlog of Rs. 11.02 billion (order period 18-36 Months) and Rs. 2.25 billion (order period 8 months) in the MHE and TE (gears) Divisions respectively. This overall order backlog of Rs. 13.27 billion represents 1.83x its fy07 turnover, giving a clear visibility of growth in the medium to long Term. The company will be incurring a total capex of rs.1.2 -1.5 billion in fy08e. This capex will be mainly funded through a mix of debt and internal accruals. The company currently has debts in the balance sheet of rs.2.95 billion of which the term loan is rs.650 million.
Going forward, the company's revenue mix will tilt towards the MHE segment on the back of major developments in the MHE space and will be a major revenue driver. Hence, operating margins are expected to improve. The industrial gear Division enjoys margins of 20% and above, which will be maintained in the future.
During the quarter, the company received two big orders from BHEL and DVC worth Rs. 3.78 billion and Rs. 577 million Respectively. These orders were in the MHE segment and will be executed over a period of 18-36 months.
The company During fy08e will bid for orders worth Rs. 30 billion, a large part of which will be in the power sector (80%). The windmill gearbox division (1-2 mw) will be operational by q4fy08 and will contribute around Rs. 1 billion to the Turnover in fy09e. The margins in this segment are better than in its existing gear business.
For Q1 FY08 Elecon engineering achieved a net turnover of Rs.1.29 billion, a growth of 37.1% Over Q1 FY 07. Operating profit margins expanded significantly during Q1 FY08 to 16.2% from 14.9% in Q1 FY 07 mainly due to a decrease in other costs as a percentage to Sales. The operating profits during the quarter were up by 48.6% y-o-y at Rs. 209.5 million and pat showed an increase of 92.6% to Rs. 104.1 million. Operating profits showed a steady growth commensurate with the overall revenue growth. We expect the operating margins to remain at these levels as the current outstanding order Book position is at higher margins, despite stiff competition from the domestic players in the MHE segment.
Revision in estimates
We are revising our profit estimates for fy09e by 23.3% to Rs. 1.36 billion form our Earlier estimate of Rs. 1.10 billion mainly due to the significant order intake by the Company during last few quarters and also due to revenues accruing from it's new Businesses like windmill gearboxes and windmills. We believe that the current Margins of 15% and above is expected to be maintained going forward due to the Company keeping an appropriate balance between its MHE and gear business.
Outlook & valuation
We believe the performance of the company going forward is likely to grow at a steady pace mainly due to the robust investment Capex lined up by Indian Corporate across industries. This will create huge demand for the company's Products. Eel, given its expertise and scale, is likely to see brisk order flow, Augmenting revenue. Initiatives of the company in tapping growing wind gear Box market and windmills will also result in further revenue flow. At the CMP of Rs.627, the stock is trading at 23x fy2008e Eps and 14.2x its FY 2009e Eps. In the last few years, the stock has got significantly re-rated on the back of robust growth momentum. Thus, with a target P/E of 18xfy09e earnings, We maintain 'buy' recommendation with a price target of Rs. 794 (an upside Of 26%).
Others
The company has a strong order backlog of Rs. 11.02 billion (order period 18-36 Months) and Rs. 2.25 billion (order period 8 months) in the MHE and TE (gears) Divisions respectively. This overall order backlog of Rs. 13.27 billion represents 1.83x its fy07 turnover, giving a clear visibility of growth in the medium to long Term. The company will be incurring a total capex of rs.1.2 -1.5 billion in fy08e. This capex will be mainly funded through a mix of debt and internal accruals. The company currently has debts in the balance sheet of rs.2.95 billion of which the term loan is rs.650 million.
Going forward, the company's revenue mix will tilt towards the MHE segment on the back of major developments in the MHE space and will be a major revenue driver. Hence, operating margins are expected to improve. The industrial gear Division enjoys margins of 20% and above, which will be maintained in the future.
During the quarter, the company received two big orders from BHEL and DVC worth Rs. 3.78 billion and Rs. 577 million Respectively. These orders were in the MHE segment and will be executed over a period of 18-36 months.
The company During fy08e will bid for orders worth Rs. 30 billion, a large part of which will be in the power sector (80%). The windmill gearbox division (1-2 mw) will be operational by q4fy08 and will contribute around Rs. 1 billion to the Turnover in fy09e. The margins in this segment are better than in its existing gear business.
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