Edelweiss Wealth Research, a leading brokerage firm, is bullish on Elecon Engineering Co. Ltd., a small-cap Industrial Equipment company. The brokerage suggests buying the stocks of the company for a target price of Rs 374 per share. Elecon is a Gujarat-based manufacturer of industrial gears and material handling equipment (MHE) - its two operating segments. It is a play on industrial capex across various sectors, especially in cement and steel.
Stock Outlook On June 08, Friday, the stock of the company closed at Rs 294.50 per share after hitting the 52-week high at Rs 303 per share. Its 52-week low was recorded on 13 July 2021 at Rs 124.10 per share. The stock has given multibagger returns on long-term investments. It has given 567.8% & 377.31% multibagger returns in 3 & 5 years, respectively. In the last 1 year, the stock performed well on returns and has given a positive return of 126.1%. It also performed well on 1, 3 and 6 months, and gave positive returns. According to the brokerage's estimated target price and the CMP of the stock, investors can expect a 27% potential jump in its share price.Stock Details CMPRs 294.50Target PriceRs 374Potential Upside27.00%1-Year Return126.10%3-Year Returns567.80%5Years Returns377.31%Market CapRs 3,304.29 cr A play on upcoming industrial capex; steel and cement being key drivers Elecon is among the market leaders in its area of operations and boasts of best-in-class manufacturing facilities. It is a play on the wide industrial capex cycle, with supplies to sectors such as steel, cement, power, textiles, tyre and sugar, among others. Strong industrial capex is likely to drive higher utilisation in the industrial gear segment. We envisage a particularly solid demand from the steel and cement sectors (around 25-30% of Elecon's sales) based on announcements made by major players. Management expects overall sales to reach Rs 2,100 cr by FY24E from Rs 1,200 cr in FY22. Industrial gear division to spearhead growth Industrial gears accounted for 89% of the company's FY22A sales with EBIT margin of around 20%. Due to higher share in the mix, this segment is now the major earnings driver unlike the past cycle when MHE (project based) also contributed meaningfully. The management expects standalone revenue to touch Rs 1,500 cr by FY24E from Rs 884 cr in FY22A, driven by growth in industrial gears. We expect the gears division, including international subsidiaries, to record a revenue CAGR of 21% over FY22-25E. MHE: House now in order, returns to profitability 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. The company also freed up majority of the retention money and resultantly reduced debt. Resolution of the remaining Rs 100 cr expected soon. Initiate with tactical BUY, potential upside of 27% Elecon offers strong growth visibility with improving balance sheet. We expect a CAGR of 22% and 26% in revenue and EPS, respectively, over FY22-25E, driven by robust demand, operating leverage and low-interest expense. This will be accompanied by ROCE improvement from 15% currently to 21% by FY25E. We assign a Target Price of Rs 374/share, valuing the company at 18x FY24E PE. About - Elecon Engineering Co. Ltd. Elecon Engineering Co. Ltd. was established in the year 1951 as The Pioneers in the manufacturing of Industrial Geared motors and Reducers, Material Handling Equipment, Mining equipment, casting processes etc. Elecon is one of the largest manufacturers of Material Handling Equipments and Industrial Gears in Asia. Elecon's recent acquisition of Benzlers- Radicon Group belonging to the David Brown Gear Systems adds to the expertise in the manufacturing of custom-made Gearboxes for Steel Mills, High-Speed Turbines, and Satellites for ISRO and also for the Naval Aircraft carries and many growth sector industries successfully.
On June 08, Friday, the stock of the company closed at Rs 294.50 per share after hitting the 52-week high at Rs 303 per share. Its 52-week low was recorded on 13 July 2021 at Rs 124.10 per share. The stock has given multibagger returns on long-term investments. It has given 567.8% & 377.31% multibagger returns in 3 & 5 years, respectively. In the last 1 year, the stock performed well on returns and has given a positive return of 126.1%. It also performed well on 1, 3 and 6 months, and gave positive returns.
According to the brokerage's estimated target price and the CMP of the stock, investors can expect a 27% potential jump in its share price.
Elecon is among the market leaders in its area of operations and boasts of best-in-class manufacturing facilities. It is a play on the wide industrial capex cycle, with supplies to sectors such as steel, cement, power, textiles, tyre and sugar, among others. Strong industrial capex is likely to drive higher utilisation in the industrial gear segment. We envisage a particularly solid demand from the steel and cement sectors (around 25-30% of Elecon's sales) based on announcements made by major players. Management expects overall sales to reach Rs 2,100 cr by FY24E from Rs 1,200 cr in FY22.
Industrial gears accounted for 89% of the company's FY22A sales with EBIT margin of around 20%. Due to higher share in the mix, this segment is now the major earnings driver unlike the past cycle when MHE (project based) also contributed meaningfully. The management expects standalone revenue to touch Rs 1,500 cr by FY24E from Rs 884 cr in FY22A, driven by growth in industrial gears. We expect the gears division, including international subsidiaries, to record a revenue CAGR of 21% over FY22-25E.
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. The company also freed up majority of the retention money and resultantly reduced debt. Resolution of the remaining Rs 100 cr expected soon.
Elecon offers strong growth visibility with improving balance sheet. We expect a CAGR of 22% and 26% in revenue and EPS, respectively, over FY22-25E, driven by robust demand, operating leverage and low-interest expense. This will be accompanied by ROCE improvement from 15% currently to 21% by FY25E. We assign a Target Price of Rs 374/share, valuing the company at 18x FY24E PE.
Elecon Engineering Co. Ltd. was established in the year 1951 as The Pioneers in the manufacturing of Industrial Geared motors and Reducers, Material Handling Equipment, Mining equipment, casting processes etc. Elecon is one of the largest manufacturers of Material Handling Equipments and Industrial Gears in Asia.
Elecon's recent acquisition of Benzlers- Radicon Group belonging to the David Brown Gear Systems adds to the expertise in the manufacturing of custom-made Gearboxes for Steel Mills, High-Speed Turbines, and Satellites for ISRO and also for the Naval Aircraft carries and many growth sector industries successfully.
The stock has been picked from the brokerage report of Edelweiss Wealth Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.