ELECONNSEFinancial Year 2021-2217 May 2022 Elecon Engineering Company Limited
9,392words
188turns
14analyst exchanges
3executives
Management on call
Prayasvin Patel
CMD, ELECON ENGINEERING COMPANY LIMITED
Kamlesh Shah
GROUP CFO, ELECON ENGINEERING COMPANY LIMITED
Narasimhan Raghunathan
CFO, ELECON ENGINEERING COMPANY LIMITED
Key numbers — 40 extracted
Rs.
245.8 crore
e. Discussing the results at the standalone level; during Q4, the total operating income stood at Rs. 245.8 crores compared to the Rs. 273.2 crores in the corresponding quarter of the previous year. The EBITDA o
Rs. 273.2 crore
standalone level; during Q4, the total operating income stood at Rs. 245.8 crores compared to the Rs. 273.2 crores in the corresponding quarter of the previous year. The EBITDA on absolute basis stood at Rs. 50.
Rs. 50.7 crore
2 crores in the corresponding quarter of the previous year. The EBITDA on absolute basis stood at Rs. 50.7 crores as compared to Rs. 57.5 crores during the corresponding period of the previous year. This transl
Rs. 57.5 crore
uarter of the previous year. The EBITDA on absolute basis stood at Rs. 50.7 crores as compared to Rs. 57.5 crores during the corresponding period of the previous year. This translates into EBITDA margin of 20.6
20.6%
rores during the corresponding period of the previous year. This translates into EBITDA margin of 20.6% in Q4 FY22 compared to 21.1% in Q4 FY21. We closed this quarter with a net profit of Rs. 33.5 c
21.1%
g period of the previous year. This translates into EBITDA margin of 20.6% in Q4 FY22 compared to 21.1% in Q4 FY21. We closed this quarter with a net profit of Rs. 33.5 crores as compared to Rs. 22.4 c
Rs. 33.5
crore
gin of 20.6% in Q4 FY22 compared to 21.1% in Q4 FY21. We closed this quarter with a net profit of Rs. 33.5 crores as compared to Rs. 22.4 crores during the corresponding period of the previous year. Let me high
Rs. 22.4 crore
d to 21.1% in Q4 FY21. We closed this quarter with a net profit of Rs. 33.5 crores as compared to Rs. 22.4 crores during the corresponding period of the previous year. Let me highlight few points related to the
884.4 crore
t over the quarters. Now coming to standalone FY22 Results: The total operating income stood at 884.4 crores compared to Rs. 796.1 crores in the previous year. The EBITDA on absolute basis stood at Rs. 184
Rs. 796.1 crore
w coming to standalone FY22 Results: The total operating income stood at 884.4 crores compared to Rs. 796.1 crores in the previous year. The EBITDA on absolute basis stood at Rs. 184.2 crores as compared to Rs.
Rs. 184.2 crore
4 crores compared to Rs. 796.1 crores in the previous year. The EBITDA on absolute basis stood at Rs. 184.2 crores as compared to Rs. 143.8 crores during the previous year. This translates to EBITDA margin of 20
Rs. 143.8 crore
rores in the previous year. The EBITDA on absolute basis stood at Rs. 184.2 crores as compared to Rs. 143.8 crores during the previous year. This translates to EBITDA margin of 20.8% in FY22 compared to 18.0%
Guidance — 20 items
Let me highlight few points related to the results
opening
“We continue to focus on improving profitability and liquidity of the division and have received the balance amount for one project while balance for other two projects are expected to be cleared in FY23.”
Let me highlight few points related to the results
opening
“It is heartening to note that all our overseas entities have become profitable and we expect further improvement in profitability going forward.”
Let me highlight few points related to the results
opening
“In line with our growth aspirations, the company has set a revenue target of 1,500 crores by FY24 and an outline CAPEX plan of Rs.”
Let me highlight few points related to the results
opening
“We have formulated strategies to improve export contribution with the target to reach 50% of the overall revenue by FY30.”
Let me highlight few points related to the results
opening
“Despite temporary headwinds in external environments Elecon is well-poised for growth going forward and we remain confident of further improvement in performance in coming quarters.”
Let me highlight few points related to the results
opening
“We will be happy to address your specific queries about the business going forward.”
“So far, the other two projects are concerned we are now working towards completing some of the documentation part as a part of the process for the closure of the project.”
“Going forward if you see about FY22-23 onwards, we see that the growth will be there in terms of the revenue.”
“And with that we are quite confident our profitability will improve going forward.”
“If you are looking for EBITDA margin it will be between 15% to 20%.”
Risks & concerns — 8 flagged
It must be viewed in conjunction with our business risk that could cause future result performance or achievements to differ significantly from what is expressed or implied by such forward looking statements.
— Binay Sarda
Also, our continuous focus on debt reduction has led to significant decline in interest cost over the quarters.
— Let me highlight few points related to the results
We have been cautious in giving figures.
— Prayasvin Patel
That is what but it will be difficult to spell out because it will be different for, not different orders of the CSD but it will be nearly ranging.
— Kamlesh Shah
Considering all these factors we believe that we are going to be able to accrue and amass good amount of wealth for the shareholders in the future years to come, especially because of the fact that if the company becomes debt-free the risk and the burden of carrying interest during the recessionary period would minimize.
— Prayasvin Patel
It would be difficult to say that because as I told you it will all depend on the product mix because it is like if you give me all the orders for only one type of gear type then it would be very difficult for me to produce.
— Prayasvin Patel
So, you need a combination and whether that combination would help me improve my utilization to an extent where it would give me further profits of 50% would be difficult to calculate.
— Prayasvin Patel
Because as of now tidal energy is little bit difficult.
— Akshay Kothari
Q&A — 14 exchanges
Q
My first question is with respect to the MHE business. What is the amount left to be received on account of retention which helps us improve our balance sheet? When we are looking at the swing in EBIT number is it fair to assume that all do old projects must have been closed and all costs overruns have been incurred for and we will start seeing some improvement in profitability considering the new MHE order executions whenever it starts because you've got MHE order flow 127 crores?
Kamlesh Shah
In regard to the numbers, I think I would say about that and so far, the overall business is concerned the CMD may pitch in. In terms of profitability and what we are discussing there is no over-run cost now presently pending. All our legacy projects in terms of the execution we already completed that we mentioned in our presentation also. And of which we have already realized the money from one of the legacy projects. So far, the other two projects are concerned we are now working towards completing some of the documentation part as a part of the process for the closure of the project. As soo
Q
My first question is related to the gear division. I wanted to understand what is the current demand scenario on ground because in your presentation you have mentioned that in April, we have received a significant order? I wanted to understand from where are we getting orders. And the second part of the question would be to understand the raw material cost pressures, Q-on-Q we have seen a jump in RMC cost. I would want to understand given the short cycle nature or our order are we able to completely pass on and this will get normalized from the coming quarter or do we see some headwinds there?
Prayasvin Patel
First of all, right now as we speak, we have an outstanding order, orders worth 490 crores. No time in our history we've had such a value of outstanding orders in the beginning of the year. That is a very healthy sign because going forward we believe that this would help us catch a tremendous amount of momentum. That is number one. Number two is basically let's put it this way that our manufacturing cycle is very short cycle. Therefore, the raw material cost increase is not affecting us to that an extent. Apart from this, our validity of the offer is hardly one week to 10 days which means if t
Q
My first question on the CAPEX, I believe after many years that we have announced substantial prices, your thoughts where do we intend to spend it?
Prayasvin Patel
The CAPEX is I would put it into three parts. One is we are spending reasonably large amount on alternative energy which means to supply us with green energy which is for installation of solar plant as well as windmills to compensate for the electricity that we consume. The second part would be we are utilizing for replacing few of the machine tools which have become extremely old to replenish them with new machines and new technology. The third one is for slight enhancement of capacity if we find that there is a certain area where the capacities are not balanced. It’s fair to assume that our
Q
What is the current mix between domestic and export of our order book in the gear division?
Prayasvin Patel
About 10% to 12% is the export. Over a period of time, we want to enhance it. We are likely to be around about 15% to 17% by the end of this year but we have plans to enhance it to slowly and gradually bring it to a 50% level. I believe we had been focusing on building our market in the USA. If you can just give some color how has been the acceptance of our products and what sort of engagement, are we receiving enquiries, if you can just throw some color on that part? What has happened is that there are few clients in United States who have given us a chance and an opportunity to supply them w
Q
Just wanted to understand how will the funding for the CAPEX go which you are planning for 100 Crores? Will it be from internal accruals or you will look to take debt?
Prayasvin Patel
There will be no debt that would be taken. This 100 crores is the maximum outer limit that would be spent. Normally what happens is while we plan 100 crores a reasonable amount gets spilled over to the next year because of the fact that you order a machine tool and quite often they take 10 to 12 months for delivery. I'm sure that all the 100 crores is not going to be spent. The second thing is that whatever that we buy for CAPEX that will be all funded from internal accruals. We do not intend to take any outside debt. And by when can be expect this 100 Crore to come and use by end of FY24. Yes
Q
My question is on, looking at the Indian government’s effort towards procuring Defense equipments, spares lot to import like locally and a substitute imported lot of Defense products and Navy is a very major part of the Defense which imports so many things, gears, spares, and all. Do you see any opportunity for us over maybe next 2-3 years, not immediately but to develop or re-engineer some gears or refurbish something in your thought process on this opportunity?
Prayasvin Patel
We have been given an opportunity to look at the Army requirement gearboxes for tanks’ servicing and rehauling or overhauling them. That is number one. Number two is within our group we have also appointed a special person to look after the entire Defense process. He had just been recruited but we are looking at these aspects seriously and I'm sure that would help us in the future years. We are planning to add almost 600 crores of revenue during next 2 years in standalone size which is almost nearly 900 crores we are projecting 1,500 crores by ‘24. So, these 600 crores revenue can come measure
Q
A few questions and a few clarifications, first the clarifications. You mentioned what would be the interest cost for FY23? It was 37 crores in FY22 considering the fact that we were planning to become debt-free.
Kamlesh Shah
As already said our interest cost for FY23 will be upto Rs. 12 crores. I didn’t get the number. Will be up to Rs. 12 crores. This 30% growth which you are targeting in your gear business. So again, the clarification. So, you ended this year at Rs. 1,068 crores at a consolidated level. So, on this base you are targeting a 30% growth in the next year? Can you repeat the question please? You are targeting a 30% growth in your gear business in the coming year. So, in FY22 you ended at around Rs. 1,068 crores at a consolidated level. So, on this base you are targeting a 30% growth? No, I am talking
Q
I just wanted to know, it’s nice to hear that we are getting lot of orders now from the steel segment. Just wanted to know like we were hearing an interview from T. V. Narendran from Tata Steel who mentioned that the steel industry was looking at an investment of Rs. 1 lakh crores expansion which is currently going on. So, can we expect more orders from this segment or like do we see some more orders coming in from this steel side?
Prayasvin Patel
Yes, we expect because see, the steel industry in India is reasonably matured and with large number of steel plants we are expecting more orders from steel not only in gear but also in the material handling segment. And also, in the private CAPEX side even we thought there’s a lot of new private CAPEX also which has been coming in. How do you see this playing out and how do you see this benefiting the Elecon and how big an opportunity? Can all of this be for us? What has happened is if you realize that gears go into a plant wherever there are electric motors. So, the potential if the economy i
Q
When you say capacity utilization of the gear is 60-65 and you mean that these are the capacity utilization when you would end up making everything as a standard product. Is it a right assumption?
Prayasvin Patel
No. The right assumption is based on the turnovers that we have today. It is not only the catalogue products which are the standard products but also custom-built gearboxes. Because custom-built gearboxes take a lot of effort and energy because you have to design the product, get the right kind of raw material, put it all together so it is more time-consuming and requires even different kind of machine tools. Then is it right assumption that at full utilization your revenue should be 50% higher from the current level. Is it right assumption to make? Can you repeat it please? Is it a right assu
Q
Three questions from my side. One on the previous question of that FOREX exchange rate loss. In the P&L where would this line item be included? Would it be part of other expenses or would it be netted as from other income because if I were to adjust for this number as well as let’s say the bad debt write-offs that we have done which are reflected in the cash flow statement versus the reported EBITDA margin for the full year, the actual business level EBITDA margins would be significantly higher. So, if you can help us understand alongside the clarification that probably you are going to give o
Kamlesh Shah
That is as of 31st March. I am just trying to reconcile the number. You had an opening order book of about Rs. 345 crores and closing order book of about Rs. 410 crores on standalone basis and there is an order inflow of about Rs. 212 crores but the gear division sale is for the quarter almost about Rs. 290 crores. So, order flow should have been higher or in this Rs. 293 crores there is a significant spares like what you mentioned for the full year number also? Let me just give the answer one by one about your questions. On related to the FOREX loss… I have a last question also. I can probabl
Q
Just wanted to clarify a couple of things on capacity within the system. In terms of Radicon doing growth how would you support its growth? Is there sufficient capacity there? Would you use India to manufacture, some thoughts on that?
Prayasvin Patel
See basically all these foreign entities have assembly plants out there, which means the manufacturing takes place in India and the products are sent out there. Some of them are completely assembled out here and sent and some are partially assembled out there as well as completely assembled out there. There is no capacity shortage that will happen at the foreign entity levels. It will only be a requirement of additional manpower which would be required to assemble products if the demand increases. Does that answer your question? The demand outlook here? The demand outlook as of now would be th
Q
My first question is that see our growth is very much linked to the CAPEX cycle and after a long time there's a pickup in the cycle. But right now, in the inflationary environment and somewhere industrial power cuts are also prevailing. Right now, we have a good order book but how are you seeing this kind of an environment? Like is there a wait and watch kind of a situation in the CAPEX in the companies who are doing CAPEX and in some companies are also guiding about delaying the CAPEX for some time because of the inflationary environment. So, what is your sense on this?
Prayasvin Patel
Basically, we are seeing no difference. We do not see because here we are talking about let us large steel plants. Let us say that steel plants whether there is an inflationary trend or not they are going to go ahead and put additional capacities because they feel that there is a requirement which the nation will need and for which they have to set up the plant as of today and it is for future 10-15-20 years. That's the way they look at it. The perspective of right now there's an inflationary trend is not looked upon by the customer in that perspective, that is number one. Number two is, we ar
Q
Can you give us the competitive landscape? Who are our competitors and so regarding that?
Prayasvin Patel
Yes. One of our competitors is Flender which is a German company who has got a manufacturing setup in India. The second one is Premium Gears. The third one is Shanthi Gears and a small a manufacturer called New Allenberry Works, NAW. The last thing which you talked with the earlier participant regarding that tidal energy project in Canada. So, there had been a documentary I think of Bloomberg Quick take regarding this tidal energy. Are we seeing any traction in any other parts of the world regarding this tidal energy? Not as yet. From time to time if the requirement comes up then one can alway
Q
Thank you. I hope we have been able to satisfy you with the answers that we have given during this con call. My only contention to you is, right now the environment looks to be very conducive where the economy is growing. Apart from that if you look at our business, especially the gear business it is broken up into three parts. One is the sense to afford new demand which comes up from steel, power sector, rubber industry, sugar etc. The other one is aftersales which is the spares business and the third is exports. What we are seeing is that there is a traction in all the three verticals that I
Opening remarks
Binay Sarda
Good morning to all the participants on the call. Thanks for joining this Q4 FY 22 earnings call for Elecon Engineering. Please note that we have mailed out the results and you can also see the results and presentation on our website as well, it has been updated in the stock exchanges. In case if you've not received the same you can write to us and we'll be happy to send the same over to you. Before we proceed to the call let me remind you that the discussion may contain forward looking statements that may involve known or unknown risks, uncertainties, and other factors. It must be viewed in conjunction with our business risk that could cause future result performance or achievements to differ significantly from what is expressed or implied by such forward looking statements. To take us through the results of this quarter and answer your questions we have with us the Management of Elecon Engineering represented by Mr. Prayasvin Patel – CMD, Mr. Kamlesh Shah – Group CFO and Mr. Narasimh
Prayasvin Patel
Thank you Binay. Good morning, everyone. Ladies and gentlemen, a very warm welcome to our Q4 and full-year FY2022 conference call. We are extremely delighted to have recorded the highest profits in the history of the company and we look forward to achieving many more milestones in the years to come. Discussing the results at the standalone level; during Q4, the total operating income stood at Rs. 245.8 crores compared to the Rs. 273.2 crores in the corresponding quarter of the previous year. The EBITDA on absolute basis stood at Rs. 50.7 crores as compared to Rs. 57.5 crores during the corresponding period of the previous year. This translates into EBITDA margin of 20.6% in Q4 FY22 compared to 21.1% in Q4 FY21. We closed this quarter with a net profit of Rs. 33.5 crores as compared to Rs. 22.4 crores during the corresponding period of the previous year.
Let me highlight few points related to the results
Gear business continued to witness traction amidst strong demand environment. As you are all aware, we successfully completed one of the most complex and sophisticated Defence gearbox as part of “Make in India” initiative recently. In MHE business, performance has substantially improved post change in business strategy and the company has made decent progress on recovery and also closure of few legacy projects. We continue to focus on improving profitability and liquidity of the division and have received the balance amount for one project while balance for other two projects are expected to be cleared in FY23. Also, our continuous focus on debt reduction has led to significant decline in interest cost over the quarters. Now coming to standalone FY22 Results: The total operating income stood at 884.4 crores compared to Rs. 796.1 crores in the previous year. The EBITDA on absolute basis stood at Rs. 184.2 crores as compared to Rs. 143.8 crores during the previous year. This translates t