ELECONNSEFinancial Year 2022-23July 22, 2022 Elecon Engineering Company Limited
9,363words
219turns
19analyst exchanges
3executives
Management on call
Narasimhan Raghunathan
CFO.
Key numbers — 40 extracted
16.4%
y quarters. Discussing the results at a standalone level. The total operating income increased by 16.4% year- on-year to Rs.257.2 crores compared to Rs.221.0 crores in the corresponding quarter of the
Rs.257.2 crore
the results at a standalone level. The total operating income increased by 16.4% year- on-year to Rs.257.2 crores compared to Rs.221.0 crores in the corresponding quarter of the previous year. The EBITDA on abs
Rs.221.0 crore
level. The total operating income increased by 16.4% year- on-year to Rs.257.2 crores compared to Rs.221.0 crores in the corresponding quarter of the previous year. The EBITDA on absolute basis increased by 9.8
9.8%
ores in the corresponding quarter of the previous year. The EBITDA on absolute basis increased by 9.8% year-on-year to Rs.55 crores as compared to Rs.50 crores during the corresponding period of the p
Rs.55 crore
ding quarter of the previous year. The EBITDA on absolute basis increased by 9.8% year-on-year to Rs.55 crores as compared to Rs.50 crores during the corresponding period of the previous year. This translate
Rs.50 crore
year. The EBITDA on absolute basis increased by 9.8% year-on-year to Rs.55 crores as compared to Rs.50 crores during the corresponding period of the previous year. This translates to EBITDA margin of 21.4%
21.4%
crores during the corresponding period of the previous year. This translates to EBITDA margin of 21.4% in Q1 FY23 compared to 22.6% in Q1 FY22. We closed this quarter with a net profit of 32.9 crores
22.6%
ing period of the previous year. This translates to EBITDA margin of 21.4% in Q1 FY23 compared to 22.6% in Q1 FY22. We closed this quarter with a net profit of 32.9 crores as compared to 23.1 crores du
32.9 crore
gin of 21.4% in Q1 FY23 compared to 22.6% in Q1 FY22. We closed this quarter with a net profit of 32.9 crores as compared to 23.1 crores during the corresponding period of the previous year reflecting an in
23.1 crore
pared to 22.6% in Q1 FY22. We closed this quarter with a net profit of 32.9 crores as compared to 23.1 crores during the corresponding period of the previous year reflecting an increase of 42.4%. Let me h
42.4%
red to 23.1 crores during the corresponding period of the previous year reflecting an increase of 42.4%. Let me highlight few points related to the results. The gear business witnessed strong demand
Rs.9.95 crore
from the end user industries like cement, steel, sugar, power, et cetera. Gear revenue includes Rs.9.95 crores from marine project in Q1 FY23 compared to 61.19 crore in Q1 FY22. On the back of our strategic
Guidance — 20 items
“Gear revenue includes Rs.9.95 crores from marine project in Q1 FY23 compared to 61.19 crore in Q1 FY22.”
“However, we are confident to achieve our annual overseas revenue target as we expect things to normalize.”
“We will be happy to address your specific queries about the business going forward.”
“And what would be our total projection for the year?”
“So, is 1500 crore the number for consolidated sales expectation for FY23 and if yes, then within that what will be the gears business number?”
“So, of this nearly 200 crore would be from export and balance 1300 crore will be from gear business.”
“Based on the cycle or based on the order inquiry that you are seeing, are you seeing a case where you would be in a strong growth scenario for 23 and 24 both and we can see a 20% type growth rate in gears for the next two years that is this year and next year?”
“Does this mean that the interest cost from next quarter onwards will be zero in the P&L or there will be some cost and if yes, if you could quantify the same?”
“Yes, there will be some cost, that is net debt what we have this is net debt free.”
“We are expecting that will be in the range of 1.5 to 2 crore maximum.”
Risks & concerns — 15 flagged
The Company is monitoring the impact of inflation and slowdown in the global economy and is taking necessary measures to mitigate the impact of the same.
— Prayasvin Patel
We continue to monitor emerging trends in inflation and economic slowdown in Western countries and remain well prepared to take necessary steps to minimize the impact arising out of these headwinds.
— Prayasvin Patel
So, this quarter we saw a decline, muted execution and profitability.
— Shubham Agarwal
So, again, if you can help us understand where all or which industry you are observing and given the recent changes in the global headwind which we are seeing, are we seeing any order that is getting either postponed or getting rejected?
— Shubham Agarwal
So, it would be difficult to comment, but we are pretty gung ho and strong that it should continue.
— Management
So, that has an impact of 13 crore within gear.
— Management
So, that has an impact of 62 crores the revenue recognized in the earlier period and invoicing has happened in this quarter.
— Management
Elecon Engineering has a significant portion of orders book from steel sector, is there any short term to medium term headwind for orders from steel sectors, could you please throw some light on that?
— Balasubramanian
But apart from that, do you think and there are any risk to our margin guidance?
— Himanshu Yadav
What kind of risk do you see that can probably impact us in achieving our stated guidance, is there some element that we should be on the lookout for or anything could you could just guide us on that, that would be great sir.
— Barshan Javeri
Right now, the greatest risk that I perceive is the situation in the economy, because though India is being doing exceptionally well, considering the global environment as well as the domestic environment changing, even the neighboring countries have gone through a big turmoil.
— Management
So, just to clarify sir, is there a risk that are we getting from raw material inventory, which is at a higher price and against which there are no bookings and hence as and when the order gets finalized in the small and the medium sized our margins could have some compression in Q2?
— Sachin Kasera
And sir you said that there’s a little bit of a pause in terms of finalization of orders, you see that if this continues a little more, it can have impact on the overall numbers you are guiding for FY23 or you are very confident that despite the pause that we have seen not too much of risk in FY23 numbers?
— Sachin Kasera
So, in this with this commodity deflation a challenge because last year, the commodity inflation helped us because there was some 20%, 30% increase in the steel prices, now the steel prices have come down and it is likely to further come down.
— Renjith Sivaram
So, now that is deflating, so don’t you think it will be a challenge for you if the commodity prices continue to come down to achieve this revenue target though your volume target can be achieved?
— Renjith Sivaram
Q&A — 19 exchanges
Q
Sir my first question is related to the subsidiary business. So, this quarter we saw a decline, muted execution and profitability. So, if you can elaborate on what were the key reasons for that, and how do we see this subsidiary business for the rest of the year?
Management
As you know that there are two things which are affecting the subsidiary businesses, one is the war which is going on between Ukraine and Russia which is having an impact on the energy cost and the other one is high inflation. In spite of this, there are very healthy inquiries available with our foreign subsidiaries and we are confident that by the end of the year we should be able to do as projected or even better for the exports. Okay. And what would be our total projection for the year? Our projection overall was 140 crores. 1000 crores on standalone basis and 1500+ crore on a consolidated.
Q
I have just one question, in your notes to accounts there is something about a settlement of claim with vendors roughly about eight crores, So, what is that and second question, in your presentation, you haven’t given consolidated order books. So, what is the total consolidated order book including the overseas business?
Management
The consolidated order book position including the overseas is 617 crores. In regards to that note, what is reflected in our Q1 finances it is not 826.95 crore that is some negotiation with the vendor who are controller supplier to us, they were negotiating about a price hike because of this Ukraine and Russia war, they got impacted. So, we have settled that amount with the respective vendors by giving some price rise to them so, that our continuity of supply will continue. In this settlement with respect to the previous period supplies or is it with respect to the raw material for this partic
Q
Sir, just want to confirm on the sales number, you mentioned a number of 1500 crores in some of the releases. So, is 1500 crore the number for consolidated sales expectation for FY23 and if yes, then within that what will be the gears business number?
Management
The 1500 crore is on a consolidated level. So, of this nearly 200 crore would be from export and balance 1300 crore will be from gear business. Okay. Just to confirm this is FY23 numbers, so the current going year number? Yes, correct. Okay. Based on the cycle or based on the order inquiry that you are seeing, are you seeing a case where you would be in a strong growth scenario for 23 and 24 both and we can see a 20% type growth rate in gears for the next two years that is this year and next year? Basically, I would not be able to comment on it. The fact remains that right now there are headwi
Q
My first question is on the gross margins, if we exclude this seven crore settlement that we had to do the prior quarter, gross margins have improved substantially compared to the previous quarter or the previous year. So, can you highlight a bit more, in this inflationary scenario how did we manage to get such a high gross margin?
Management
See, basically we had a very good control over the supply chain, and we were anticipating a price increase. So, our validity of the offers we had kept them to be very, very short. And there we had made offers since the prices had increased we went back to our customers and asked for an increase in prices. But in that case, our gross margins should have stayed similar, we have done much, much better? It is the question of how you negotiate things with your supplier as well as with your customers. So, I can proudly say that our boys have done a fantastic job. Absolutely, it’s very impressive. Se
Q
Sir, my first question is like a lot of data points including our order book too, is –suggesting CAPEX cycle revival and the last good cycle in manufacturing was in 2003 - 08. So, then even our revenue grew a lot significantly. So, what is your view this time in terms of maybe longevity or how are you seeing market this time. There might be a short term hiccup in between like what is happening right now, but what’s your view on the overall market this time?
Management
See, as you rightly said that, the CAPEX cycle is now long overdue. And we have just seen the beginning of the CAPEX cycle. The unfortunate part is in between as I said earlier that the interest rates are being hiked up to control the inflation which according to me may not be a deterrent through the purchases and the CAPEX cycle that is expected to run through and therefore, I believe that people may actually make even higher investments because the cost of investment is going to become cheaper. So, I believe it is the way people will perceive the entire situation. Okay, I’m reasonably confid
Q
Sir my first question is, what was the need to highlight this 6.95 crore vendor settlement figure, was it exceptional in nature or it’s a regular part of the business?
Management
Because it is related to previous period, so that is why it is required to be highlighted. Okay. So, adjusted to that actually your margins were higher for this particular quarter? Yes. Okay. Sir my second question is, the difference between the standalone and console revenue for last year that is FY22 was around 328 crores so which is basically the revenue of your overseas subsidiaries. So, what kind of revenue you see in FY23 of these subsidiaries versus this 320 crores? About 400 crores. 400 which was around 70 crores this particular quarter, which was flagged Y-o-Y? Yes. Okay. So, what I w
Q
Sir in the CAPEX front, installation of solar plants and windmills could you please throw some light on that, so what kind of energy consumption it will replace and when it will be executed?
Management
The installation of solar is already under process and we are expected that it may get closed by Q3 during monsoon and we cannot do the installation that’s why. In regard to the benefit first that will help us to go towards the green energy that is the main benefit maybe in a monetary or non-monetary way we can consider the benefit. But, yes down the line we are expecting that will have result in a positive way in terms of the IRR. So, we are looking for positive IRR and payback period by nearly between 7 to 10 years depend upon how the solar radiation and generation of the electricity. Okay,
Q
Just wanted to understand like currently are we servicing any defense orders or are we seeing any more traction from the defense segment side and also will our margins for the export business versus the domestic business be same or for exports we will get higher margins?
Management
We have recently got an order of about 130 odd crores from the Marine business or the Indian Navy. And going forward, there are reasonably good inquiries on hand. This order would be executed in a period of two years, the one that we have on hand. Sorry, does that answer your question. Yes, wanted to understand the margins between our export and the domestic business are they in the same category or for the export we enjoy higher margins? Exports normally are giving us higher margins as of now, but I would be saying this very proudly that the domestic margins are also catching up and going to
Q
One is the confirmation you said the navy order is 150 crore. Is this a new order you are talking about?
Management
130 crores, it’s a new order it is 130 crores. Okay understood. And sir just felt that you are hopeful of achieving the target sales this year which would imply our remaining quarters rate of say 22% to 24% kind of a growth. So, does the math works as per your order inquiries and all, what’s bringing you that confidence? Yes definitely. We have had a good run rate up till now. And normally the first quarter in an engineering firm is always the weakest. And going forward the four quarter like the last five overs of the cricket match are the most interesting. So, we are on the positive ground an
Q
Thanks for opportunity. Congratulations Prayasvinbhai for after a long we were able to come out of debt and now with MHE also turning positive, I hope you will be very relaxed.
Management
Absolutely. I’m able to sleep better now and thank you very much, because Sunilbhai your good wishes, and your continued support to us, has always helped us in keeping ourselves cheerful and confident that we will ultimately achieve this. Thank you sir for your good wishes. And sir my question is now because we are totally debt free, we will be generating really good cash flow also, your time you personally will be allocating to maybe this defense opportunity more or you feel exports and defense both can be very bigger opportunity because this marine gears may be coming of a different some lon
Q
So, most of my questions have already been answered. So, I’ll just have one question. What kind of risk do you see that can probably impact us in achieving our stated guidance, is there some element that we should be on the lookout for or anything could you could just guide us on that, that would be great sir.
Management
Right now, the greatest risk that I perceive is the situation in the economy, because though India is being doing exceptionally well, considering the global environment as well as the domestic environment changing, even the neighboring countries have gone through a big turmoil. So, the entire world is going through changes, and these changes, if they impact the economy then things would be a bit different. But otherwise, we feel that we are on a very sound footing, especially because we are now at a zero debt level. So, the strength of the organization is quite strong. And we believe that if w
Q
Just two small query sir. One was you mentioned that, the clients are taking some sort of pause because of what is happening on the steel prices. So, if you could just tell us a little bit about how do we book the orders and how do we hedge our side of the steel, when we are taking any orders?
Management
Sorry, can you repeat it because I am not able to hear you properly. Sir, you mentioned that the clients are taking a pause, because they’re expecting steel prices to go down, so I’m just trying to understand how do we hedge ourselves on the steel in the sense is it possible that we have already bought the steel at higher prices, and eventually when the client confirmed the order we get a lower realization and hence our margin could get impacted anything like that is possible or we do a back to back order of booking only? For the large and complicated gearboxes, we do not stock material. So, i
Q
Just a small clarification, in our press release we have given our target of revenue as 1500 for FY24 and answering to one of the previous question you told your target is 1500 crore for FY23. So, just wanted to clarify is it for 24 or 23 we are looking at this 1500 crore of revenue and is it standalone or console?
Management
The 1500 crore turnover which we are putting in our investor presentation for FY24 it is on a standalone basis. Whereas, now during this call when someone was asked this question when we replied that 1500+ crore is with consolidation figure. Okay. So, 1500 crore of console revenue for FY23 and 1500 crore in a standalone basis for FY24. So, what will be the console FY24 target? It will be 2000+ crore. Okay. So, that means the domestic gear business in FY22 was around 800 crore should reach to 1500 crore right? That will reach to 1200 crore at standalone level in FY23. And it should reach 1500 c
Q
I just wanted to clarify one thing that you mentioned that your demand is somewhat getting affected, because clients are trying to reconcile with steel price dynamics isn’t that bit of a difficult thing to handle, because considering the gear is such an important thing that the customer is waiting for to place the order because of the steel price outlook?
Management
See, I will tell you one thing, the purchase people are always very smart, they wait for a month or two hoping that the prices if they go down further then they can delay by a certain period of time, but since if you’re dealing with very large projects, then the delays cannot be afforded beyond that kind of period. So, what we see is that they try to delay it by a month or so or month or two, just to see whether the wind is blowing and whereby they can get better prices. However, when they feel that it is not changing then they go ahead and place the orders. So, it’s kind of a move where they
Q
A couple of things one is so, can you talk a bit about the U.S. customers that you are referring to large ones, what is the profile of these customers, what kind of requirements do you have. And therefore, how should one take a hit on that?
Management
Sorry, can you repeat your question because I have not been able to hear it properly. In the early part of your commentary you spoke about negotiating with a couple of large US customers who are big users of gears. I am just trying to understand the profile of these customers and the nature of requirements that can emerge from there? These are large customers in steel and cement sector. First of all, the biggest challenge has been to get our brand and company accepted with these customers. Since we have international customers even in India with big brand names so it is helping us because the
Q
I just want to know a little macro view about how the CAPEX is shaping up, the steel prices as you know after 2020-21, they had shot up, then they came down but they’re still higher than what they were in pandemic. So, in this kind of a scenario everybody benefits with the CAPEX, CAPEX should be better this time though. Are we seeing that happening, what is your view or it will be good to have your view on this.
Management
I believe that the CAPEX cycle is here to stay because, it’s very cyclical thing. And India has gone through that cycle where there were investments in the past and for the last almost seven, eight years, there was a lull period in the CAPEX cycle. So, now the things are turning around, and India being a country where the growth potential is very high, I believe that this CAPEX cycle, everyone who is in the management always feels that India is poised again to grow. We all know that the per capita cement consumption, steel consumption, everything is at a much lower levels than what they are at
Q
I just wanted to know what is the order flow for this Q1 FY22 order. Sir, my question was what was the order inflow in Q1 FY22?
Management
Yes, it was 283 for gears and 40 for material handling. Sir, this is for Q1 FY23 right, I want to know about Q1 FY22? Can we get back to you later. Sure, sir no problem. Sir my second question was, what kind of opportunity do you see in the FGD system? Sorry, can you come back again, there is a lot of static noise behind. Sir, my question was what kind of opportunities do we see in the FGD system? The FGD systems has a good potential not only for the gears but also for material handling. We are not directly involved in it but we expect that over a period of time we would create some alliance t
Q
Just wanted to know that 130 crore of order which you said has come in for the marine business it is not added in the current order book, right?
Management
No, it’s not been added because it’s just come in. It’s fresh out of the oven.
Q
Thank you. Basically, the first quarter results have been robust. And going forward, we are not seeing any challenges till the year end, because we have reasonable orders on hand. As long as the economy is concerned, we believe that the CAPEX cycle which has started will continue, which will give us a reasonably good order inflow. Apart from this, we are seeing that the inquiry levels at the export end are also healthy, which would be converted into good orders going forward. And we believe that we are poised to now grow and also see to it that we generate sufficient cash for us, so that we re
Opening remarks
Apurva Shah
Thank you, Peter. Good afternoon to all the participants on the call. And thanks for joining for this Q1 FY23 Earning Conference Call of Elecon Engineering Company Limited. 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. Narasimhan Raghunathan - CFO. Mr. Prayasvin Patel will give a brief overview of the company for the quarter gone past and then we’ll open the floor for Q&A session. With that said, I would now hand over the call to Mr. Prayasvin Patel. Over to you sir.
Prayasvin Patel
Thank you. Good evening, everyone. Ladies and gentlemen, a very warm welcome to our Q1 FY2023 conference call. We are pleased to report strong financial performance during the quarter and have delivered consistent improvement in our results over the last many quarters. Discussing the results at a standalone level. The total operating income increased by 16.4% year- on-year to Rs.257.2 crores compared to Rs.221.0 crores in the corresponding quarter of the previous year. The EBITDA on absolute basis increased by 9.8% year-on-year to Rs.55 crores as compared to Rs.50 crores during the corresponding period of the previous year. This translates to EBITDA margin of 21.4% in Q1 FY23 compared to 22.6% in Q1 FY22. We closed this quarter with a net profit of 32.9 crores as compared to 23.1 crores during the corresponding period of the previous year reflecting an increase of 42.4%. Let me highlight few points related to the results. The gear business witnessed strong demand from the end user indu