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Elecon Engg hits record high in a weak market; stock zooms 25% in 2 days

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Shares of Elecon Engineering Company (EECL) soared 19 per cent to Rs 392, hitting a new high on the BSE in Monday’s intra-day trade, surging 25 per cent in the past two trading days. In comparison, the S&P BSE Sensex was down 0.79 per cent at 55,632 levels at 10:47 AM. The stock surpassed its previous high of Rs 343, touched on December 20, 2007.

Since April 9, the market price of EECL has more-than-doubled or is up 117 per cent from a level of Rs 169.50 hit on the BSE. In comparison, the S&P BSE Sensex was up 2.1 per cent during the same period.

EECL is the one of the largest Industrial Gear manufacturers in Asia having wide range of products. The company expertises in manufacturing of custom-made gearboxes for steel/cement/rubber/sugar mills, high speed turbines, defence applications, plastic extrusions, etc.

In FY22, the company’s gear business witnessed strong performance on the back of healthy order inflows and favourable product mix, and also due to increased focus towards increasing penetration in the international markets. The company said it will focus on working capital optimization & cost control, debottlenecking and ensuring better utilization of available capacity. The company has become net debt free.

For April-June quarter of FY23 (Q1FY23), EECL reported healthy earnings, with consolidated net profit jumping 54.9 per cent year on year (YoY) at Rs 42.30 crore. Total operating income grew 11.4 per cent YoY at Rs 327.7 crore from Rs 294.2 crore in Q1FY22. Earnings before interest, taxes, depreciation and amortization (ebitda) margin remained unchanged at 19.8 per cent for Q1FY23 as against 20.0 per cent in Q1FY22.

Going ahead, ECCL said the Indian Engineering sector is well poised to return to its growth path supported by favourable government policies and revival in economic growth. The investment in sectors like power, steel, mining, infrastructure, oil & gas, etc., have been driving growth in the engineering industry. Both Gears and MHE segments are expected to gain from robust demand from mining, steel, power and other infrastructure industries.

Meanwhile, rating agency Icra had assigned stable ratings to the company’s instruments. The ratings assigned factors in the leadership position of EECL in the transmission products segment i.e. gears with a sizeable market share of around 38 per cent in India, supported by significant manufacturing capacities, an expansive geographic presence and an established presence in the material handling equipment segment (MHE).

“Additionally, EECL has developed a reasonable global footprint in recent years and its revenue mix is fairly diversified across geographies with international sales accounting for 35% of the consolidated revenues in FY2022,” ICRA had said in a rating rationale dated June 21, 2022.

The Stable outlook on the long-term rating reflects Icra’s opinion that EECL’s revenues and accruals will be supported by its comfortable order book along with expectations of a healthy order inflow in the near to medium term. Also, the company will continue to benefit from its established track record in the transmission and the MHE segments.

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