Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Elecon Engineering Co Ltd (BOM:505700, Financial) reported a significant 18% year-on-year growth in overseas revenue for Q1 FY25, now contributing 34% to the overall consolidated revenues.
- The company has established a robust distribution network across 85+ countries, enhancing its global presence.
- The MHE division achieved a remarkable 192% year-on-year growth in order inflows, indicating strong performance and future order wins.
- Elecon Engineering Co Ltd (BOM:505700) has a comprehensive product portfolio, allowing it to cater to a wide spectrum of customer needs and preferences.
- The company is committed to sustainability, prioritizing the transition to renewable energy sources and emphasizing employee welfare and safety.
Negative Points
- Consolidated revenue from operations for Q1 FY25 stood at INR392 crore, a degrowth of 5% compared to the same quarter last year.
- The Gear division saw a decline in revenue to INR334 crore from INR361 crore in Q1 FY24, primarily due to slower order inflows influenced by general elections.
- EBITDA for Q1 FY25 decreased to INR92 crore from INR100 crore in Q1 FY24, with the EBITDA margin also showing a decline.
- Order intake for Q1 FY25 was down by 11% year-on-year, indicating a slowdown in new business acquisition.
- The company faces challenges in the international market, with its brand not yet well-established in regions like Europe and America.
Q & A Highlights
Q: On revenues from exports and overseas operations, what's driving the growth in Q1 FY25, and where do you see it for the full year?
A: Growth is coming from the Middle East, USA, Nordic, and European countries. We expect the same growth momentum for the full year from these territories. (Kamlesh Shah, CFO)
Q: On the margin expansion in overseas subsidiaries, particularly in the UK and US, what's driving this, and will overall margins be better than FY24?
A: The margin expansion is due to brand-building costs and business development. We expect to sustain the margins achieved last year. (Kamlesh Shah, CFO)
Q: Why is there a divergence in growth between the Gear and MHE divisions, given the impact of elections?
A: The MHE division received orders from the private sector, which had already planned CapEx, while the Gear division faced delays due to election-related uncertainties. (Kamlesh Shah, CFO)
Q: On the INR200-250 crore CapEx, will the machinery be purchased outright or leased?
A: We are considering options like leasing, supplier's credit, or ECB, despite having sufficient internal accruals, to take advantage of interest rate arbitrage. (Kamlesh Shah, CFO)
Q: What is the potential for the Material Handling division to achieve INR1,000 crore in revenue, and are there export opportunities?
A: We are fully geared up to scale up, with large manufacturing facilities and potential for significant software contributions. We are also pursuing export opportunities, with an expected order from Africa. (Prayasvin Patel, Chairman and MD)
Q: On the sustainability of MHE margins, are the current high margins sustainable?
A: We expect 20%+ margins for MHE to be sustainable, depending on the product and revenue mix. (Kamlesh Shah, CFO)
Q: What are the key success factors for Elecon in the export market?
A: Success factors include providing tailored solutions, strong after-sales service, and free installation for large gear units, rather than competing on price or brand alone. (Prayasvin Patel, Chairman and MD)
Q: How is the competitive intensity in the export market, and who are the main competitors?
A: Our market share in Europe and America is negligible, so competition is not very price-sensitive. It focuses more on support, timely delivery, and proper execution. (Prayasvin Patel, Chairman and MD)
Q: What is the potential for scaling up OEM business from Europe?
A: We estimate capturing 10-15% of the total requirement of gearboxes from OEMs, which can go up to 30-35%+. (Kamlesh Shah, CFO)
Q: What is the status of orders from Russia and Indian Railways?
A: We see potential in Russia due to the Ukraine-Russia war and are cautiously pursuing opportunities. For Indian Railways, trials are ongoing, and we are waiting for major orders. (Prayasvin Patel, Chairman and MD)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
