Buy Elecon Eng; target of Rs 100: PINC Research

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Buy Elecon Eng; target of Rs 100: PINC Research

PINC Research is bullish on Elecon Eng and has recommended buy rating on the stock with a target of Rs 100 in its August 3, 2011 research report.

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PINC Research is bullish on Elecon Eng and has recommended buy rating on the stock with a target of Rs 100 in its August 3, 2011 research report.

"Elecon Engineering (EECL) registered 3.4% YoY growth in revenue to Rs2.5bn (PINCe - Rs2.7bn) which was below our expectations. OPM improved by 267bps YoY to 17.7% due to decline in RM cost as a % of sales. Adjusted profit grew by 12% to Rs149mn (PINCe - Rs153mn) which was inline with our estimates. Order inflows witnessed de-growth of 20% in Q1FY12 (YoY Basis)."

"Revenues in the MHE division declined by 5% to Rs1.4bn but margins improved by 80bps. TRE witnessed a healthy growth of 20% to Rs1.2bn and margins remained stagnant at 15.2%. We believe better product mix and efficient cost management have resulted in decline in RM cost as % of sales by 600bps to 62.7%. Consequently, margins improved by 267bps to 17.7% at operating level. Higher interest cost (up by 35%) impacted the bottom line adversely and net profit registered a growth of 12% to Rs149mn. Order inflows were down by 20% YoY (up by 8% QoQ) to Rs4.8bn (Rs3.3bn from MHE division and Rs1.5bn from TRE division). Order inflow in the first 4 months stood at Rs5.2bn. Management indicated live enquiries worth Rs40bn. The current order book at end of Q1FY12 stands at Rs16bn (Rs12.3bn for MHE and Rs3.8bn for TRE division) excluding the order from Brahmani Steel (worth Rs3.2bn). The order book was up by 27% YoY and 16% QoQ."

"The current order book at Rs16bn provides good revenue visibility. The improvement in margins reflects management's focus on sustainability of margins rather than growth. Company maintains its sales guidance of 25% growth in FY12. We maintain our estimates and expect sales CAGR of 21% (FY11-13E). At CMP the stock is attractively valued at 7xFY13E given healthy order book, increasing focus on project business, robust order pipeline and sustainable margins. We roll forward our target valuation to FY13 and maintain our 'BUY' recommendation with an increased target price of Rs 100 (9xFY13E)," says PINC Research report.  

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To read the full report click on the attachment