Buy Elecon Engineering; target Rs 100: PINC Research

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Buy Elecon Engineering; target Rs 100: PINC Research

PINC Research is bullish on Elecon Engineering Company (EECL) and has recommended buy rating on the stock with a target price of Rs 100 in its November 4, 2011 research report.

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PINC Research is bullish on Elecon Engineering Company (EECL) and has recommended buy rating on the stock with a target price of Rs 100 in its November 4, 2011 research report.

"Elecon Engineering Co. (EECL) reported 20% YoY growth in revenue to Rs 3.4bn (PINCe Rs 3.2bn) which was above our expectations. OPM improved by 50bps YoY to 14.7%. Higher interest cost and higher tax rate impacted the net profit which grew by 9.6% to Rs 156mn (PINCe Rs 162mn) which was inline with our estimates. Order inflows witnessed marginal growth of 3% in Q2FY12 (YoY basis) and de-growth of 13% in H1FY12 (YoY basis)."

"Revenues in the MHE division grew by 20% to Rs 1.9bn and margins improved by 50bps. TRE also witnessed a healthy growth of 22% to Rs 1.5bn but margins declined by 80bps to 13.8%. Resultantly, margins at PBIT level remained flat at 13.5%. Higher interest cost (up by 34%) and higher tax rate (37% vs 29% YoY) impacted the bottom line adversely and net profit registered a growth of 9.6% to Rs 156mn. Order inflows were up by mere 3% YoY (down by 50% QoQ) to Rs 2.4bn (Rs 1.2bn from MHE division and Rs 1.2bn from TRE division). Order inflow in the first 7 months stood at Rs 7.8bn (MHE at Rs 4.8bn and TRE at Rs 3bn). The current order book at end of Q2FY12 stands at healthy Rs 15.2bn (Rs 11.7bn for MHE and Rs 3.5bn for TRE division) excluding the order from Brahmani Steel (worth Rs 3.2bn). The order book was up by 1% YoY and down by 6% QoQ."

"EECL's debt at Rs 5.3bn has remained flat in Q2FY12 vs FY11 end. Company maintains its capital expenditure plan of Rs 1-1.1bn in FY12. The current order book at Rs 15.2bn provides good revenue visibility. Increased order inflows remain key trigger for the company going forward. Margins are expected to remain stable considering the management's focus over profitability than growth. We maintain our estimates and expect sales CAGR of 21% (FY11-13E). At CMP, the stock is attractively valued at 6.3xFY13E given its healthy order book, increased focus on project business, robust order pipeline and sustainable margins. We maintain our 'BUY' recommendation on the stock with a target price of Rs 100 (9xFY13E)," says PINC Research report.

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To read the full report click on the attachment