PN Vijay's view on Elecon Engineering

Vijay told CNBC-TV18, "Everybody knows Elecon Engineering, its well-known and well established player. I would say that if you can use the term they are an infrastructure ancillary a bit like Bharat Forge in the auto sector, they are not infrastructure in terms of BHEL or something, they are akin to L&T’s equipment division, they have got about 55% of their turnover in material handling, 45% in transmission equipment.”

He further added, “What’s happen in the last quarter and I think this is typical of many other infrastructure companies. The order inflow has been good, has been robust as more and more orders are coming out of the power sector and to some extent there is unblocking of orders in the highway sector also, which helps in their material handling division. So their order inflow has been one of the highest in their recorded history of about 30% or so which is the great thing for them.”

“The negative is that they had EBITDA erosion. Year on year they are okay but last quarter was an erosion mainly because of interest cost, I think there is one worry about this company is that the debt equity is a bit high at 1.2 or so but its not long-term debt, it’s a working capital debt because these guys have a long product commissioning in completion cycle and working capital gets logged in but inspite of that I think the bottomline has grown impressively and again in this carnage of August they have relatively stood up very well, the share has hardly lost any value, so its again trading at a very nice price earnings multiplier of about 8-9 or so and I think it has a surely 25-30% upside from this level. True it’s a capital goods stock but if one wants to be a long-term player one can pick great midcaps in this space."