Growth in steel, cement & power sectors to drive turnover:Elecon

Slow-moving markets and a dull economy posed big challenges to our topline growth, said PR Patel, Chairman and Managing Director, Elecon Engineering. The margins for FY16 were 18 percent and the Patel expects further growth in FY17. The company recently received orders worth Rs 530 crore from the marine and defence sector, which is the largest in its history, said Patel.  The order is for gear boxes for frigate (warships). Company's sales have been good so far, and Patel maintained that a buoyancy in steel, cement or power sector will further increase the turnover of the company.  About 30 percent of company's revenue comes from European markets, he added. At present, international margins are lower than the domestic one, but Patel expects them grow. Total debt of the company is Rs 600 crore, out of which Rs 350 crore is working capital.Below is the transcript of PB Patel’s interview with Nigel D’souza on CNBC-TV18. Q: The quarter on the whole was pretty subdued if you would like to term it like that. At the topline there was some kind of pressure. We did see that margins though were more or less stable. Do you expect to hold on to these margins of around 18 percent and also, could you give us some quarterly run rate that we can look at with regard to your topline? A: Basically, what we find is that the markets have not improved as yet. The economy still remains dull and therefore, it has been quite a challenge for us to increase our topline. However, considering the present economic scenario, I think we have done quite well and considering that, the bottomline has been also reasonably well preserved. Q: Then going ahead, do you expect a further dip from around this Rs 400-410 crore or do you expect to hold on to that level? And also, give us a sense about your order book. How much of it really is customised? Could you give us what is your exposure to the power segment? A: Basically, the power segment has been dull. It is yet to pick up. However, we have been receiving orders from the marine and the defence sector. We have recently received an order for Rs 530 crore which is one of the largest orders in our history for gear boxes for frigate battleships which are also stealth in nature. So, it has been reasonably a good year as long as the sales have been concerned and going forward, if there is a buoyancy in the power steel or cement, that would further increase our turnover. Q: How is the European business doing on the whole as well? I believe you had made an acquisition over there, could you give us a sense of that? How much of your revenue comes from there? A: About 3 percent of our revenue comes from there. What we see is that out there we had been able to grow the topline slightly, but we have been able to bring a lot of costs under control and which is making all the subsidiaries profit after tax (PAT) positive and which has been going on for the last four quarters. Q: About 30 percent of your revenues come from there. Can you compare the margins? Blended margins 18 percent, give us a break up. How much are you doing domestically, what are the margins in your international business? A: The margins in the international business are comparatively low compared to the domestic margins. However, there is a strong drive to increase our margins abroad. And we expect that over a period of time, they would be rising to the level of approximately 10 percent over a period of time. Q: Also, you had told us earlier that a gear equipment order book stands at around Rs 500 crore. Could you give us an update on that front as well? And you were talking about seeing some increase in contribution coming in from the navy going forward. Any kind of orders come in from there? FY17, how does it look on the whole? A: There is a fairly handsome demand as long as requirements for gear boxes are concerned for the Indian navy. And we expect that over a period of time, we would be getting reasonably good orders from the Indian navy as we are fairly well poised to do so. And we expect that this would turn out to be at least an equivalent amount of over the next two years. Q: Topline has not grown in FY16 in comparison to FY15. What is the guidance for FY17, that is point number one? And also, give us an update because I am seeing your finance cost has been dipping as well. What is your total debt picture and are we likely to see more of the same? A: Our total debt is round about Rs 600 odd crore. Out of which Rs 350 crore is our working capital. We have been slowly and gradually reducing it over a period of time and we believe that there is a continuous exercise to further bring it down.