Accumulate Elecon; target of Rs 85: Angel Broking

Angel Broking's report on Elecon Engineering CompanyFor 2QFY2016, Elecon Engineering Company (Elecon) reported standalone numbers broadly below our estimates, except at the operating level. The top-line for the quarter declined by 5.5% yoy to `111cr. However, the operating performance improved significantly, led by a 1,516bp yoy decline in raw material cost to 43.9% of sales. Although, this benefit was partially offset by a 394bp yoy and 236bp yoy increase in employee and other expenses to 12.4% and 18.9% of sales, respectively; overall, the EBITDA margin expanded by 859bp yoy to 24.9%. Led by the favorable operating performance, the standalone net profit increased by 158.9% yoy to `7cr.Outlook and Valuation: We expect Elecon’s consolidated revenues to post a CAGR of 7.4% over FY2105E-17E to `1,533cr. Recovery in the MHE business’ margins will result in EBITDA margins expanding by 214bp over FY2015E-17E to 14.9%. Consequently, the net profit is expected to improve to `66cr in FY2017E. At the current market price, the stock is trading at 13.0x its FY2017E earnings. We believe that these valuations are attractive considering its 5-year and 3-year median P/E of 18.7x and 20.7x, respectively. We have an Accumulate rating on the stock with a revised target price of `85 based on a target PE of 14.0x for FY2017E, says Angel Broking research report.For all recommendations, click hereDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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