>ELECON ENGINEERING COMPANY LIMITED (INDIA CAPITAL MARKETS)

Elecon Engineering Company Limited is a leading manufacturer of mission critical Material Handling Equipment and Power Transmission Solutions for Defence, Mining, Power, Steel, Plastic, Sugar and Cement amongst other sectors. We believe, with an established set-up, Elecon
Engineering would be among the key beneficiaries of the increased investment in sectors such as power, cement, mining and steel, which contribute significantly to its bottom line. Further, the changes in the product mix, entry into the wind energy segment, coupled with a healthy order-book, lend greater confidence to its earnings visibility. We expect revenues to grow at a CAGR of ~20% over FY09-11 and expect net earnings to grow at a CAGR of ~24% over the same period. Leading player in MHE and Industrial Gears segment Elecon Engineering is a leader in industrial gears with a market share of 26% and also has a dominant presence in the Material Handling Equipment.

De-Risked Business Model
Elecon Engineering offers a range of products and solutions for various industries which helps the company to distribute the risk across a wide spectrum of industries.

Strong Order Book
The Company has a strong order book of Rs 15490 mn, of which Rs 13040 mn (84.18%) is from the Material Handling Equipment segment and the rest Rs 2450 mn (15.82%) is from the Industrial Gears segment.

Valuations
We possess a positive outlook on the MHE and the Power Transmission business of the company. However we don’t see any significant business traction from the wind mill and wind mill gear box segments in the near term. At the current market price of Rs.96, the stock trades at 15.5x its FY09 earnings of Rs 6.19, 14x its FY 10E earnings of Rs 6.87 and 10x its FY 11E earnings of Rs 9.50. We recommend Accumulate with a target price of Rs 114 based on 12x its FY11E earnings i.e. a potential upside of 19% from its current levels.

To see full report: ELECON ENGINEERING