Release Date: April 25, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Elecon Engineering Co Ltd (BOM:505700, Financial) achieved record-breaking revenue and EBITDA for both Q4 and the full financial year FY25, meeting its revenue guidance.
- The gear division, contributing 75% to Q4 FY25 consolidated revenue, showed a stellar growth of 28.9% year-on-year, driven by robust demand from the steel, power, and cement sectors.
- The material handling equipment (MHE) division's revenue surged by 98.2% in Q4 FY25, reflecting strong demand and successful execution of strategic initiatives.
- The company has a strong order book, with a total of INR 948 crores in pending orders, positioning it for sustainable growth in the upcoming quarters.
- Elecon Engineering Co Ltd (BOM:505700) is actively pursuing international expansion, with plans to establish rapid build centers in Canada and Latin America, enhancing its global presence.
Negative Points
- The company's asset turnover ratio has fallen to 0.9, indicating less efficient use of assets compared to the previous year.
- There is a deceleration in growth for the gear division, with a full-year growth rate of only 5% compared to the previous year.
- The steel sector, a major revenue contributor, experienced a 6% decline, impacting overall revenue growth.
- The company faces potential challenges from US tariffs, which could affect its business in the US market.
- Employee expenses have increased significantly, which may impact profitability if not managed effectively.
Q & A Highlights
Q: Given the fact that our overall asset turnover is shy of one time, how do we raise the bar on capital efficiency?
A: We have completed our CapEx in March 2025, which is reflected in the current asset turnover. Going forward, we expect asset turnover to exceed one time, improving return on capital employed to 21%-24%. This improvement will be more evident from FY27 onwards as new machinery becomes fully operational.
Q: What would be the impact of US tariffs on our US business and other export markets?
A: We view the tariffs as an opportunity. Our order inflow from the US remains healthy, and we plan to establish entities in Canada, Mexico, and South America to conduct business directly, bypassing the US. This strategy will help us expand our reach within the Americas.
Q: There is a deceleration in growth for the gears division. Which sectors contributed to this slowdown?
A: The slowdown was mainly due to the steel sector, which saw a 6% dip compared to last year. However, the sector is now showing robust order inflow. Other sectors like power and cement have maintained steady growth.
Q: Can you provide a detailed breakup of next year's guidance for the gear and MHE divisions?
A: We expect INR 2,000 crores from the gear division and INR 650 crores from the MHE division, totaling INR 2,650 crores in revenue for FY26. The overseas revenue is expected to be 27%-30% of the total.
Q: What is the strategy for the OEM business, and how do you plan to achieve the 50% international business target?
A: Our focus is on increasing our presence in the Middle East, Americas, and the Far East. Although geopolitical issues have impacted growth, our strategy remains strong, and we expect to reach the 50% international business target over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
