Elecon’s revenues grew by 1.7% YoY during 3QFY10. The company was able to manage this growth largely due to growth in its material handling equipment (MHE) business (which recorded a 4.3% YoY growth during the year). On the other hand, its transmission equipment (TE) business saw a fall of almost 2% YoY. As such, the MHE business increased its share in the company’s total revenue to nearly 59% from 57% last year, while the TE business contributed to the balance 41% during the quarter (43% in 3QFY09).
Elecon’s operating margins contracted marginally by 0.1% during 3QFY10. The reason behind this was much higher raw martial costs (as percentage of sales). On the other hand, employee costs and other expenditure saw a fall as a percentage of sales during the quarter.
During the quarter, the company’s net profits grew by 59% YoY due to a Rs 77 m profit on sale of investments. Excluding this, profits recorded a fall of 3% YoY during the quarter. This is on the back of a contraction in operating margins as well as a substantial rise in depreciation charges.
At the current price of Rs 80, the stock is trading at a multiple of 10.1 times our FY12 earnings estimates. At this level, we hold a cautious view and would advise against taking fresh positions in the stock.
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