Elecon Engineering : Transcript of the Investor Call held on 22nd July, 2022

"Elecon Engineering Company Limited Q1 FY-23

Earnings Conference Call"

July 22, 2022

MANAGEMENT: MR. PRAYASVIN PATEL - CMD.

MR. KAMLESH SHAH - GROUP CFO.

MR. NARASIMHAN RAGHUNATHAN - CFO.

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Elecon Engineering Company Limited

July 22, 2022

Moderator:Ladies and gentlemen, good day and welcome to the Q1 FY23 Post Earnings Conference Call of Elecon Engineering Company Limited hosted by PhillipCapital India Private Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing "*" then "0" on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Apurva Shah from PhillipCapital. Thank you and over to you, Mr. Apurva.

Apurva Shah:Thank you, Peter. Good afternoon to all the participants on the call. And thanks for joining for this Q1 FY23 Earning Conference Call of Elecon Engineering Company Limited. To take us through the results of this quarter and answer your questions we have with us the management of Elecon Engineering represented by Mr. Prayasvin Patel - CMD, Mr. Kamlesh Shah - Group CFO and Mr. Narasimhan Raghunathan - CFO. Mr. Prayasvin Patel will give a brief overview of the company for the quarter gone past and then we'll open the floor for Q&A session. With that said, I would now hand over the call to Mr. Prayasvin Patel. Over to you sir.

Prayasvin Patel: Thank you. Good evening, everyone. Ladies and gentlemen, a very warm welcome to our Q1 FY2023 conference call. We are pleased to report strong financial performance during the quarter and have delivered consistent improvement in our results over the last many quarters.

Discussing the results at a standalone level. The total operating income increased by 16.4% year- on-year to Rs.257.2 crores compared to Rs.221.0 crores in the corresponding quarter of the previous year. The EBITDA on absolute basis increased by 9.8% year-on-year to Rs.55 crores as compared to Rs.50 crores during the corresponding period of the previous year. This translates to EBITDA margin of 21.4% in Q1 FY23 compared to 22.6% in Q1 FY22. We closed this quarter with a net profit of 32.9 crores as compared to 23.1 crores during the corresponding period of the previous year reflecting an increase of 42.4%.

Let me highlight few points related to the results. The gear business witnessed strong demand from the end user industries like cement, steel, sugar, power, et cetera. Gear revenue includes Rs.9.95 crores from marine project in Q1 FY23 compared to 61.19 crore in Q1 FY22.

On the back of our strategic initiatives, the MHE business has seen remarkable turnaround and turned profitable which is expected to continue for the full year FY23 and ahead. Moreover, there has been substantial reduction in receivables led by our relentless focus, two out of three legacy projects are cleared and settled whereas the balance is expected to be settled by Q2.

Coming to the consolidated financials of the Q1 FY23. The operating revenues increased by 11.4% year-on-year to 327.7 crores as compared to 294.2 crores in Q1FY22. EBITDA increased by 10.2% year-on-year to 64.9 crores versus 58.9 crores in Q1 FY22. EBITDA margin stood at 19.8% in Q1 FY23 as against 20% in Q1 FY22. The consolidated profit after taxes stood at 42.3 crores on Q1 FY23 as compared to 27.3 crores in the corresponding period of the previous year, an increase of 54.9%. Overseas revenue from Q1 FY23 is flat as compared to Q1FY22. The

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Elecon Engineering Company Limited

July 22, 2022

same is impacted due to global logistic challenges. However, we are confident to achieve our annual overseas revenue target as we expect things to normalize. Orders on hand in overseas business is Rs.114 crores. Demand environment continues to be robust, resulting in significant ramp up in the order booking with orders worth 282 crores booked in gear business and orders worth 45 crores in material handling business during the quarter. In the gear business the orders on hand is 400 crores and in MHE business, the orders on hand is Rs. 102 Crores. The Company is monitoring the impact of inflation and slowdown in the global economy and is taking necessary measures to mitigate the impact of the same.

I'm delighted to announce that we have become net debt free. Along with this our focus on debottlenecking and ensuring better utilization of available capacity, along with working capital optimization and cost control has led to improvement in margins and profitability and return ratios. We continue to focus on improving share of exports, which will help to further boost the overall performance. We are confident of improved performance in the coming quarters on the back of strong order book and order inquiry both in domestic and international business. We continue to monitor emerging trends in inflation and economic slowdown in Western countries and remain well prepared to take necessary steps to minimize the impact arising out of these headwinds. Thank you all. We will be happy to address your specific queries about the business going forward. Thank you.

Moderator:Thank you very much. We will now begin the question-and-answer session. Our first question is from line of Shubham Agarwal with Aequitas India. Please go ahead.

Shubham Agarwal: Sir my first question is related to the subsidiary business. So, this quarter we saw a decline, muted execution and profitability. So, if you can elaborate on what were the key reasons for that, and how do we see this subsidiary business for the rest of the year?

Management:As you know that there are two things which are affecting the subsidiary businesses, one is the war which is going on between Ukraine and Russia which is having an impact on the energy cost and the other one is high inflation. In spite of this, there are very healthy inquiries available with our foreign subsidiaries and we are confident that by the end of the year we should be able to do as projected or even better for the exports.

Shubham Agarwal: Okay. And what would be our total projection for the year?

Management:Our projection overall was 140 crores.

Management:1000 crores on standalone basis and 1500+ crore on a consolidated.

Management:I was talking about the total exports, fine anyway go ahead.

Shubham Agarwal: So, that the number clearly can you once again tell the total export number?

Management:Total export what we are expecting from India should be 140+ crore.

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	Elecon Engineering Company Limited
	July 22, 2022
Shubham Agarwal:	Okay, got it. Sir, secondly on the standalone business, so this quarter we observed that both
	employee cost and other expenses were on the higher side. So, sir if you can elaborate as to what
	were the key reason because employee costs almost jumped by 50% Y-o-Y and around 35% Q-
	o-Q. So, yes, if you can elaborate on this?
Management:	We have increased our strength in business development also on the logistics that is SCM and
	in the design and engineering, because we believe that for the growth of the organization, these
	three areas would have to be further enhanced to grow the business especially the exports.
Shubham Agarwal:	Okay, got it. And lastly on the order book sir, you said you have a very healthy pipeline of order
	which is expected. So, again, if you can help us understand where all or which industry you are
	observing and given the recent changes in the global headwind which we are seeing, are we
	seeing any order that is getting either postponed or getting rejected?
Management:	We are not seeing postponement, but we are seeing that some of the companies in India are
	pausing for a while, and they are pausing for a while because they feel that the prices of steel
	especially have gone down and they are wanting to sit on the fence to see if they're further going
	down. So, that they can order a bit later and get cheaper prices. But all in all the demand, we are
	not seeing a reduction in demand, it is just that they want to delay the ordering process. However,
	as you have seen our orders on hand are sufficient for us. So, it is not impacting us probably it
	is helping us so that we are able to streamline our output in a better way.
Moderator:	Thank you. Our next question comes from Kashyap Javeri from Emkay Investment Managers.
	Please go ahead.
Kashyap Javeri:	I have just one question, in your notes to accounts there is something about a settlement of claim
	with vendors roughly about eight crores, So, what is that and second question, in your
	presentation, you haven't given consolidated order books. So, what is the total consolidated
	order book including the overseas business?
Management:	The consolidated order book position including the overseas is 617 crores. In regards to that
	note, what is reflected in our Q1 finances it is not 826.95 crore that is some negotiation with the
	vendor who are controller supplier to us, they were negotiating about a price hike because of this
	Ukraine and Russia war, they got impacted. So, we have settled that amount with the respective
	vendors by giving some price rise to them so, that our continuity of supply will continue.
Kashyap Javeri:	In this settlement with respect to the previous period supplies or is it with respect to the raw
	material for this particular quarter?
Management:	That settlement is for the period from January 2022 to March 22.
Kashyap Javeri:	So, for the previous quarter?
Management:	Yes, previous quarter.

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