At a Glance
Elecon has gone from slow-turning gear manufacturer to a 23% ROE machine. With a ₹13,879 Cr market cap, 5-year profit CAGR of 36%, and 25%+ OPMs, it’s the smallcap industrial that roared. But at 31x P/E, are we overpaying for precision?
1. 🧲 Introduction with Hook
Imagine a company whose gears run submarines, sugar mills, and steel plants — and somehow also run your portfolio faster than most fintech startups.
That’s Elecon Engineering: part gearhead, part cashflow king, part quiet multibagger. And if you thought industrials can’t be sexy, just look at that TTM EPS chart. 🔥
2. 🏭 WTF Do They Even Do?
🛠️ Business Segments:
- Gear Division (72% revenue)
- Custom industrial gearboxes, worm/helical/planetary gears
- Clientele: Defence, Navy, Cement, Steel, Power
- High-margin, niche, and IP-driven
- Material Handling (28% revenue)
- Bulk conveyors, stacker reclaimers, and mining infrastructure
- Lower margin, project-based business
🧪 Bonus Segment:
- In-house steel foundry for component manufacturing — aids cost control and precision.
3. 💰 Financials Overview – Profit, Margins, ROE, Growth
| Metric | FY23 | FY24 | FY25 |
|---|---|---|---|
| Revenue | ₹1,530 Cr | ₹1,937 Cr | ₹2,227 Cr |
| Net Profit | ₹238 Cr | ₹356 Cr | ₹415 Cr |
| OPM | 22% | 24% | 24% |
| ROE | 17% | 23% | 23% |
✅ This is how a capital goods company scales — not by debt, but by discipline.
Margins and ROE both hitting sweet spots.
4. 💸 Valuation – Cheap, Meh, or Crack?
| Metric | Value |
|---|---|
| P/E (TTM) | 30.9x |
| P/B | 6.95x |
| Market Cap | ₹13,879 Cr |
| Dividend Yield | 0.32% |
| FV Range (EduInvesting) | ₹490–₹560 |
📊 FV Logic:
Assuming a sustainable EPS of ₹20–22, and applying 24x–27x P/E (sector average + premium for margin + ROCE), you get FV range of ₹490–₹560.
At ₹619, it’s priced for perfection. Margin of safety? Not so much.
5. 🚀 What’s Cooking – News, Triggers, Drama
- 💥 Q1 FY26 Results:
- Revenue ₹491 Cr (+25% YoY)
- PAT ₹175 Cr (+139%)
- Includes ₹35 Cr arbitration income + ₹25 Cr one-off gain
- 🛳️ Navy orders and custom gearbox exports seeing strong demand
- 🔩 Working on expanding overseas footprint + defense tender pipeline
- 📦 Order book visibility for 12–15 months (as per concall)
But remember: Q1 PAT is inflated due to arbitration gain. Remove that and profit is closer to ₹115–₹120 Cr.
6. 💥 Balance Sheet – How Much Debt, How Many Dreams?
| Item | FY25 |
|---|---|
| Equity | ₹22 Cr |
| Reserves | ₹1,976 Cr |
| Total Borrowings | ₹181 Cr |
| Total Assets | ₹2,729 Cr |
- ✅ Debt down from ₹600+ Cr in FY16 to ₹181 Cr — near-zero D/E
- ⚙️ Capex has been gradual, funded via internal accruals
- 🧾 No equity dilution since forever — rare in capital goods!
7. 💵 Cash Flow – Sab Number Game Hai
| Year | CFO | CFI | CFF | Net CF |
|---|---|---|---|---|
| FY25 | ₹432 Cr | ₹(316) Cr | ₹(67) Cr | ₹49 Cr |
- Strong operating cash flow — business is asset-light and profitable
- FCF positive for 3+ years
- Even investing ₹300 Cr didn’t create cash burn. King behaviour.
8. 📉 Ratios – Sexy or Stressy?
| Metric | Value |
|---|---|
| ROCE | 28.5% |
| ROE | 23.0% |
| OPM | 25% |
| Debtor Days | 101 |
| CCC | 87 |
| Working Capital Days | 69 |
✅ Clean ratios. CCC reduced significantly post FY22.
💡 High ROCE = operating leverage + pricing power.
9. 🧾 P&L Breakdown – Show Me the Money
- FY25 Revenue: ₹2,227 Cr
- PAT: ₹415 Cr
- EPS: ₹18.5
- Dividend Payout: ~11% (token only)
⚠️ Note:
Q1FY26 EPS = ₹7.82 is not sustainable, inflated by one-offs.
Normalized quarterly EPS = ₹5–₹5.5 = ₹20–₹22 annually.
10. ⚙️ Peer Comparison – Who Else in the Game?
| Company | P/E | ROCE | OPM | ROE |
|---|---|---|---|---|
| ABB India | 64.6x | 38.6% | 18.9% | 28.8% |
| Siemens | 59.1x | 23.6% | 12.0% | 17.6% |
| CG Power | 111x | 37.5% | 13.3% | 27.6% |
| Suzlon | 43x | 32.4% | 17.0% | 41.3% |
| Elecon | 31x | 28.5% | 25.0% | 23.0% |
🎯 Best margins in the pack.
📉 Lowest P/E among high-performers = still decent value… if you ignore the one-offs.
11. 🧿 Miscellaneous – Shareholding, Promoters
| Stakeholder | Jun 2025 |
|---|---|
| Promoters | 59.28% |
| FIIs | 9.61% |
| DIIs | 3.80% |
| Public | 27.28% |
| Retail Shareholders | 1.15 lakh+ |
📈 FIIs have increased stake from 2% in Sep 2022 to nearly 10% now.
Massive retail love as well — for once, with reason.
12. 🧠 EduInvesting Verdict™
🧠 If there’s one Indian engineering stock that deserves a gearhead cult, it’s this.
- High ROE
- Expanding margins
- Almost debt-free
- Long-term CAGR compounding at 30%+
But at 30x+ P/E, you’re not stealing value — you’re just paying for it.
Verdict: This isn’t a bargain. It’s a premium-quality machine. Just don’t buy it expecting EV-style moonshots.
🎯 Fair Value Range: ₹490–₹560
At ₹619, it’s like buying an already assembled gearbox — smooth, but no margin left for tweaking.
✍️ Written by Prashant | 📅 11 July 2025
Tags: Elecon Engineering, Gearbox Stocks, Industrial Equipment, ROCE Leaders, Nifty 500, Capital Goods, High Margin Stocks, EduInvesting
