Elecon Engineering Company Limited Q2 FY27 Earnings Conference Call Summary

Financial Performance Highlights

Q2 FY27 Performance:

  • Revenue from operations: INR 639 crores, up 10.5% YoY (vs INR 578 crores in Q2 FY26)
  • Quarter-over-quarter growth: 22.7% (vs INR 521 crores in Q1 FY27)
  • EBITDA: INR 148 crores, up 17.7% YoY
  • EBITDA margin: 23.1%, expanded by 140 basis points
  • Profit after tax: INR 96 crores, up 9.8% YoY
  • PAT margin: 15.1%

H1 FY27 Performance (adjusted):

  • Revenue growth: 11.1% YoY (adjusted for INR 25 crores one-time arbitration settlement in H1 FY26)
  • EBITDA: INR 257 crores, up 11.4% YoY
  • EBITDA margin: 22.2% (vs 22.1% in adjusted H1 FY26)
  • PAT: INR 167 crores
  • Adjusted PAT increased 6.5% (excluding after-tax impact of arbitration income and INR 80 crores net of tax unrealized mark-to-market gain from reclassification of investments in prior period)

Segment-wise Performance

Gear Division (76% of consolidated revenue):

  • Q2 revenue: INR 488 crores, up 10.6% YoY
  • H1 revenue: INR 903 crores, up 13.1% YoY
  • Q2 EBIT: INR 108 crores, up 27.2% YoY
  • EBIT margin: 22.1%, expanded by 290 basis points
  • H1 EBIT: INR 182 crores, up 21.8% YoY
  • H1 EBIT margin: 20.2%
  • Q2 order intake: INR 493 crores
  • H1 order intake: INR 1,063 crores, up 8.8% YoY
  • Open order book (as of September 30, 2026): INR 1,056 crores, up 37% YoY
  • Power remains the highest contributing industry

Material Handling Equipment (MHE) Division:

  • Q2 revenue: INR 151 crores, up 10.4% YoY (from INR 137 crores)
  • H1 revenue: INR 256 crores, up 4.5% over adjusted H1 FY26
  • Q2 order intake: INR 253 crores, up 32.5% YoY (includes overseas orders of INR 68 crores)
  • H1 order intake: INR 438 crores, up 34.8% YoY
  • Open order book: INR 579 crores (as of September 30, 2026), up 27.3% YoY
  • EBIT margin guidance: 22-24% for the division

Geographical Performance

  • Q2 overseas revenue: INR 159 crores, up 30.6% YoY
  • H1 overseas revenue: INR 309 crores, up 26.2% YoY
  • Overseas contribution: 27% of consolidated revenue (vs INR 245 crores in H1 FY26)
  • Q2 export order inflow: INR 230 crores (Q1 FY27: INR 194 crores)
  • H1 export order inflow: INR 420 crores (H1 FY26: INR 291 crores)
  • Overseas order book: INR 326 crores

Balance Sheet and Capital Allocation

  • Shareholders' funds: INR 2,509 crores (as of September 30, 2026)
  • No conventional borrowings (debt primarily represents lease liabilities)
  • Net cash position: approximately INR 700 crores
  • Working capital: 89 days (improved from 98 days in FY26)
  • Interim dividend: INR 0.50 per equity share of face value INR 1 each declared
  • 3-year capital expenditure program remains on track

Credit Rating Update

  • Long-term credit rating outlook upgraded from AA Stable to AA Positive
  • Short-term rating reaffirmed at A1+
  • Lead banker released collateral security for both fund-based and non-fund-based working capital limits, removing hypothecation of movable and immovable properties including plant and machinery

Management Commentary and Outlook

Industry Context:

  • India's industrial outlook remains constructive supported by public capex, infrastructure development, and domestic manufacturing
  • Demand from cement and power sectors, plus anticipated threefold expansion in steel production capacity presents substantial opportunity
  • Indian heavy-duty industrial gearbox market expected to grow at approximately 8% CAGR through FY30
  • Key drivers include capacity creation, brownfield modernization, and need for efficient, reliable solutions

Strategic Priorities:

  • Expand in overseas markets, deepen domestic footprint, execute with discipline
  • Protect margins, strengthen earnings quality, allocate resources to areas with durable competitive advantage
  • MHE division establishing meaningful international presence with USD 9 million orders in H1
  • Gear division strengthening leadership in India's organized industrial gear market with DIN Class 2 standards for critical applications

H2 FY27 Outlook:

  • Expecting medium double-digit consolidated revenue growth (approximately 15%)
  • Maintain minimum EBITDA margin at FY26 level
  • Priorities: accelerate MHE execution, convert order pipeline with discipline, sustain margins, advance international strategy
  • Factors considered: macroeconomic uncertainty, geopolitical developments, inflationary environment, improved execution cycle

Long-term Targets:

  • Export target of 50% revenue mix by FY30
  • INR 5,000 crores top line guidance by FY30
  • Growth expected from both organic and inorganic opportunities

Key Business Developments

Defence Business:

  • RFP for P-17 Bravo issued to shipyards
  • Budgetary offers submitted
  • Expect RFP for final offers in Q2/Q3 FY28
  • Orders expected to be awarded beginning FY29 Q1
  • Execution typically takes 2-3 years
  • Company expects to be single bidder for follow-on orders of P17 Alpha

Market Opportunities:

  • Data center cooling tower applications showing good traction overseas
  • Oil and gas applications generating good orders
  • Shift from standard gearboxes to application-engineered condition monitoring solutions
  • Middle East and Americas showing strong growth momentum
  • US market described as having "huge potential" with good references in cement, steel, and power

Competitive Positioning:

  • Differentiators: widest product range, high-value sophisticated gear products, marine defence capabilities, high-speed gearboxes, ultramodern manufacturing infrastructure
  • MHE competitors: L&T, TKIL, TAKRAF, AUMUND
  • TRF has closed material handling operations
  • Overseas competition primarily from German companies

Raw Material Environment:

  • Significant steel price volatility in Q1 FY27, stabilized in Q2
  • Company implemented price hikes and improved product mix to offset input costs
  • Back-to-back price locking strategy implemented where possible

Q&A Session Highlights

  • Domestic softness attributed to steel price volatility and monsoon-related project execution delays
  • Expected momentum pickup post-Diwali
  • Catalog vs engineered product mix: 53% catalog, 47% engineering
  • Capacity utilization at approximately 60% with ongoing debottlenecking
  • MHE margin decline attributed to order quality, scale pickup timing, and project-based business model
  • Inorganic growth opportunities being explored in America and Europe for small to medium-sized companies
  • Defence business includes both low-speed and high-speed gearboxes for various applications