Skip to main content

Eimco Elecon


Eimco Elecon is in the business of manufacturing mining and construction equipment.

The equipment is used in the coal and metallic (iron ore etc.) mining, and construction segments.

The user industries are expected to grow along with India’s GDP over the long run as fuel, manufacturing, and infrastructure are basic cogs in the economy, which will trigger demand for mining and construction equipment.  This is aided by India’s rich coal and mineral reserves, which are conducive for mining if managed properly.  Furthermore, there appears to be substantial scope for underground mining that could further fuel growth.

It is one of the few Indian companies producing such equipment.  It has a tie-up with a European manufacturer for producing higher capacity and more sophisticated mining equipment.

The company reported growing revenues but stable operating profits over the last five years – reporting about 24cr in operating profits on revenues of 184cr in the last financial year.  It held net cash and liquid assets of about 12cr in the last financial year.

The business is exposed to all the problems currently plaguing the mining industry such as mining scams, inefficient allocation of coal blocks etc., which leads to the punitive regulations, restrictions, and general uncertainty that follows such revelations.   Such an environment impairs current demand for the company’s products and could lead to pricing pressure as new regulations could increase compliance costs for customers and reduce tolerance for pricey equipment if they are to make a reasonable return on their capital.

Apart from the above, the business is negatively impacted by capital investment downturns (based on the interest rate and economic cycles), increased foreign coal imports, and increasing demand for higher capacity mining equipment.

The company is largely dependent on government customers (although this is changing slowly), which exposes it to bureaucratic delays in sanctioning projects as well as paying promptly – thereby delaying revenues and increasing working capital investments.

Moreover, the company is being exposed to strong competition from international players, who are making mega-scale entries into the Indian market.  It also faces price competition in the construction equipment segment from established manufacturers.

Comments

Post a Comment

Popular posts from this blog

On The Radar: India's Small-Cap Equities (Concluded)

We have been running a series of articles titled ‘Under The Radar: India’s Small-Cap Equities’ beginning in December 2011 - and followed up twice - with the last article in December 2013. We would like to conclude this series after updating the small-cap index level and returns, comparing it to our expectations ex-ante, and analysing the current scenario.  Following this, we have also outlined where we may take this blog in the future. The small-cap index closed at 11,087.07 on December 31 st , 2014.  This compares to a level of 6,150.65 in our last article – resulting in an advance of over 80% to date. This is a handsome absolute return by any standard, particularly compared to Indian government bonds, which yielded around 8-9% for the period.  This justifies the conclusion at the end of our previous article that “small-caps in India offer among the most attractive bargains during any time since 2006 and certainly in the entire Indian stock market today...
1 comment
Read more

IFB Agro Industries

IFB Agro Industries is in the business of producing alcohol (70% to 75% of revenues) and marine products. The company is based out of the state of West Bengal (WB), which is well known for its regressive attitudes towards businesses.  In the alcohol segment, it distributes ‘Volga’ vodka, ‘Jubilation’ rum, ‘Benjamin’ brandy (latter two launched recently).  Demand in the Indian Made Foreign Liquor (IMFL) appears to have a promising outlook with growth estimated at about 20% per annum.  It has also installed a new plant to enhance its country liquor production capacity since demand was outstripping supply – however, licenses weren’t granted by the state as at the end of last year.  In the marine segment, it distributes frozen marine products in the major metros through retail chains under the “IFB Royal” brand.  It also has a 48% market share in the shrimp feed trading business.  It had recently enhanced capacities in the marine division includi...
2 comments
Read more

Under The Radar: India’s Small-Cap Equities (Part Three)

In February of this year, we summarised the valuation parameters of the BSE Small-cap Index in India (now the S&P BSE Small Cap Index) - following on from an earlier report we wrote in December, 2011 - and drew certain conclusions. We would like to update the valuation scenario with the data today, review those conclusions, and form new ones based on the available information. The small-cap index closed today (17 th December, 2013) at 6,150.65 with an indicated price to book value of 1.04. The closing value as on February, 2013 was 7,006.73 representing a decline of over 12% as of today. The current index value masks a greater fall of over 27% to a low of 5,085.56 in August, 2013. This represents an unsatisfactory overall performance for those who invested in small caps at the beginning of the year. In our earlier report, we made two assumptions towards the end of our report to form a conclusion as to prices then:          ...
Post a Comment
Read more