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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.

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