Alcon Engineering Company Limited is an engineering related small-cap company with a market valuation of Rs. 3,304 crores. Alcon ranks third in terms of scale of a firm that provides material management solutions and is the largest manufacturer of industrial gears and reducers in Asia. In this market, Alcon primarily designs and manufactures industrial gears and gearboxes. Domestic operations account for 62 per cent of sales, with an EBIT margin of 20 per cent, while its ROCE profile for domestic operations is 25 to 30 per cent. Shares of Alcon Engineering Company hit a 52-week high on Friday 303.00 more day ended 294.00 on the NSE, down 1.28 per cent. After hitting its 52-week high, the stock is currently trading 136 percent higher than its 52-week low that the price reached on July 13, 2021. 124.10. out of stock 131.85 as on July 12, 2021, at the current market price during the previous year, represents a multibagger return of 122.98%. On a year-on-year basis, the stock has gained 53.44 percent so far in 2022. With a target price of INR 374, Brokerage Company Edelweiss Wealth Research Limited has initiated a buy call on Elecon Engineering Company Limited. The stock indicates a potential gain of 27% over the current market price of the stock.
Vinay Khattar, Head Research Analyst, Edelweiss, said, “Elecon is one of the market leaders in its area of operations and boasts of best-in-class manufacturing facilities. It operates in sectors such as steel, cement, power, textiles, tires and sugar. There is a play on the broader industrial capital expenditure cycle with supply to the market. Strong industrial capex is expected to lead to greater utilization in the industrial gear segment. We look at the steel and cement sectors (around 25% of Elecon’s sales) based on announcements made by key players. -30%). Management expects total sales to reach Rs 2,100 crore in FY12, up from Rs 1,200 crore in FY12.”
“Industrial gears accounted for 89% of the company’s FY22A sales with an EBIT margin of around 20%. With a higher share in the mix, this segment is now the major income driver unlike in the previous cycle, when MHE (project based) also made a significant contribution. The management expects standalone revenue to reach INR 1,500 crore by FY12, up from INR884 crore in FY12A, driven by growth in industrial gear. Vinay Khattar said, We expect the Gear Division including international subsidiaries to register a revenue CAGR of 21% in FY 2012-25E.
“After a decade of juggling issues related to liquidity and legacy EPC projects, the MHE segment is finally turning around after the company revised its strategy. Unlike earlier, it no longer participates in EPC projects for MHE. All new orders are either product-based or correspond to after-market sales. The company also freed up most of the retention amount and consequently reduced debt. The remaining INR100 crore is expected to be resolved soon,” the analyst further added.
“Elecon delivers strong growth visibility along with improving balance sheet. We expect CAGR of 22% and 26% in revenue and EPS over FY 2012-25, driven by strong demand, operating leverage and lower interest expense. With this the ROCE will improve to 21% by FY25E from 15% currently. We offer a TP of INR374/share valuing the company at 18x FY24E PE,” Khattar said.
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