Elecon Engineering Company Limited Q1 FY27 Earnings Call Summary

Event Participants

Executives

4 Ashish Jain, Chintan Shah, Dipak Dalwadi, Kaushik Patel

Analysts

9 Abhijeet Singh, Balasubramanian, Garvit Goyal, Pratik Kothari, Prolin Nandu, Raj Shah, Sanjay Ladha, Shubhi Gupta, Vaibhav Mehta

Financials & KPIs

Note: Q1 FY26 comparatives adjusted to exclude ₹25 crores arbitration award income, ₹10 crores arbitration claim settlement, and ₹80 crores post-tax exceptional MTM gain on reclassification of investment.

Geographic & Segment Commentary

• Gear Division: Contributed 80% of consolidated revenue at ₹416 crores, +16.3% YoY, underpinned by steady order book execution and a gradual international market improvement. Order intake rose 18.8% to ₹570 crores and the open order book reached ₹1,043 crores, +46.9% YoY. Power was the largest contributor to order intake (27% from a single large order), followed by steel, cement, and MHE. Product mix was 54% catalogue / 46% engineered products; Q1 order intake mix was 27% catalogue / 73% engineered, indicating a back-ended execution profile.

• MHE Division: Revenue moderated 2.9% to ₹105 crores due to delays in project execution — two power-sector orders awaiting design engineering clearance from end customers via EPC contractors. Underlying momentum remains strong: order intake surged 38.1% to ₹185 crores (power, cement, port), and the open order book rose 18.8% to ₹475 crores. EBIT fell 25.3% to ₹27 crores, with margin decline attributed to input costs (2.5-3%), sales mix (3%), and lower throughput (~3%). The division secured a ~₹21 crores overseas port order, reflecting growing international acceptance.

• Overseas Business: Overseas revenue grew 21.9% YoY to ₹151 crores (29% of consolidated revenue), with order intake up 63% to ₹194 crores and the overseas order book up 73% to ₹256 crores. Growth was led by Middle East and US, where orders held in Q4 FY26 were released as macro conditions improved; Middle East demand is concentrated in cement and mining/minerals. FY26 export revenue breakdown: Benzler Europe group ₹171 crores, Radicon USA ₹102 crores, UK ₹102 crores, Middle East ₹66 crores, Singapore ₹22 crores. Europe is expected to take a minimum of two quarters to recover.

Company-Specific & Strategic Commentary

• Integrated Manufacturing & Global Platform: Fully integrated model — drawing, design, manufacturing, testing, and quality control under one roof; serves customers across 95+ countries through domestic operations and overseas subsidiaries, providing a diversified growth platform.

• Overseas Assembly Network & Export Strategy: Multiple assembly centers outside India provide customer proximity and local value addition (some parts locally outsourced). Management expects double-digit higher-percentage export growth this year, treating total exports (not only exports from India) as the relevant metric.

• Defense & Naval Opportunities: Dedicated manufacturing setup and business vertical built over the last 3-4 years. Defense orders carry 2-3 year execution timelines with working capital historically 15-20% higher than the gear division, offset by slightly higher margins. No significant update in the last 90 days; naval/defence enquiries expected to be released in Q4 FY27.

• Pricing & Raw Material Management: Q1 orders were accepted with price increases; back-to-back strategic tie-ups with key raw material suppliers lock in prices upon order acceptance. Blended BOM cost increase is ~5% (steel 5-7%, bearings 6-7%, fabricated gear cases ~7%, tooling 6-10%).

• FY30 Growth Roadmap: Revenue target of ₹5,000 crores by FY30 described as challenging but achievable, driven by large marine enquiries, export territory expansion, and the committed capex program. Expected FY30 mix: Gear including marine 70-75%, MHE 25-30%.

• Capital Allocation & M&A Stance: Net cash of ~₹700 crores maintained. The FY26 goodwill impairment of Benzler Radicon Europe (₹102 crores) was a non-cash consolidated charge with no tax impact; UK entity continues to claim annual tax amortization. Management is not actively pursuing European acquisitions requiring significant manufacturing investment.

• Patents: Patents have been applied for, but management declined to disclose target markets or commercial prospects.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

MHE Margin Decline Drivers

• Question: How much of the MHE margin fall is from product mix versus higher costs, and does the export business carry higher margins? (Shubhi Gupta)
• Answer: Three factors: input cost increase (2.5-3% margin decline), sales mix change (3%), and lower throughput volume (~3%). Export products carry slightly higher margins, and that profile should continue. Sustainable MHE EBITDA margin for the year is 22-24%. (Chintan Shah)

Overseas Growth Geographies

• Question: Which geographies drove the ~22% international revenue growth, and what is driving Middle East demand? (Balasubramanian)
• Answer: Bulk of growth came from Middle East and US, where orders on hold in Q4 FY26 were released as macroeconomic conditions improved. Open order book and enquiry levels show stronger traction in both regions. Middle East demand is mainly from cement and mining/minerals. (Chintan Shah, Dipak Dalwadi)

Goodwill Impairment & M&A Strategy

• Question: Does the Benzler Radicon Europe goodwill impairment have any cash tax impact, and has the acquisition strategy changed? (Balasubramanian)
• Answer: The consolidated impairment is purely a non-cash accounting charge with no tax impact; the UK entity continues to claim annual tax deduction via amortization. A marginal amount of goodwill remains in the UK entity, to be amortized over the next 3-4 years. Management is not actively looking at European acquisitions that require significant investment in manufacturing. (Chintan Shah)

FY27 Guidance & Order Book Conversion

• Question: With order book up 37% and inflows up 23%, why guide only low double-digit revenue growth? (Raj Shah)
• Answer: Q1 and anticipated Q2 face significantly higher raw material prices, which has lengthened enquiry-to-order conversion time; Q3 and Q4 should improve significantly as the market accepts stabilized prices. Gear EBIT margin of 17.9% is below FY26's 18.8% but expected to recover; MHE's ~25.6% EBIT margin is actually in line with FY26's 24.7% average, as Q1 FY26 was an exceptional-margin quarter. (Chintan Shah)

MHE Execution Delays

• Question: Which orders are delayed and when will execution pace return to normal? (Raj Shah)
• Answer: Two large power-sector orders are awaiting design engineering clearance from end customers, routed through main EPC contractors with multiple hierarchy levels; approvals were expected in April but delayed. Good revenue from these orders is expected in Q2. (Kaushik Patel)

Raw Material Inflation & Pricing Power

• Question: Have price hikes been taken, why is MHE impacted more than Gear, and what is the blended BOM increase? (Abhijeet Singh)
• Answer: Most Q1 orders were accepted with price increases, with back-to-back raw material price locking on acceptance. Gear's ~54% catalogue revenue with monthly refreshed price lists dilutes the impact, while MHE is a customized, project-integrated business with broader cost components (fuel, packing, delivery). Blended BOM cost increase is ~5%: steel 5-7%, bearings 6-7%, fabricated gear cases ~7%, tooling 6-10%. (Chintan Shah)

Domestic Gear Growth, Margins & Competitive Position

• Question: Why is domestic gear growth only low single-digit despite a strong order book, and can margins return to mid-20s? (Pratik Kothari)
• Answer: Last year's US tariffs and US-Iran events significantly impacted the order pipeline; most current orders were received in late May-June and could not convert to revenue in Q1 — the open order book is now ₹1,000+ crores. Gear EBITDA margin is expected around 24%, with EBIT at 19-20% on average over the next year-plus. A large part of demand flows through PSUs dependent on fiscal budgets, delaying capex. MNC localization creates price pressure on new projects, but Elecon's preferred-supplier status and 2-5 month manufacturing cycles provide protection. (Chintan Shah, Dipak Dalwadi)

Defense, Naval & Sugar Outlook

• Question: What is the update on defense/naval orders and the sugar sector outlook? (Garvit Goyal)
• Answer: No significant update on defense in the last 90 days; naval/defence enquiries are expected in Q4 FY27 as previously communicated. Sugar is muted this year due to an unfavorable monsoon, though a working ethanol program could drive plant expansions. Aerospace certification is not a current focus. (Chintan Shah, Dipak Dalwadi)

Medium-Term Aspiration & Capex Mix

• Question: What are the medium/long-term aspirations given the ₹400 crore capex, and the Gear vs MHE split? (Vaibhav Mehta)
• Answer: The FY30 revenue target of ₹5,000 crores remains challenging but achievable, driven by large marine enquiries, export expansion, and committed capex; additional capex is being evaluated for board approval. Gear (including marine) is expected to be 70-75% of FY30 revenue and MHE 25-30%. (Chintan Shah)

Revenue Carryover & Naval Cost Impact

• Question: Was Gear growth just carryover from Q4, and are naval gearbox learning costs behind us? (Sanjay Ladha)
• Answer: There was revenue carryover, and ~₹70 crores of finished goods dispatched before June 30 could not be recognized under Ind AS cut-off due to title-transfer timing. The 1-2% margin impact was from the first-of-kind naval order, which has been executed; future similar orders will benefit from the completed learning curve and detailed engineering. Gear EBITDA margin is expected around 24%. (Chintan Shah)

Key Takeaway

Elecon Engineering opened FY27 with consolidated revenue of ₹521 crores, up 11.9% YoY, driven by the Gear division's 16.3% growth to ₹416 crores (80% of revenue), while MHE revenue slipped 2.9% to ₹105 crores on power-sector design approval delays. EBITDA grew 3.9% to ₹109 crores with margin steady at 21% despite ~5% blended input cost inflation, and PAT stood at ₹70 crores. Order momentum was strong: consolidated intake rose 23% to ₹755 crores and the order book 36.8% to ₹1,518 crores, with overseas intake up 63% and the overseas book up 73% to ₹256 crores, led by Middle East and US. Management guided conservatively to low double-digit FY27 revenue growth with EBITDA margin held at FY26 levels, citing raw material inflation and US-Iran tensions, with improvement expected from Q3; the ₹400 crore capex program remains on track toward the challenging ₹5,000 crore FY30 target. Watch points include MHE execution recovery, price pass-through, European demand, and naval/defence enquiries expected in Q4 FY27.