Eimco Elecon Equity Research Report July 2016

InitiatingCoverage
4July2016
Current
Previous
CMP:Rs396
Rating:BUY
Target:Rs678
Rating:NR
Target:NR
STOCKINFO
523708
EIMCOELECO
EEIINEQUITY
EIMC.BO
CapitalGoods
10
58
2,284
695/276
2,684
Market Leader in the underground coal mining equipment industry with 90%
marketshare
Coal ministry plans to revise equipment purchase policy to increase mining

efficiencywhichwouldboostEimcoEleconsearnings
(asonMarch2016)
Promoters
FIIs
DIIs
Public&Others
Readytominefavorablecoalcycle
Key Investment Rationale
SHAREHOLDINGPATTERN
EimcoElecon(India)Ltd
Eimco
Elecon (India) Ltd is in the business of Manufacturing, Marketing and
ServicingEquipmentforMiningandConstruction.Itisoneoftheleadingsuppliers
of
underground coal mining equipments in India. It was first to introduce the
intermediatetechnologyofSideDumpLoaders(SDLs),LoadHaulDumpers(LHDs)
and
Rocker Shovel Loaders in India to partially mechanize the underground Coal
andmetalliferrousminesandcontinuetobemarketleadersincethen.Inaddition
thesparesbusinesswhichisahighmarginbusinessprovidesastablecashflowand
contributes around 50% in overall sales. Introduction of new products and entry
into open cast mining products to act as a key catalyst for the stock. Further the
company has strong balance sheet with liquid investment of Rs.198/share. We

initiatecoverageonEimcoElecon(India)LtdandrecommendBUYonthestockwith
SOTPbasedtargetpriceofRs678.
(NRNotRated)
INDEX
BSE
NSE
Bloomberg
Reuters
Sector
FaceValue(Rs)
EquityCapital(Rsmn)
MktCap(Rsmn)
52wH/L(Rs)
AvgDailyVol(BSE+NSE)
SteadyrevenuefromSparesandcomponentssegment(highmarginbusiness)to
continuesupportearnings
74.1
4.8
21.1
Forayinopencastingminingwoulddriverevenueandprofitability
StrongBalanceSheetwithliquidinvestmentofRs.198/share
STOCKPERFORMANCE(%) 3m 6m 12m Strongparentcompanysupport

EEIINEQUITY
18.9 (16.6) (31.6)
SENSEX
6.9 5.9 (3.4)
Risk
Source:Bloomberg,IndiaNiveshResearch
HigherdependenceonCoalIndiaLtdanditssubsidiaries
EEIINEQUITYv/sSENSEX
Threatfromforeignplayersenteringintothissegment

Valuation
150.0
100.0
50.0
EEIIN
Jul16
Jun16
Apr16
May16
Mar16
Jan16
Feb16
Dec15
Oct15
Nov15
Sep15
Jul15
Aug15
0.0
SENSEX
Source:Bloomberg,IndiaNiveshResearch
DaljeetS.Kohli
HeadofResearch
Tel:+912266188826
daljeet.kohli@indianivesh.in
AbhishekJain
ResearchAnalyst
Tel:+912266188832
abhishek.jain@indianivesh.in
HarshrajAggarwal
ResearchAssociate
Tel:+912266188879
harshraj.aggarwal@indianivesh.in
IndiaNiveshSecuritiesLtd
Government
thrust to increase underground coal mining activity in India will have
positive effects on the demand for underground mining equipments. We believe
EmicoEleconwouldbethekeybeneficiaryoftheincreaseinequipmentdemand.We
expectthesalesofthecompanytogrowatCAGRof22%fromFY16FY18eonaccount
ofpickupincoalminingactivitiesandintroductionofnewproducts.AtCMPofRs396,
EimcoEleconistradingataP/Emultipleof11.7xFY17eand9.5xFY18e,EPSofRs33.8
andRs41.8respectively.EimcoEleconduringitspeakperiodofFY0409wastrading
at an average PE of 14.42x and during FY1016 it was trading at an average PE of
8.56x.TheaveragehistoricPEcomesto11.5xandsowevalueEimcoEleconat11.5x
FY18eEPSandInvestmentsatRs198.WerecommendBUYratingonthestockwith
SOTPbasedtargetofRs678.
FinancialPerformance
YEMarch
(RsMn)
FY14
NetSales
EBITDA
1,934
290
FY15
1,964
294
FY16
1,396
226
FY17E
1,685
262
FY18E
2,065
325
Source:Company,IndiaNiveshResearch
Adj.PAT Adj.EPS(Rs)
EBITDA
Margin
RoE(%)
34.9
37.3
28.8
33.8
41.8
15.0
15.0
16.2
15.6
15.7
11.3
11.0
7.9
8.6
9.8
202
215
166
195
241
Adj.P/E(x) EV/EBITDA(x)
11.3
10.6
13.7
11.7
9.5
IndiaNiveshSecuritiesLimited|ResearchAnalystSEBIRegistrationNo:INH0000000511
6.0
5.7
5.9
4.8
3.9
601&602,SukhSagar,N.S.PatkarMarg,GirgaumChowpatty,Mumbai400007.Tel:(022)66188800
IndiaNiveshResearchisalsoavailableonBloombergINNS,ThomsonFirstCall,ReutersandFactivaINDNIV.
InitiatingCoverage|EimcoElecon(India)Ltd
InvestmentRationale
1.
MarketLeaderintheundergroundcoalminingequipmentindustry
The company is the market leader in underground coal mining equipments (high
technology drills, loaders etc) with a market share of 90%. The company has
technical collaboration agreements with Ahlmann Baumaschinen GmbH, Germany
for manufacture of Front End Articulated Loader and with Huta Stalowa Wola, S.A
Polandformanufactureof520GWheelLoader.
The company is the market leader

in
underground
equipments
(high
coal
EimcoEleconisanestablishedplayerinthisindustrywithover20yearstrackrecord,
85% of the business comes from CIL and its subsidiaries. The companys in house
facilitiesenablesthemtodesignandmanufacturewiderangeofequipments.Emtici
Engineeringisagroupcompanywhichhandlesthemarketingandaftersalesservices
for Eimco Elecons products. Emticis branch offices are spread across India which
helpsEimcoEleconremainclosertoitscustomersandofferquickmaintenanceand
breakdown support services. Further, introduction of new equipments will lead to
deriskingofthebusiness.Thecompanyhasdiversifieditscurrentbusinessandhas
forayedinanewproducttheChairLiftManRidingSystem.
mining
technology
drills, loaders etc) with a market

share of 90%.
Turnover(RsMn)
TunnelingLoaders
Airmotors(Captiveuse)
Spares
ConstructionEquip
ChairLiftSystem
Others
Total
FY11
877
5
904
40
0
17
1844
FY12
896
7
772
38
0
55
1768
FY13
621
6
1008
69
0
0
1704
FY14
781
4
1046
53
0
38
1922
FY15
886
4
990
49
29
0
1957
FY16
392
4
897
40
54
0
1388
FY17e
691
5
855
50
84
0
1685
FY18e
818
6
1038
56
148
0
2065
Source:Companyfilings,IndiaNiveshResearch
Governments thrust to increase underground mining activity in India will have

positiveeffectsonthedemandforundergroundminingequipments.Inthelinewith
growth of underground mining activity there will be growth in demand for
underground mining equipments and will be supported by the spare replacement
demand. As the equipments require frequent servicing and maintenance, a strong
aftersalesservicenetworkisthekeyrequirement.Thisactsasanentrybarrierfor
new players in the domestic market as well as for the products imported.
Competitors for Eimco Elecon in UG segment include Simplex Engineering &
FoundryWorks(~56%marketshare),TRF(ATataEnterprise)(<1%marketshare),
BEML Ltd (new entrant in the market) (<1% market share). International players
includeJoyMining&MachineryandBucyrusInternational.
Underground
activity to
Higher sale mining
of underground
grow
in India
drive the
equipment
will and
drivewill
revenue
for
demand
for underground mining
Spares business.
4Jul2016
2 of18
EimcoElecon(India)LtdProducts:
CoalMiningLoaders:
811LoadHaulDumper
811LoadHaulDumper
(LowHeight)
Features include: It has high

strength and impact resistant
structure, extralarge cooling
system and tank capacity,
option of different types of
bucket
like
bidirectional
conveyor bucket, cross seating
operator position for better bi
directional visibility and safety
andsimplehydraulicsforeaseof
maintenance.
Features include: It has high

strength and impact resistant
structure, extralarge cooling
system and tank capacity,
Option of different types of
bucket like bidirectional
conveyor bucket, cross seating
operator positionfor better bi
directional visibility and safety
and simple hydraulics for ease
ofmaintenance.
Features include: It has

higher payload for increased
productivity,
high
tilt
combination and mechanical
breakoutforceforefficientand
single pass loading, fingertip
controls for reduced fatigue
and simple hydraulics for ease
ofmaintenance
625SideDumpLoader
611SideDumpLoader
912ELoadHaulDumper
Coal Mining loaders form a major

part of revenue for Eimco Elecon.
912CHCoalHauler
Features
include:
All
operations are fully hydraulic,
higher payload for increased
productivity, simple hydraulics
foreaseofmaintenance,bottom
discharge hopper bucket for
effective unloading and less
maintenance, fingertip controls
forreducedfatigue.
Featuresinclude: Itisrobust
and versatile machine for
toughest
underground
application,
ergonomically
designed
machine
for
operator's comforts without
negotiating with the safety,
modular design for ease of
assembly, transportation and
maintenance, extra large tank
capacitywithHFBfluid.
Features include: It is a low

height machine, which can
operate in seam as low as 1.2
m, variable travel speed for
lowest cycle time visavis
highest productivity, fingertip
controls for reduced fatigue,
energy conservation through
loadsensingtrammingcontrols
and
30%
less
power
consumption.
612 UniversalDrillMachine
(LowHeight)
AirMotors(captiveuse)
CoalMiningdrillers:
611UniversalDrillMachine
Coal Mining drillers to remain as
key product for Eimco Elecon.
Air motors is used as a feedstock

by Eimco Elecon.
Features include: It has rotary

drill which ensures fast drilling
speed,with360rotationforfast
and easy face & roof drilling,
powerfulcrawlercarrierensured
fast and safe maneuvering in
narrowdriftsandunderlowcoal
seams, maximum penetration

rotary drill which ensures fast
drilling speed with 360
rotationforfastandeasyface
& roof drilling, powerful
crawler carrier ensures fast
and safe maneuvering in
Featuresinclude:Itisusedas
captive feedstock where oil
slingers are permanently
fastened; to distribute oil to all
working parts and keep
cylinders well lubricated, Large
streamlined air passage reduce
4Jul2016
3 of18
speed to complete full face

drilling in a minimum time and
tomaximizeproduction.
narrow drifts, compact feed

for low roof height and for
minimummaintenance.
dragandincreaseH.P.provide
efficientuseofconsumedair.
LowProfileDumpTruck
21BRockerShovelLoaders
MetalMiningLoaders:
912BMKIILoadHaulDumper
Metal mining loaders to continue
to remain a minor contributer for
Eimco Elecon.
824RockerShovelLoader
AL120Articulated
WheelLoader
150/1000BHopperLoader
AL520Articulated
WheelLoader

hydrostatic steering system,
single
Lever
operation,
electrically
controlled
transmission
Chair lift man riding system a

new addition to the product lines
ChairLiftManRidingSystem:
This is a new product addition which saves time and increase the efficiency of
labourers. This system is safe and comfortable for transporting persons fast in
undergroundminesoverlongdistances.Thetransportationincludesminegradients
andcurves.
will improve revenues for Eimco

Elecon
and
serve
its
ChairLiftManRidingSystem
clients
better.
4Jul2016
4 of18
2.
Coal ministry plans to revise equipment purchase policy to increase mining

efficiencywhichwouldboostEimcoEleconsearnings
CoalIndiaLimitedhas430minesofwhich227areunderground,175opencastand
28 mixed mines as on FY15. 301.56 Billion tonnes of Geological Resources of Coal
havesofarbeenestimatedinthecountryasonFY15.
CILproductioninmillionton (MT)
600
504.97
500
ProductioninMT
400
391.3
426.31
414.43
397.45
459.64
300
200
100
40.02
38.39
37.78
36.11
34.60
33.79
0
201011
201112
201213
UG
201314
201415
201516
93%
94%
OC
Source:Ministryofcoal;IndiaNiveshResearch
IndiasUG&OCshareoftotalproduction
100%
90%
Indias underground mining share
80%
stand at 6% which is quite low.
70%
60%
50%
91%
91%
92%
92%
9%
9%
8%
8%
7%
6%
201011
201112
201213
201314
201415
201516
40%
30%
20%
10%
0%
UG
OC
Source:Ministryofcoal;IndiaNiveshResearch
Theproductionofcoalfromunderground(UG)mineshasbeenonasteadydecline
fromFY90toFY07.Nearly41%ofthecoalreservesinIndiaarebelow300mdepth,
thecontributionofundergroundcoalproductionhasdeclinedfrom35%inFY90to
only6%inFY16.UGminescontribute~25%ofproductioninAustralia,~35%inthe
US and ~95% in China. China has maintained focus on underground mining as it
resultsinlesspollutionthanopencastmining.
CILsworkerproductivityie.Outputpermanshift(OMS)standsat4.92tonnewhich
is much below its target of 5.54 tonne. The global average is around 13 tonne per
manshift.Productivityinundergroundminingislessthanatonnepermaneachshift
againstaglobalaverageof10tonnepermaneachshift.CILabsorbsalossofnearly
Rs100bnayearonUGoperations,employing75percentofitsfourlakhworkforce.
4Jul2016
5 of18
UndergroundMiningcontributioninleadingcountries
100%
5%
90%
80%
UG mines contribute ~25% of
70%
production in Australia, ~35% in
60%
the US and ~95% in China.
75%
65%
50%
95%
94%
40%
30%
20%
10%
25%
35%
6%
0%
Australia
USA
China
UG
India
OC
Source:ET;IndiaNiveshResearch
CIL
plans
to
boost
annual
production to 1 bn tonnes by
2020
through
introduction
of
better technological equipments.
TheGovernmenthasannouncedplanstoboostCoalIndia'sannualproductiontothe
level of 1 billion tonnes by 2020 and this requires significant investment in
mechanizationofexistingminesandfasttrackingminedevelopmentactivityinnew
mines.Thecoalministryisexpectedtosoonreviseitsequipmentprocurementpolicy
to increase mining efficiency. CIL strategy to improve mine productivity would be
throughtechnologyupgradationinopencastandundergroundmineswithinduction
of high capacity equipment. Improved technology will make underground mines
more efficient with addition of man riding system in major mines and use of tele
monitoringtechniques.
The planning commission, has recommended full mechanisation of underground
minesby2017.CoalMinistryiscurrentlydevelopinganincentivepackagethatmay
inject new life into its underground mining industry. Some of the incentives would
includethingslikedifferentialroyaltyratesandinvestmentlinkedtaxholidays.
WebelieveEmicoEleconwouldbethekeybeneficiaryoftheincreaseinequipment
demand. Also, as the average life of SDL (Side Dump Loader) /LHD (Load Haul
Dumper)equipmentisbetweensixandtenyears,thesparesreplacementdemand
willalsocontinuetosupportEimcoEleconsrevenues.
4Jul2016
6 of18
3.
SteadyRevenuefromSparesandcomponentssegmenttocontinue
RevenueBreakup(FY16)
Construction
Equip
2.9%
In
FY16,
contributed
spares
about
ChairLift
System
3.9%
Tunneling
Loaders
28.3%
business
65%
and
loaders contributed about 28% to

the revenue.
Airmotors
0.3%
Spares
64.6%
RevenueBreakup(FY16)
2500
Eimco
Elecon
(India)
recently
70%
54%
2000
51%
65%
59%
50%
NetSales(Rs.Mn)
introduced Chair lift man riding

system which contributed about
3.9% in FY16.
1500
60%
40%
44%
30%
1000
20%
500
10%
0%
FY12
FY13
TotalRevenue
FY14
FY15
FY16
Sparebusinessshareas%ofTotal Revenue
Theminingequipmentsoperateinatoughenvironmentandhence,requirefrequent
replacement of hydraulics, electronics and other spares. Spares sales constitute
above50%inEleconsrevenuesandenjoyhighermarginsthanequipmentsales.In
FY16thisbusinesscontributedabout65%tototalrevenue.Asperourunderstanding
spare business earns about 3035% higher EBITDA margin than the equipment
business.Increasedsalesofequipmentinthefuturewillleadtoanimprovementin
thedemandforSpares.
4Jul2016
7 of18
4.
Eimco
Elecons
agreement
with
Forayinopencastingminingwoulddriverevenueandprofitability
non-compete
Sandvik
is
coming to an end, which will help

them enter in open cast mining
equipments which will add to the
earnings
OpencastinginIndiacurrentlyconstitutesmorethan90%oftotalmining.Therisein
productionfromopencastmineshasbeenseenwhichisincreasingatagreaterrate
thanundergroundmines.
EquipmentutilisationbyCoalIndiaLimited(CIL)isstillnotatthelevelofglobalbest.
It needs to adopt better equipment utilisation practices from across the globe for
bestinclassmining.Someoftheleadingcompeitiorsintheworldthatsupplyopen
cast mining equipments include: Caterpillar Inc., Hitachi Construction Machinery,
JoyGlobalInc.,KomatsuLimited,SandvickAB,andAtlasCopco.
EimcoElecon(India)Ltdhadsignedanoncompeteagreementwithitsstakeholder
Sandvik that it would not enter open cast mining products for five years and had
sold its surface drilling machines business to them in FY11 for Rs 165 mn. This
agreementistoexpireinAugust2016whichwillallowEimcoElecontomanufacture
andsellproductsinopencastingsegment.EimcoEleconhasalreadystartedR&Don
new products that it could manufacture and serve its existing clients and add new
clients. This will improve the sales for the company andmake a mark in opencast
mining segment. It is also looking to manufacture open cast mining drillers.
Continous R&D facility and tieups for technology has helped Eimco Elecon develop
newproductstoservetheIndianmarket.
5.
StrongBalanceSheet
Eimco Eleconhas been maintaining its financial risk profile over the medium term,
supportedbyitshealthycapitalstructureandsteadycashaccruals.Thecompanyhas
remained debtfree since FY10 with steady accruals funding its nominal capital
expenditureandworkingcapitalrequirements.
The company has strong balance sheet with current and noncurrent investments
amounting to Rs 1140 mn (per share value of Rs 198). Under investments, non
current are mostly in listed shares, while current investments are mostly in liquid
mutualfunds.Thecompanyisdebtfreeasithasnoshorttermandlongtermloans.
Receivables,Inventoriesandotherworkingcapitalparametersarekeptunderstrict
checkbythecompanythroughcontinuousmonitoring.
Eimco Elecons strong balance sheet provides an added advantage to weather any
futuredownturns.
4Jul2016
8 of18
Current&NoncurrentInvestments(Rs.mn)
1200.0
191.6
Investments(Rs.Mn)
1000.0
800.0
600.0
205.8
194.0
53.6
132.6
444.0
489.3
502.3
557.8
FY12
FY13
FY14
FY15
948.0
400.0
200.0
0.0
CurrentInvestments
FY16
NoncurrentInvestments
6.
Eimco Elecon has strong parental
support from Eimco group of
companies and Elecon group.
Strongparentcompanysupport
EimcoGroupofCompaniesSubsidiarydivisionnamedasEimcominingequipment
areworldleaderinproductionofundergroundminingmachinery.EleconEngineering
andEimcoGroupofCompaniesenteredintocollaborationunderwhichEImcoElecon
received necessary technical knowhow from Eimco Group of Companies for
productionofundergroundminingmachineries.
In1989,EimcoGroupofcompanieswereacquiredbyTamrockOY.,aworldleaderin
technology and manufacturing of rock excavation and breaking equipments for
surface and underground mines and civil engineering construction with production
andassemblyfacilitiesinvariouspartsoftheworldbackedbyworldwidesalesand
distributionnetwork.
Internationally, Tamrock holds close to 40% market share in the mining machinery
business. It is a leading supplier of drilling and loading equipments for hard rock
applications.
EimcoEleconwasestablishedin1974.
ItwasajointventurebetweenEleconEngineeringCompanyandEnvirotechCorporation,US(asubsidiaryofBakerHughes).
EnvirotechwasactiveintheminingbusinessthroughitsdivisionEimcoMiningEquipmentGroup.
In1989,theEimcominingdivisionwastakenoverbytheFinnishIndustrialOrganisationOYTampellawhosemining
equipmentdivision Tamrockwasamarketleaderwithover40%shareinternationally.
TamrockGreatBritainHoldings(asubsidiaryofOYTampella)heldaround39%ofEimcoElecon'sRs24.7mnequitytillthe
Dec1992 issue,laterit'sholdingdecreasedto25.1%.
Tamrock'smajorsharesandcontrollinginterestwasacquired bySandvikGroupofSwedenin1997 andthenamewas
changedtoTamrockCorp.
SandvikABholds25.1%stakeinEimcoElecon(India)Ltd
Source:Company;IndianiveshResearch
4Jul2016
9 of18
Sandvikgroup,theforeignpromoter,currentlyholdsa25.1%stakeinEimcoElecon
throughitssubsidiaryTamrockGreatBritainHolding.
Elecongroupofcompaniescontinuestobemarketleadersinceitsestablishmentin
1951,inmanufactureofmaterialhandlingEquipment&relatedprojectsinIndiaand
having diversified interests in Wagon tipplers, Reclaimers, Industrial Gear Boxes,
Industrial Geared Motors, Industrial Electro Magnets, Wagon Loaders, Various
ElectronicEquipment,etc.
Financials:
NetsalestogrowatCAGRof22%fromFY16FY18e
NetSales(Rs.mn)andgrowth(%)
2500
20.7
Eimco Elecon (India) net sales is
20.0
12.7
expected to grow at CAGR of 22%
10.0
1.6
NetSales(Rs.Mn)
from FY16-FY18e.
30.0
1500
10.0
1000
20.0
growthin%
2000
22.6
500
30.0
28.9
0
40.0
FY14
FY15
FY16
NetSales
FY17E
FY18E
Growth(%)
Netsalesdegrewby28%inFY16duetolowerrevenuefromequipmentbusiness.
ThiswasonaccountoflowernumberofordersfromCoalIndia.Goingahead,Coal
India Ltd with a vision to produce 1 bn tonnes of coal by 2020 will lead to higher
numberoftendersandwillresultinincreasedsalesforEimcoElecon(India)Ltdwho
supplies about 90% of coal Indias underground equipment. We expect Eimco
Elecons revenues to grow at a CAGR of 22% from FY16FY18e. Overall equipment
sales are expected to grow at 44.4% CAGR over FY1618e to Rs 1.02 bn driven by
increased underground mining activity in India and new product launches by the
company.Sparessalesareexpectedtogrowat7.6%CAGRoverFY1618etoRs.1.04
bn.
4Jul2016
10 of18
EBITDAmargintosustainnear15.516%
EBITDAandEBITDAmargin(%)
350
16.4
16.2
16.0
16.2
15.7
250
to
maintain
higher
EBITDA(Rs.Mn)
Eimco Elecon (India) to continue

EBITDA
margins due to higher share of

Spares business to revenue.
15.8
EBITDAMargin(%)
300
15.6
200
150
15.4
15.6
15.0
15.0
15.2
15.0
100
14.8
14.6
50
14.4
14.2
FY14
FY15
FY16
EBITDA
FY17E
FY18E
EBITDAMargin%
InFY16,Sparebusinessrevenueshareroseto65%(vs51%inFY15)whichhelpedit
achieve16.2%EBITDAmargin.Weexpectsparesbusinesswillcontinuetocontribute
around50%tototalrevenueandoverallEBITDAmargintosustainnear15.516%.
NetprofitexpectedtogrowatCAGRof20.34%forFY16FY18e
NetProfit(Rs.mn)
300
241
NetProfit(Rs.Mn)
250
Eimco Elecon (India) net profit is

expected to grow at CAGR of
20.34% for FY16-FY18e on back
of higher sales of better margin
business.
202
215
195
200
166
150
100
50
0
FY14
FY15
FY16
FY17E
FY18E
Adj.NetProfit
Net profit is expected to grow at CAGR of 20.34% for FY16FY18e on back of

improved sales and better EBITDA margin. Spares business will continue to drive
profits and new product Chair lift man riding system is also expected to grow as
coalextractorslooktouseimprovedtechnology.
4Jul2016
11 of18
ReturnRatios(%)
18.0%
16.0%
14.0%
12.0%
to improve on back of better
10.0%
Return(%)
Eimco Elecon (India) return ratios

revenues visibility
15.8%
13.4%
15.5%
11.8%
10.7%
11.3%
11.0%
8.0%
7.9%
6.0%
9.8%
8.6%
4.0%
2.0%
0.0%
FY14
FY15
ROE
FY16
FY17E
FY18E
ROCE
Current&NoncurrentInvestments(Rs.mn)
1200.0
191.6
Investments(Rs.Mn)
1000.0
800.0
600.0
205.8
194.0
53.6
132.6
444.0
489.3
502.3
557.8
FY12
FY13
FY14
FY15
948.0
400.0
200.0
0.0
CurrentInvestments
FY16
The company has strong balance sheet with current and noncurrent investments
amounting to Rs 1140 mn in FY16. Noncurrent investments are mostly in listed
shares,whilecurrentinvestmentsaremostlyinliquidmutualfunds.Thecompanyis
debtfreeasithasnoshorttermandlongtermloans.Receivables,Inventoriesand
other working capital parameters are kept under strict check through continuous
monitoring.
4Jul2016
12 of18
PeerComparison
Peergroupcomparison
(FY16)
BEML
TRFLtd
RevathiEquipmentLtd
TILLtd
Sales
(Rsmn)
EBITDA
margin(%)
PAT
(Rsmn)
ROE(%)
ROCE(%)
1396
29574
11225
2455
16835
16.2
4.4
2.7
14.3
6.2
166
531
(363)
207
(436)
7.9
2.5
NA
13.8
NA
10.7
3.5
0.9
12.7
2.2
PE(X)
13.7
66.5
NA
11.4
NA
Source:Bloomberg;Capitaline;IndiaNiveshResearch
Eimco Elecon (India) Ltd is one of the leaders in mining equipments in India and
mainly serves CIL. It has better EBITDA margins and decent return ratios when
compared with its peers in mining equipment and material handling space. During
FY16 it witnessed its lowest sales in last five years due to lower revenue from
equipment business. This was on account of lower number of orders from CIL.
Reavthi Equipments has lower EBITDA margins, while BEML is a new entrant in
mining equipments space and is trading at very high PE. TRF Ltd and TIL Ltd are
mainlyintomaterialhandlingbusinessandcurrentlybotharemakinglosses.
EimcoEleconIndiaLimited(EEIL)isinthebusinessofManufacturing,Marketingand
Servicing Equipment for Mining and Construction. It is one of the major player in
Underground Mining Equipments. The range of equipments includes side dump
loaders,loadhauldumpers,rockershovelloaders,frontendloaders,blastholedrill,
coal haulers, dump truck, air motors, universal drilling machine and continuous
miners.
BEMLLimited,playsapivotalroleandservesIndiascoresectorslikeDefence,Rail,
Power, Mining and Infrastructure. It has three major Business verticals Mining &
Construction,DefenceandRail&Metroareservicedbyitsninemanufacturingunits.
BEML Limited offers a comprehensive and diverse range of mining machinery for
both opencast and underground mines. BEML produces machines such as Electric
RopeShovels,HydraulicExcavators,Bulldozers,WheelLoaders,WheelDozers,Dump
Trucks, Motor Graders, Pipe Layers, Tyre Handlers, Water Sprinklers and Backhoe
Loaders. Besides, BEML also manufactures mammoth Walking Draglines for cost
effective operations in the opencast mines. BEML has ventured into underground
mining with products such as Side Discharge Loader, Load Haul Dumper, Winch,
Winder,GranbyCar,Skipetc.
TRFL, formerly known as TataRobinsFraser, was incorporated in 1962. It services
coreindustrieslikepower,mining,coal,fertilisers,cement,ports,etc.Thecompany
is diversified to manufacture underground mining machinery like side discharge
loadersandloadhauldumpersandhasacquiredthestampchargingtechnologyfor
cokeoven machinery in technical collaboration with German firms. TRFL entered
into an agreement with Italiampianti, Italy, for the supply of the latest technology
coveringyardequipmentsuchasstackers,reclaimers,stackerscumreclaimers,ship
loaders, etc. It also provides engineering and technology for Mini Blast Furnaces,
Coal Dust Injection Systems for Blast Furnaces and Stamp Charging and Pushing
EquipmentforCokeOvens.
RevathiEquipmentLtd(REL)isaleadingmanufacturerofblastholedrillsandwater
welldrillsforvariousapplicationslikemining,construction,waterwell,exploration,
4Jul2016
13 of18
etc.RELsdrillingrigsareusedextensivelyinminessuchascoal,copper,gold,iron,
zinc,phosphate,bauxite,lignite,limestone,etc.Itoffersarangeofdrillrigs,suchas
C850,C750andC2532forminingapplications.Therigsareusedtodrillblastholesof
diameters ranging from 102 millimeters to 349 millimeters. The drills are crawler
mounted, diesel engine/electric motor driven, hydraulically operated and
rotary/downthehole(DTH).TheCompanyoffersJacklessdrillrigs,includingC625H,
HHTD and LHTD for construction activity, such as road, dam, irrigation canal and
quarrying, among others. The Company offers a range of hydraulic topdrive and
tabledriverigsforboreholedrilling.
TIL Limited is engaged in manufacturing and marketing of a range of material
handling, lifting, and port and road construction solutions, with customer support
and aftersales service. The Company's operating segments include Material
Handling Solutions (MHS), Construction and Mining Solutions (CMS), and Power
SystemsSolutions(PSS).MHSisengagedinmanufacturingandmarketingofvarious
material handling equipment, such as mobile cranes, port equipment, road
constructionequipmentandselfloadingtruckcranes,amongothers,anddealingin
sparesandprovidingservicestorelatedequipment.
KeyRisks
1. HigherdependenceonCoalIndiaLtd.
CILremainsthesinglelargestclientanditcontributesabout85%toEimcoElecons
revenue.EimcoEleconhasabout90%ofCILsundergroundequipmentmarketshare.
Despite efforts by the company to diversify its client base, we believe CIL would
remain the single largest client for Eimco Elecon over the next few years,
contributingover8285%torevenues.Theincreasingdevelopmentofcoalminesby
privatesectorplayersandthescaleupofconstructionequipmentbusinesswouldbe
criticalfordiversifyingtheclientrisk.
2. Threatfromforeignplayersandriseindomesticcompetition
Weseemoreandmoreforeignplayersenteringintothissegment,whichisathreat
forthecompanysgrowthandevendomesticcompetitionwillbeintensified.
Outlook&Valuation
Government thrust to increase underground coal mining activity in India will have
positive effects on the demand for underground mining equipments. We believe
Emico would be the key beneficiary of the increase in equipment demand. We
expect the sales of the company to grow at CAGR of 22% from FY16FY18e on
accountofpickupincoalminingactivitiesandintroductionofnewproducts.AtCMP
ofRs396,EimcoEleconistradingataP/Emultipleof11.7xFY17eand9.5xFY18e,
EPSofRs33.8andRs41.8respectively.EimcoEleconduringitspeakperiodofFY04
09wastradingatanaveragePEof14.42xandduringFY1016itwastradingatan
averagePEof8.56x.TheaveragehistoricPEcomesto11.5xandsowevalueEimco
Eleconat11.5xFY18eEPSandInvestmentsatRs198.WerecommendBUYrating
onthestockwithSOTPbasedtargetofRs678.
4Jul2016
14 of18
CompanyBackground
Eimco Elecon India Limited is in the business of Manufacturing, Marketing and
ServicingEquipment for Mining and Construction. It wasincorporated in 1974 as a
joint ventureof ELECON Group of India andEimco. It is one ofthe major player in
Underground Mining Equipments. The range of equipments includes side dump
loaders,loadhauldumpers,rockershovelloaders,frontendloaders,blastholedrill,
coal haulers, dump truck, air motors, universal drilling machine and continuous
miners.IthasamanufacturingplantatVallabhVidyanagar.
Eimco Elecon (India) Limited was first to introduce the intermediate technology of
SideDumpLoaders(SDLs),LoadHaulDumpers(LHDs)andRockerShovelLoadersin
India to partially mechanize the underground Coal and metalliferrous mines
(minerals which cannot be called coal or lignite) and continue to be market leader
sincethen.
The company has produced more than 2550 Nos. of machines, which are working
successfullyatvariousminingandconstructionsitesinIndiaandabroad.Itprovides
salesandaftersalessupportthroughthenetworkofbranchofficesandpartsdepots
across the country Asansol, Bilaspur, Dhanbad, Kolkata, Nagpur, Secunderabad,
Bangalore,Chennai,Jamshedpur,MumbaiandNewDelhi.
ShareholdingStructure
25.1%
TamrockGreatBritainHolding
25.94%
PublicShareholding
16.62%
EleconEngineering
EmticiEngineering
14.19%
OtherEleconGroupCompanies
&Promoter
18.15%
4Jul2016
15 of18
Network
EMTICIEngineeringLtdisthemarketing&servicingcompanyforEIMCOproductsin
India. All its branches are equipped with exclusively trained application and after
sales service engineers to serve their clients. The company also have a closely knit
dealer network supported by a team of service engineers looking into daily
requirementsofclients.
EimcoEleconremainclosertoitscustomersandofferquickmaintenanceandbreak
down support services. Eimco Elecon collaborates with foreign partners for
technologysourcingandintroductionofnewerproducts.
AssociatedCompanies:
EimcoEleconElectricalsLimited
Companyholds47.62%ofEquitySharesofEimcoEleconElectricalsLtd.Itisinvolved
in manufacture of electric equipment for Material handling equipment, power
transmission products, air motors, hydraulic cylinders, load haul dumpers, drillers,
etc.
WizardFincapLimited
Companyholds24.95%ofEquitySharesofWizardFincapLtd.Itcameintoexistence
for financial intermediation other than that conducted by monetary institutions.
Currentlythecompanyisintologisticsactivities.
4Jul2016
16 of18
IncomeStatement(Consolidated)
YEMarch(Rsm)
FY14
FY15
FY16
FY17E
FY18E
Netsales
1,934
1,964
1,396
1,685
2,065
Growth(%)
13
(29)
21
23
(1,644)
(1,670)
(1,170)
(1,422)
(1,741)
290
294
226
262
325
EBITDA
290
294
226
262
325
Growth(%)
Operatingexpenses
Operatingprofit
Otheroperatingincome
33.3
1.3
(23.2)
16.2
23.7
Depreciation
(51)
(43)
(37)
(42)
(52)
Otherincome
44
54
39
47
57
283
305
228
267
330
(5)
EBIT
Financecost
(3)
(5)
(3)
(4)
Exceptionalitem
Profitbeforetax
280
301
225
263
326
Tax(current+deferred)
(79)
(86)
(58)
(68)
(85)
Profit/(Loss)fortheperiod
202
215
166
195
241
Associates,MinInt
Reportednetprofit
202
215
166
195
241
Extraordinaryitem
Adjustednetprofit
202
215
166
195
241
33
(23)
17
24
FY14
FY15
FY16
FY17E
FY18E
58
58
58
58
58
Reserves&surplus
1,817
1,991
2,123
2,289
2,501
NetWorth
1,875
2,049
2,181
2,346
2,559
373
390
323
360
451
Noncurrentliabilities
Longtermborrowings
Deferredtaxliabilities
OtherLongtermliabilities
Growth(%)
BalanceSheet(Consolidated)
YEMarch(Rsm)
Sharecapital
MinorityInterest
TotalLiabilities
Longtermprovisions
CurrentLiabilities
Shorttermborrowings
Tradepayables
366
384
317
355
445
243
273
202
243
298
89
OthercurrentLiabilities
74
54
64
64
Shorttermprovisions
49
57
52
47
58
2,248
2,439
2,503
2,706
3,010
TotalLiabilitiesandEquity
NonCurrentAssets
411
530
528
598
686
NetBlock
175
281
301
360
446
Goodwill
206
194
192
192
192
Longtermloansandadvances
30
48
26
37
39
DeferredtaxAssets
10
10
10
OthernoncurrentAssets
1,837
1,909
1,976
2,108
2,324
Inventories
253
309
377
312
382
SundryDebtors
957
884
518
655
803
Cash&BankBalances
40
43
15
75
62
OthercurrentAssets
84
115
117
118
128
CurrentAssets
Loans&Advances
CurrentInvestments
Total(Assets)
502
558
948
948
948
2,248
2,439
2,503
2,706
3,010
4Jul2016
17 of18
CashFlowStatement(Consolidated)
YEMarch(Rsm)
FY14
FY15
FY16
FY17E
FY18E
Profitbeforetax
280
301
225
263
326
51
43
37
42
52
Changeinworkingcapital
(93)
(14)
252
(47)
(140)
Totaltaxpaid
(83)
(93)
(62)
(68)
(85)
Others
(41)
(50)
(36)
(43)
(53)
Cashflowfromoperations(a)
114
187
416
147
100
Capitalexpenditure
(38)
(150)
(56)
(101)
(138)
Changeininvestments
(86)
(44)
(388)
44
54
39
47
57
(80)
(139)
(405)
(54)
(80)
76
37
360
46
(38)
Equityraised/(repaid)
Debtraised/(repaid)
23
29
29
29
29
Depreciation
Others
Cashflowfrominvesting(b)
Freecashflow(a+capex)
Dividend(incl.tax)
Others
(53)
(74)
(67)
(61)
(62)
Cashflowfromfinancing(c)
(30)
(45)
(38)
(33)
(32)
(13)
Netchangeincash(a+b+c)
(27)
60
ReconciliationofOtherbalances
40
43
15
75
62
CashasperBalanceSheet
KeyRatios(Consolidated)
YEMarch
FY14
FY15
FY16
FY17E
FY18E
AdjustedEPS(Rs)
34.9
37.3
28.8
33.8
41.8
Growth
33.4
6.8
(22.7)
17.1
23.7
4.0
5.0
5.0
5.0
5.0
Dividendpayoutratio
11.4
13.4
17.3
14.8
12.0
EBITDAmargin
15.0
15.0
16.2
15.6
15.7
EBITmargin
14.6
15.5
16.3
15.8
16.0
NetMargin
10.4
11.0
11.9
11.6
11.7
Taxrate(%)
Dividend/share(Rs)
28.1
28.4
25.9
26.0
26.0
Debt/Equity(x)
0.0
0.0
0.0
0.0
0.0
InventoryDays
48
57
99
68
68
SundryDebtorDays
181
164
135
142
142
TradePayableDays
46
51
53
53
10.4
11.0
11.9
11.6
11.7
Assetturnover(x)
0.9
0.8
0.6
0.6
0.7
Leveragefactor(x)
1.2
1.2
1.2
1.2
1.2
ROE(%)
11.3
11.0
7.9
8.6
9.8
RoCE(%)
15.8
15.5
10.7
11.8
13.4
DuPontAnalysisROE
Netmargin
Valuation(x)
53
PER
11.3
10.6
13.7
11.7
9.5
PCE
9.0
8.8
11.2
9.6
7.8
Price/Book
1.2
1.1
1.0
1.0
0.9
EV/EBITDA
6.0
5.7
5.9
4.8
3.9
4Jul2016
18 of18
InitiatingCoverage
Disclaimer:ThisreporthasbeenpreparedbyIndiaNiveshSecuritiesLimited(INSL)andpublishedinaccordancewiththeprovisionsofRegulation18oftheSecuritiesandExchangeBoardofIndia
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directors,employeesandaffiliates.Thisreportisnottobealtered,transmitted,reproduced,copied,redistributed,uploaded,publishedormadeavailabletoothers,inanyform,inwholeorinpart,for
anypurposewithoutpriorwrittenpermissionfromINSL.Theprojectionsandtheforecastsdescribedinthisreportarebaseduponanumberofestimatesandassumptionsandareinherentlysubjectto
significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections are
forecastswerebasedwillnotmaterializeorwillvarysignificantlyfromactualresultsandsuchvariationswilllikelyincreaseovertheperiodoftime.Alltheprojectionsandforecastsdescribedinthis
report have been prepared solely by authors of this report independently. None of the forecasts were prepared with a view towards compliance with published guidelines or generally accepted
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InitiatingCoverage

Coal ministry plans to revise equipment purchase policy to increase mining

Key Investment Rationale

company has strong balance sheet with liquid investment of Rs.198/share. We

STOCKPERFORMANCE(%) 3m 6m 12m Strongparentcompanysupport

The company is the market leader

drills, loaders etc) with a market

Governments thrust to increase underground mining activity in India will have

Features include: It has high

Features include: It has high

Features include: It has

Coal Mining loaders form a major

Features include: It is a low

Air motors is used as a feedstock

Features include: It has rotary

Features include: It has

speed to complete full face

narrow drifts, compact feed

Features include: It has

Chair lift man riding system a

will improve revenues for Eimco

Coal ministry plans to revise equipment purchase policy to increase mining

stand at 6% which is quite low.

UG mines contribute ~25% of

production in Australia, ~35% in

the US and ~95% in China.

better technological equipments.

loaders contributed about 28% to

introduced Chair lift man riding

coming to an end, which will help

Eimco Elecon (India) net sales is

expected to grow at CAGR of 22%

Eimco Elecon (India) to continue

margins due to higher share of

Eimco Elecon (India) net profit is

Net profit is expected to grow at CAGR of 20.34% for FY16FY18e on back of

to improve on back of better

Eimco Elecon (India) return ratios

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