Elecon Engineering : Transcript of the Investor Call held on 9th August, 2021

"Elecon Engineering Co. Ltd. Q1 FY22 Earnings

Conference Call"

August 9, 2021

MANAGEMENT: MR. PRAYASVIN PATEL - CMD

MR. NARASIMHAN RAGHUNATHAN - CFO

MR. M NANDA - HEAD (GEAR DIVISION)

Diwakar Pingle:	Welcome participants Welcome to the Q1 FY22 earnings call of Elecon
	Engineering Company Limited. We have the top management of Elecon
	represented by Mr. Prayasvin Patel, Mr. M Nanda who takes care of the
	Head Gear Division and Mr Narasimhan who is the CFO. We will start the
	proceedings with a brief overview of the quarter, given by Mr Prayasvin,
	and then we'll go to Q&A session.
Prayasvin Patel:	Thank you. Good morning to all of you. It's a great day today, especially
	for India because yesterday the Olympics have just ended and India has
	got the highest number of medal tallies. So, this is the first time that we
	have won so many medals, and we are also very proud that we received
	the gold in javelin.
	Apart from that it is also a great day for Elecon and the reason is that if
	you see behind me, there is a huge gearbox which is gone into the first
	aircraft carrier that India has produced on their own in India, in Cochin
	Shipyard and the sea trials are going on and our gearbox, the main
	propulsion drive of this INS Vikrant has been supplied by us and it has
	been doing extremely well. The results have been extremely good. This
	is also the first time that any gearbox in the first trial without any glitch
	has performed so smoothly and excellent without even doing any minor
	tweaking. So it's also a very proud moment for India, that our own
	indigenous aircraft carrier INS Vikrant has started floating, have been
	started doing trials and you should be proud that our company has
	supplied the main propulsion. So, it's a great honour and a great
	privilege. So, thank you for being part of this because, we at Elecon are
	extremely excited and thrilled about it that we were able to contribute
	so positively towards the welfare of our nation. So it's a big and proud
	moment.
	The presentation for the first quarter results and the description and
	analysis has been posted on our website. So I would request you to visit
	our website and have a look at it, it gives you all the information that you
	require. With this I would be ready to take any questions that you have
	because the statistics are all known to you, I don't need to repeat this.
	So, with this I'm ready for a question and answer session.
Diwakar Pingle:	Anyone who has a question can press your raise hand button, and then
	we'll open up for Q&A. The first question is from the line of Zaki Nasser,
	please go ahead.
Zaki Nasser:	Prayasvin bhai good morning, and I think congratulations to you and your
	team on such a fabulous first quarter performance and more so because
	of the gearbox for our defence ship. I mean it's a great achievement, sir.
Prayasvin Patel:	Thank you. Thank you for everything.
Zaki Nasser:	Prayasvin bhai during the previous quarter ended December results,
	although the indications for Elecon turnaround were present you were
	may be 70-75% confident that the year ahead will be great. But, since
	the March quarter and consequently the fantastic June quarter results

	do you think Elecon has taken on another path and will regain its lost
	glory. And also, sir you were mentioning about the material handling
	division, about something you would want to do in terms of restructuring
	that. So, what about that sir.
Prayasvin Patel:	Thank you. I would also like to mention out here that the gearbox that
	we have supplied for INS Vikrant is the type where very few countries in
	the world can produce such kind of gearboxes and of which there are
	hardly five or six companies in the world who can produce these kinds of
	gearboxes. I can proudly say that we are the only one in India and among
	the top five in the world who can do this. So, that also is a big
	achievement. Coming to your questions, December you said that I was
	70-75% confident. I always believe in being a bit conservative, why we
	were expecting that the gear results would be good, there were some
	corrections that were necessary for material handling to reach the level
	of performance that we were looking for, because it was a vast amount
	of restructuring that we had to do, because we had to shrink the
	organization from an organization which once upon a time, was doing
	almost 700 crores down to 150 crores plus we had to organize ourselves
	in a very different manner because the kind of business that we were
	doing, which was more of contracting and projects was now transformed
	into products exclusively. So that was also a big shift, you know
	repositioning the manpower, doing a lot of changes, so all that was
	happening and till it was not finished I did not want to give you any wrong
	indications. Now, that has been done, and we are able to see light at the
	end of the tunnel and apart from that, gear has always been performing
	good but now it has reached a situation where we are very confident that
	even our foreign offices are going to contribute in a big way to more
	exports, the domestic after sale service businesses also healthy, as well
	as our new business which new orders that we get are also with
	reasonably good margins. So, going forward we are very confident that
	the year will go quite well and we see a good future.
Zaki Nasser:	Sir, about the material handling division.
Prayasvin Patel:	Material handling, as I told you, the orders which we had taken earlier,
	the project orders, out of which two NTPC jobs, which were ones causing
	us a lot of anxiety, they are right now, almost 98-99%. There is final
	tweaking that is happening at site and we are reasonably confident that
	by 30th of September, even if it stretches beyond may be 30th of October,
	we will be signing the documents with NTPC, and in exiting those two
	projects. So if that happens then, majority of our bleeding would stop, as
	well as the other projects which are going on, we have a big program of
	closing those sites and getting out of it. Lot of it has already been done
	and we are reasonably confident that this year the losses from material
	handling would almost come down to zero.
Zaki Nasser:	That is fantastic. And our debt level last year was around 300 crores. With
	the redemption coming back and all that, what expectations would you
	have by the end of the current financial year that is March 2022.

Prayasvin Patel:	First of all, there are two things that we are doing about the debt. While
	we are trying to reduce the debt, on the other hand we are trying to
	refinance our debt, so that we bring down the cost of interest on the
	debt that we have and I am reasonably confident that we will be able to
	save a few crores of rupees in refinancing the debt, as well as there is a
	continuous endeavor to keep on reducing the debt, as far as possible. If
	you look at the history, you will find that on a continuous basis we have
	been producing debt, and now with the healthy financial situation that
	we have and profits increasing that would be also further excellent.
Zaki Nasser:	Fantastic sir and best wishes for team Elecon. Thank you.
Diwakar Pingle:	Thank you Zaki. The next question is from Manan Shah.
Manan Shah:	Hi sir. Congratulations on a good set of numbers and congratulations on
	the successful delivery to the Indian Navy. I'm fairly new to the company
	so pardon if my questions are a little bit rudimentary. Sir, so I was just
	looking at our numbers so first on the gear division, so in the past decade,
	our gear division have not been able to clock revenues higher of 900
	crores and in the previous quarter also you indicated that we are
	operating at around 50-55% utilization. So, if you can just throw some
	light and currently we have some around 417 crores worth of orders in
	the gear division. So if you can just throw some light of where are we
	looking on scaling this division and what kind of revenue can our current
	facilities generate. So, is it possible to reach 100% kind of utilization or
	90% practically or a 70-80% catalog utilization would be a peak utilization
	that we can generate and what sort of order pipeline do we have, since
	we cater to most of the core sectors, and we are already seeing those
	sector announcing huge capex. So if you can just throw some light on
	that.
Prayasvin Patel:	Manan, I would put it this way that we had installed these capacities,
	during the time that India was going through a big way. So, thinking
	optimistically we thought that if we installed these capacities, we would
	get a head start, and would perform quite well, on the other hand after
	that came in the recession and then the utilization, decreased to almost
	40%. The company took a lot of measures to reduce the operational
	costs, so that even with 40%, we were able to break even and generate
	margins. Later on, as now what we stand, is that the investments that
	were made for additional capacities they have depreciated. Apart from
	this, we are seeing that the increase in demand coming from exports
	where the margins are healthier than what you find in the domestic
	business. There is the after sales or I would say the customer service and
	after sales, which is also showing a very healthy demand because we
	have gear units which are almost down 30-40 years old. So, those are
	coming in for repairs and for replacement of parts and things like that
	and new orders that we are taking, we have made sure that the payment
	terms, the terms and conditions and the margins are getting to a
	reasonably healthy level. So, all this has seen to it that the upsurge in
	profit continues and we are reasonably confident that this would
	continue. Now as long as capacity utilization is concerned, normally if we