Sunday, September 11, 2011

Eimco Elecon - A Ben Graham value play

The eimco elecon engineering company was incorporated in 1974 as a joint venture between ELECON group and the indian public.

The average ROCE of the company over the last five years is 15.728% with average operating profit margin of 18.984%. The margins were highest in the years between 2007 and 2009 and in years 2000 and 2001. Net profit margin too were highest in years 2008, 2000 and 2001, in low double digits. The margins have shrinked to 7.2% in 2011 which is lowest in the last 13 years. This shows that the business is under severe margin pressure but still the margins are much higher than the average for all the companies in India. The company is debt free with (net current assets + investments) worth INR 114.05 crore. The assets turnover ratio of the company decreased from 1.81 to 1.06 between 2002 and 2006 but the same has improved again to 2.00 in FY2011. The company had negative cash-flow in FY2009 but the average operating cash-flow over the last five years is equal to the net-profit reported by the company. So the company is providing proper depreciation and not over-reporting the profits.

The company's average total income has risen from INR 72.98 crore between FY00-FY02 to INR 167.49 crore between FY09-FY11, i.e. 9.67% compounded annually. The net profits during the same time has risen from INR 8.653 crore in FY00-FY02 to INR 13.81 crore, i.e. 5.33% compounded annually. The company had three down years in profits over the last ten years, FY03 down by 45.27%, FY06 down by 5.83% and FY10 down by 16%. The revenues declined in two consecutive years in FY06 by 7.24% and in FY07 by 3%.

The company is a family owned business and promoters hold 74.05% of the shares as of June 2011. The promoters increased their stake from 73.17% in the quarter ending December 2008. Dividend payout ratio of the company is 20% of the net profit which is less but is fine.

Mutual Fund Holding
As of June 2011, only HDFC growth fund holds this shares and that too bought at INR 216 in 2007 and INR 300 in 2006.

The company's book value is INR 242 so the company at the CMP of INR 185 is trading below book-value as well as below its net current assets of INR 113 crore. The trailing twelve months EPS is INR 21.9 so the P/E comes at 8.45. I would recommend a buy on this company.

Image: worradmu /
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Anonymous said...


Eimco Elecon may look like a Ben Graham bargain quantitatively. But I do not trust the current promoters. The son has taken over the company and seems to be utilizing the cash in a frivolous manner. I belong to Anand hence I have some idea of the promoters.

Unknown said...


Have u looked at Elecon the parent company ? At Rs.58 it is quoting above BV of FY11, which i think should increase in FY12. Also, it quotes near to Net current assets which on FY11 basis are around Rs.51


Chinmay said...

Elecon Engineering is highly indebted. The balance sheet at shows 530 Cr debt against equity of just 395 Cr, not fitting the criteria of 1:2 debt equity of Ben Graham.


Unknown said...


You are right. Let me try to get more info on the nature of debt here!!

BTW, have you looked at Mazda Ltd. It is almost nearly fitting Graham's Debt capacity bargain at its present market cap.


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