ELECON ENGINEERING COMPANY LTD.
Long-Term Bank Loans / Facilities
Short-Term Bank Loans / Facilities
CP / STD
Rating
CARE has assigned 'CARE AA-' (double A minus) rating
to the long-term bank loans / facilities and 'PR 1+' (PR
one plus) rating to the short-term bank loans / facilities
of Elecon Engineering Company Ltd. (EECL) for an
aggregate amount of Rs 980 cr, including sanctioned/
outstanding term loan (as on Dec.24, 2007) of Rs 120
cr, fund-based working capital sanctioned limits of Rs
275.00 cr and non-fund based sanctioned limits of Rs
585 cr.
Also, CARE assigned 'PR1+' (PR one plus) rating to
short-term debt (including commercial paper) for an
amount up to Rs 80 cr, which would be carved out of
the sanctioned working capital limits.
The ratings take into account EECL's long and
established track record in engineering industry with
well diversified product range both in MHE (material
handling equipment) business and gear business,
its leadership position in industrial gear business,
strong order book position in MHE business,
comfortable financial plus liquidity position and
positive industry outlook. The long-term rating is,
however, constrained by its operations in a working
capital intensive industry and the planned capex which
is largely debt funded.
Background
EECL is the flagship company of Elecon Group,
established in 1951 by Late Shri Bhanubhai I. Patel,
father of the present Chairman & Managing Director,
Shri Prayasvin B. Patel. EECL was incorporated in 1960
and started its operation with design and
manufacturing of elevators and conveyors. Presently,
it manufactures a wide range of MHE alongwith
industrial gears and gears for WTGs up to 600 kw.
Further, it has re-entered the wind farm business
(alternative energy) in current year after a span of six
CREDIT ANALYSIS & RESEARCH LIMITED
CARE AA-
PR1+
PR1+
years. The company is an industry leader in
transmission gears with almost 27% market share and
is one of the largest manufacturers of MHE.
Operation of the Company
EECL operates in three business areas namely
material handling equipments, transmission gears
and alternative energy contributing 52.5%, 47.3% and
0.2% of sales in FY07.
In MHE business, EECL designs and manufactures a
wide range of material handling equipments catering
to the need of core sectors such as steel, fertilizer,
cement, coal, lignite and iron ore mines, power and
ports. EECL executes turnkey projects for material
handling with its own equipment supply viz. wagon
tipplers & loader, stackers & reclaimers, crushers,
scrapers, feeders, conveyors, ship loader, cable
reeling drum, etc.
EECL has advanced manufacturing facilities spread
over 1,17,000 sq. mtrs. and the company is equipped
with a wide range of computer numerical controlled
machines, quality control and testing equipments etc.
The transmission gear division of the company
manufactures helical gears, worm gears, high speed
gears, couplings, special gears and geared motors.
The manufacturing facility is spread over 1,73,098 sq.
mtrs, with more than 90% of the machines being
computer controlled, ensuring a high degree of
precision in manufacturing. EECL manufactures a
wide range of industrial gears of all size and also
customized ones as per the requirements. It is the
only domestic player manufacturing large-sized
gears, which are import substitutes. EECL is the
leader in gear industry with around 27% market share
followed by Shanti Gears and Crompton Greaves. The
products find application in almost all manufacturing
industries including cement, steel, sugar, material
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handling equipments, elevators, fertilizer, plastic, Financial Results
rubber etc. (Rs crore)

EECL is also diversifying its product portfolio in gear For the period ended / 2005 2006 2007
business by introducing high speed plus capacity lift as at Mar.31, (12 m) (12 m) (12 m)
gears and vertical roller mill gear boxes. EECL is also Working Results
putting thrust to supply gears for specific applications Total Income 272.76 439.82 720.23
of Indian navy. PBILDT 31.83 59.66 111.76
The company has re-entered the alternate energy Depreciation 8.23 9.43 12.22
business viz. wind farms, with a target to install wind Interest and Finance charges 9.26 13.98 19.36
mills with installed capacity of 25 mw in the first phase. Profit from operations (PBT) 14.35 36.25 80.17
PAT 10.03 27.86 54.92
It has already acquired land for the project and plans
Net Cash Accruals 19.01 33.59 66.38
to outsource parts of the wind mill, while WTG gear
boxes will be manufactured in-house. Financial Position
Equity Capital 5.65 5.71 6.18
Its key customers are NTPC, BHEL, SAIL, Indian Navy,
Net Worth 68.29 100.37 187.47
Indian Railways, ACC, Neyveli Lignite, Reliance
Total Capital Employed 176.75 318.20 487.90
Energy, Torrent Power, JSW Steel, etc.
Key Ratios
As on Nov.30, 2007, EECL had strong order book
Profitability (%)
backlog position of Rs. 1127 crore including Rs. 912
PBILDT / Total Income 11.67 13.56 15.52
crore for MHE division and Rs. 215 crore for gear
PAT / Total Income 3.68 6.33 7.63
division. Over 70% orders of MHE division are of
ROCE 15.69 21.30 25.63
comprehensive turnkey contract having price
escalation clause, where as balance are fixed price Solvency
equipment supply contracts. Long Term Debt Equity Ratio 0.50 0.59 0.32
Overall Gearing Ratio 1.59 2.17 1.60
Interest Coverage (times) 2.55 3.59 5.14
Ongoing Projects
Current Ratio* 1.11 1.12 1.21
Looking at the increasing demand from the user
Turnover
industry, both in MHE and gear business, EECL has
Avg. Inventory (days) 183 150 110
envisaged a total capex of Rs 87 crore for expansion
Avg. Collection Period (days) 128 151 166
of its manufacturing facilities of MHE division and
Working Capital Turnover Ratio 2.81 2.70 2.53
introduction of new products under gear division. The
Capital Turnover Ratio 1.74 1.78 1.79
company has already incurred Rs 28 crore towards
* includes current portion of long- term debt.
the above capex (as at Dec.18, 2007).

EECL is also setting up separate facilities for
manufacturing wind mill gear boxes with total investment
of Rs 80 crore. It has planned to enter into a licence
agreement for technology transfer for the gearbox of WTG
of 1-2 mw with a renowned global manufacturer. The
company has already incurred Rs 49 crore towards the
project (as at Dec.18, 2007) and the same is expected to
commence operations in H1FY09.
During FY07, the total income increased by 64% due
to 119% growth in income of MHE division and 36%
growth in income of gear division. The income growth
was a result of surge in demand due to investment in
core infrastructure sector and capex plan of user
industries.
PBILDT margin improved from 13.56%, in FY06 to
15.43%, in FY07 on account of increase in level of
operations and better realisation in MHE, as well as
the gear division. Improvement in PBILDT margin led
to improvement in PAT margin from 6.33%, in FY06 to
7.63%, in FY07.
ROCE and RONW also increased gradually over the last
three years and were 25.63% and 38.16% respectively,
during FY07 on account of improved profitability.

2 CAREVIEW
The long term debt equity ratio improved from 0.59 as on
Mar. 31, 2006 to 0.32 times, as on Mar.31, 2007 on account
of conversion of FCCB of Rs 36 crore and accretion of
profit in the form of increase in networth. The overall
gearing also improved to 1.60 times, as on Mar.31, 2007
due to increase in networth, despite increase in bank
borrowing by Rs 101 crore.
Interest coverage improved from 3.59 times, in FY06 to
5.14 times, in FY07 due to improvement in PBILT.
Looking at the working capital intensive nature of the
industry, current ratio and quick ratio were satisfactory at
1.21 and 0.90 times, respectively as on Mar.31, 2007.
Industry Review
Material Handling Equipments (MHE):
MHE are heavy duty machines mainly used for
transporting goods, handling other equipments, etc. and
are used in applications like coal handling systems,
conveyer systems, trippers, wagon tipplers, ship loaders,
etc. The products are mainly used by coal, steel, fertilizers,
power and cement industries.
The demand for MHE is driven by capacity expansion in
user industries which are influenced by growth in overall
economy. Backed by capacity building in both core sector
and infrastructure sector, the Indian bulk material handling
industry is expected to post strong growth. Going forward,
the demand for MHE is more likely to sustain, given the
quantum of investment under pipeline, especially in the
manufacturing sector with sizeable amounting of it
translating to MHE industry. TRF Ltd., Mcnally Bharat
Engineering Co. Ltd., L&T and EECL are the major players
in the domestic market.
Transmission Gears:
Transmission gears like helical, worm, planetary and
composite gears find application in coal, steel, fertilizers,
power, cement and other industries. The demand for
transmission gears is mainly driven by capacity additions
in the manufacturing sector and is sustained by
CREDIT ANALYSIS & RESEARCH LIMITED
replacement and maintenance demand for installed
manufacturing facilities.
Increasing investment in manufacturing and infrastructure
sector coupled with modernization of manufacturing plants
would benefit the gear industry, as its products form an
essential part of most of the manufacturing facilities. The
gear industry in India has been growing at a rate of 12-15
per cent annually for the last few years buoyed by India's
GDP growth of 7-8 per cent and the growth in India's
manufacturing sector.
Wind Mill and WTG gear box:
India with a wind power generation capacity of 6,270 mw,
is the fourth largest wind power producer in the world
after Germany, USA and Spain and has huge potential of
about 45,000 mw. The government policies are also
conducive for investment into wind mills.
Prospects:
Increasing investments in the core sector mainly thermal
power projects, steel, cement, mining and port sector would
increase the prospects of MHE business, where EECL is
one of the leading and established players having a wide
range of product portfolio focusing on turnkey projects.
EECL being the industry leader with almost 27% market
share and having presence in all segments of industrial
gear especially in large gear boxes where its is the sole
domestic player would directly benefit from the surge in
demand from the increased investment in industrial and
infrastructure sector. Further, its shift to higher size/high
value gears and introduction of new products will not only
increase its competitiveness in the domestic industry
where it is the industry leader, but also increase the
opportunities in the export market.
Increasing rush for non conventional energy generation
by the industries, supported by government, following
awareness of global warming, is expected to increase
the demand of wind mills in India and in turn, gear boxes
for WTGs, where EECL plans to diversify in near future.
December 2007
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For Further details please contact at :
CREDIT ANALYSIS & RESEARCH LIMITED
4th floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (E), Mumbai - 400 022.
Tel.: (022) 6754 3456
Fax : (022) 6754 3457
E-mail : care@careratings.com

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based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not,
however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors
or omissions or for the results obtained from the use of such information. Most issuers of securities rated by CARE have
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4 CAREVIEW