Elgi Equipments Q2FY18 Concall Summary

Elgi Equipments.png

 Financial Highlights

Elgi Equipments Q2FY18 Financials.png
  • Sales has increased by 474 million and EBITDA has increased by about 100 million,
  • EBITDA should have been higher by 217 maintaining the same ratios at last year and hence EBITDA should have been 514 million instead company is at 448.
  • The difference is because the company lost a little bit of margin on material cost and this is not systemic problem
  • They are just mixed variation in different parts of the world including India.
  • The Company’s biggest increase has been in the manpower cost and of that primarily, it has been in India.
  • Net debt position is about Rs.160 Crores. This has increased from Rs.145 Crores as on March 2017 and the Rs.15 Crores of increase, it was 145 in March is now at 160, Rs.7 Crores is because of restatement of the debt levels due to change in the foreign exchange.
  • Effective increase in debt is about Rs.8 Crores which was partly due to GST.
  • Sales outside of Tamil Nadu was a combination of CST and local tax which effectively came to around 13%-14%.but today the GST rate is at 28%.
  • Effective working capital increase has been about Rs.55 Crores and the debt has gone up by effectively Rs.8 Crores.
  • For certainsegment of consumers GST slab has been reduced from 28% to 18%.

Growth in Domestic Economy

  • The growth in railways has been consistent with the budgeting and purchase of the government.

ATS ELGi Business

  • ATS has done well on the top line but proportionate to that increase in top line, the bottom line has not been very good.
  • Both the quantum of EBITDA and the percentage of EBITDA has increased, but when compared with the top line growth it has not performed very well.
  • Growth in that business has been on back on the tail of the growth in the automotive sector
  • Passenger car and the commercial vehicle, the growth in the first quarter and second quarter has been extremely good

Impact of GST

  • Effects of GST has stabilized as of now.
  • Next two quarters should be good quarters as far as top line is concerned
  • July was particular bad for parts because of GST because there were some parts which had 28%, some parts with 18%,
  • There waslack of clarity in which part goes to what tariff rate and its impact  felt in July.

Growth in terms of Private Capex and Cement and Alumina Refinery 

  •  Signs of large projects being reactivated but not going to happen anytime in the near future.
  •  Additional capacity being built in some of these infrastructure businesses, but it is in the planning stage.

Centrifugal compressor Business

  • Developed the machines, the machines have been put in the field that they are running for the company.
  • Selling some of the Samsung machines in the field, but s, company is only in the air business

International Business Scenario

  • Performance both in the US geography and in the European geography has been pretty good.
  • The growth in these two markets has been higher than the growth in India
  • US has grown - the US geography has grown by about almost 12-13% and Europe as a geography has grown by almost 25%
  • Gulf has been disappointment in terms of it is a marginally lower side
  • Brazil is kind of flat, it is still above breakeven, and it is marginally profitable
  • South East Asia, Asia Pacific is kind of flat, Australia has grown.
  • Performance is expected it to get sustained in the next two quarters.

Exports from India

  • Exports is flat but that is a misnomer because our export to our subsidiaries is towards replenishing their inventory.
  • Given the lead time, the long shipping durations, companyended up having big amount of inventory to support the market, only topping up of the inventory and when there is a depletion in those things.
  • Direct exports from India to subsidiaries are marginal, itis almost flat, but it is marginal.

Effect of Government announcements in terms of Expenditures

  • Government is announcing considerable amount of spend on growth projects - over a two to three years period
  • A significant ramp up of road building that have been happening in the country
  • Portable compressors has increased in supply
  • The intensity and velocity of road building is going to increase then naturally there should be an uptick in this vertical

Road and railway business

  • The road and railway business would be about 10%-12% of the revenue.
  • Both the sectors have achieved a good growth rate.

Hanwha Techwin centrifugal compressor coats

  • For the frames the company have already completed the validation, they are coating their own machine
  • Completion of the range will take the company a couple of years

Range of CFM

  •  Start from 600 CFM and go up to about 10,000 CFM
  • Ingersoll-Rand will go up maybe 15000 or 18000, Atlas may go up to the same side, but sweet spot is really in this range, 90% of the market will be in the range

Oil-free compressor

  • Completed the development, , there is no development or technology challenge and company is growing that business in India as well as outside India
  • Company is working on bringing a greater alignment to the market
  • Launching a product by June of next year, company hasalready got the products out into the field, but the official launch in India will be around June of next year.

Foundry utilization

  • Foundry capacity obviously has gone up compared to last year, but utilization is only at around 30%,
  • Earlier purchase price and price it as a selling price of that foundry or its supplies to the compressor business - almost breakeven maybe Rs. 1 Crore loss at an EBITDA level.
  • Significant improvement in the performance of the foundry because the demand for castings if the company is able to sustain this kind of a growth

Debt Levels

  • Targeting will be debt free and the business as usual conditions by next September.
  • Sudden dislocation because of the tax regime and also the regulation that the government implemented and then pulled back the cost a little bit of increase in both inventory and receivables
  • Maybe marginal Rs. 10-15 Crores of debt by September

CAPEX plans

  • Capital expenditure has been only about Rs. 5 Crores to Rs. 6 Crores
  • Strategic investments in the machining and welding lines for pressure vessel
  • Cash outflow in the future that will be to the tune of about Rs. 15 Crores to Rs. 16 Crores,