CARE has assigned ‘CARE AA-’ (double A minus] rating to the long-term bank loans / facilities of Elecon Engineering Company Ltd. (EECL). This rating is applicable for facilities having tenure of over one year. Also, CARE assigned ‘PR 1+’ [PR One Plus] rating to the short-term bank loans / facilities of EECL. This rating is applicable for facilities having tenure up to one year. These ratings are assigned for an aggregate amount of Rs 980 cr, including sanctioned/outstanding term loan (as at 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.

In addition, CARE assigned ‘PR1+’ [PR one plus] rating to short-term debt issue [including CP (commercial paper)] for an amount up to Rs 80 cr which is carved out of the present working capital limits.

Instruments with CARE AA rating are considered to offer high safety for timely servicing of debt obligations. Such instruments carry very low credit risk. Instruments with PR1+ rating would have strong capacity for timely payment of short-term debt obligations and carry lowest credit risk.

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.

EECL incorporated in 1960, is flagship company of the Elecon Group manufacturing a wide range of MHE and industrial gears. It also manufactures gears for WTGs up to 600 kw and has re-entered the wind farm business (alternative energy) in the current year after a span of six years. The company is industry leader in transmission gears with almost 27% market share and one of the largest manufacturers of MHE. 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.

EECL manufactures a wide range of MHE 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 manufactures a wide range of industrial gears having application in almost all manufacturing industries including cement, steel, sugar, material handling equipments, elevators, fertilizer, plastic, rubber etc. Its key customers are NTPC, BHEL, SAIL, Indian Navy, Indian Railways, ACC, Neyveli Lignite, Reliance Energy, Torrent Power, JSW Steel, etc. As on Nov.30, 2007, EECL had a strong order book backlog position of Rs.1127 crore including Rs.912 crore for MHE division and Rs.215 crore, for gear division.

The total income of EECL has been growing at CAGR of 46%, during the last four years on account of sustained growth in gear business and very strong growth in MHE business. 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 an improvement in PAT margin from 6.33%, in FY06 to 7.63%, in FY07. 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 industry, the current ratio and quick ratio were satisfactory at 1.21, and 0.90 times respectively as on Mar.31, 2007.

Increasing investments in infrastructure and manufacturing sector would sustain the demand for both industrial gear and MHE business, where EECL is one of the leading and established players, having a wide range of product portfolio, focusing on turnkey projects.

Sourced From: Careratings

Tags: calls, daytrading, free calls, intraday, tips

Similar Posts:

• CARE assigns AA-,PR1+ rtg to bk loan rtgs for Sadbhav Engg
• CARE assigns AA+ rtg to Bond issue of PNB Housing Fin
• Fitch assigns F1(ind) rtg to STD prog of Unitech Machines
• Fitch assigns Genus Power Infra A-(ind)’/’F1(ind) rtg
• ICRA assigns A1+ rtg to India Infoline’s STD prog