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Saturday, February 15, 2014

Eimco Elecon: The Power of Quality Undervalued Stock


I delivered a presentation today on Eimco Elecon. I believe that it is an undervalued stock.

Eimco Elecon is a leading, profit making and established manufacturer of various Mining equipment. It is a zero debt company available at a Market Cap of just Rs92Cr (CMP INR 160). More importantly it has an investments of INR 60.42Crs in high grade shares and mutual funds. So effective market cap is just INR 32Crs i.e. INR 55 per share. Besides Net Current Asset per share is INR 154 and book value of INR 295. It is like company paying us to acquire its shares. Some additional highlights include consistency in operating and free cash flow, dividend yield of 2.5% (paying dividend for last several years), ROCE in double digits during last 6 years, and high promoters at 74% stake including 25% by Sandvik group. Also HDFC holding 4.79% for last several years. The key negatives are slowdown in mining and construction industries and overall economy & equipment industry and the stock is an illiquid/low volume stock.

You may get the presentation from: http://www.slideshare.net/ndharmawat/eimco-elecon-the-power-of-quality-undervalued-stock

Please share your feedback.

Niteen S Dharmawat


Niteen S Dharmawat said...

Please find link to get the recent credit rating report of Eimco Elecon by CRISIL. The report is submitted to the exchanges on 23rd Jan 2014.

Some highlights of the report:
• Eimco Elecon has a near monopoly in the underground coal mining equipment industry in India, with a market share of over 90 per cent. Its established market position is further supported by an extensive after-sales service network.
• The company has undertaken initiatives to diversify its clientele; CIL currently contributes about 70 per cent of its revenues as against 96 per cent in 2010-11.
• The company has remained debt-free since 2009-10
• The company’s technical capabilities are supported by its collaboration with foreign partners.
• During 2008-09, entered into a technical collaboration with Huta Stalowa Wola SA, a Polish company, to manufacture loaders with applicability in multiple industries such as coal mining, construction, and road-building.
• Ratings Reaffirmed, please see document for the details.
Outlook: Stable
• Eimco Elecon will maintain its financial risk profile over the medium term, supported by its healthy capital structure and steady cash accruals.
• The company is likely to benefit over this period from the stable business environment in the underground mining segment, translating into gradual growth in equipment volumes and in sale of spare parts.

Report: http://www.bseindia.com/xml-data/corpfiling/AttachHis/Eimco_Elecon_%28India%29_Ltd_230114.pdf

Niteen S Dharmawat

Niteen S Dharmawat said...

Eimco Elecon was discussed about 2 months ago at Rs. 160.

It announced today its quarterly and annual results. The results are encouraging.
- Quarterly Net sales increased 100% on QoQ basis and 78% on YoY basis
- Quarterly Net income increased 89% on QoQ basis and 248% on YoY basis
- Annual Net sales increased 13%
- Annual Net income 33%
- EPS for the year is Rs. 35. PE at CMP is 6.6
- The board recommended a divided of Rs4 per share. Dividend yield 1.7% at CMP
- Investments (shares, mutual funds etc.) also increased from around INR 60Crs to now INR 71Crs
- Market cap at CMP around Rs132Crores

It has double digit growth single digit PE with no debt, a sign of a multi-bagger. The stock already delivered 44% in 2months. It is locked in upper circuit today and may be heading for bigger gains.

Disc.: holding the stock.