Elecon Engineering Falls 6% as Q1 Profit Halves

Elecon Engineering shares fell 6% on Friday after a steep drop in Q1 profit, before recovering most of the day’s losses.

The company’s net profit for the quarter came in at Rs 70.35 crore, down close to 60% from Rs 175.44 crore in the same quarter last year. Investors reacted immediately once the results were released.

There is a twist to the story though. Revenue for the quarter actually grew, rising about 6% year on year to Rs 520.56 crore.

The company sold more, but earned far less from its operations. This usually points to rising costs eating into profitability.

That is exactly what happened here. EBITDA, a measure of how much a company earns from its core operations before interest, tax and other charges, fell 16% to Rs 110 crore.

As a percentage of revenue, this measure narrowed to around 21%, down from close to 27% a year ago. Simply put, the company is spending more to produce the same volume of goods.

It is worth noting that last year’s profit figure included a one-off boost of Rs 80.5 crore, which makes this year’s comparison look worse than the underlying business decline might otherwise suggest.

Elecon makes industrial gears and material handling equipment, supplying sectors like steel, cement, power and mining.

The company had earlier flagged plans to expand into Southeast Asian markets and push into high-torque gearboxes for mining, though neither has shown up in this quarter’s numbers yet.

At 15:12 pm, shares of Elecon were trading at Rs 510.10, down just 0.44% for the day, having clawed back nearly all of the early losses. The stock remains well off its 52-week high of Rs 683, touched last July.

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