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Elecon Engineering Company Limited — Q1 FY26 earnings call

Call held 11 Jul 2025

Management summary

Elecon Engineering reported a robust Q1 FY26, with strong revenue and EBITDA growth driven by domestic market strength and exceptional performance in the MHE division. While the Gear division faced temporary margin pressures from new facility depreciation and product mix, management expressed confidence in normalization by year-end. The company highlighted a healthy order book, strategic capex plans, and promising opportunities in the defense and OEM export markets, underpinning a positive outlook for future growth.

Highlights

Consolidated revenue grew 25% YoY to INR 491 crores, driven by strong domestic demand.
Consolidated EBITDA increased 41% YoY to INR 130 crores, with margin expanding to 26.6%.
MHE division revenue surged 139% YoY to INR 133 crores, including INR 25 crores from arbitration settlement.
Gear division revenue grew 6% YoY to INR 357 crores, but EBIT margin declined to 18.4% due to accelerated depreciation and product mix.
Total order intake for the quarter was INR 480 crores, up 21% YoY, with an open order book of INR 710 crores.
Management guided for INR 400 crores capex over FY26-FY28, expecting INR 500 crores additional revenue.
Significant defense sector opportunities are anticipated, including a potential INR 1,000 crores+ P-17 order.

Key financials

01 Consolidated Revenue ₹491 Cr +25%YoY
02 Consolidated EBITDA ₹130 Cr +41%YoY
03 Consolidated EBITDA Margin 26.6%
04 PAT (incl. one-time items) ₹175 Cr
05 Total Order Intake ₹480 Cr +21%YoY
06 Open Order Book ₹710 Cr

What they filed

Q1 FY27: revenue up 6.1%, net profit down 60.0% against the same quarter last year.

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	508	529	798	491	578 +14%	552 +4%	746 −7%	521 +6%
Expenses	396	386	602	360	452	443	588	411
EBITDA	112	143	195	130	126 +13%	109 −24%	158 −19%	109 −16%
Margin	22%	27%	24%	27%	22%	20%	21%	21%
Other income	14	17	21	108	18	19	-84	22
Interest	2	3	5	6	6	7	6	8
Depreciation	13	16	19	25	25	27	27	30
Profit before tax	111	140	192	207	113 +2%	94 −33%	40 −79%	93 −55%
Tax rate	21%	23%	24%	15%	22%	23%	85%	24%
Net profit	88	108	146	175	88 +0%	72 −33%	6 −96%	70 −60%
EPS	3.91	4.79	6.53	7.82	3.91	3.21	0.27	3.14

How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Gear Division
₹357 Cr Revenue₹66 Cr EBIT18.4% EBIT Margin73% Contribution to Revenue
Material Handling Equipment (MHE) Division
₹133 Cr Revenue (reported)₹61 Cr EBIT (reported)27% Adjusted EBIT Margin₹134 Cr Order Inflow₹400 Cr Open Order Book

Guidance & targets

Market Share

Exports Share of Total Revenue Market Share · by FY30 · High confidence 50%

In line with our strategic vision, we aim to increase the share of exports to 50% of total revenue by FY '30.

— Kamlesh Shah, Group CFO

Margin

Consolidated EBITDA Margin Margin · steady-state basis · High confidence 24%

At a consolidated level, we expect to maintain an EBITDA margin of 24% on a steady-state basis.

— Kamlesh Shah, Group CFO
Consolidated Margin Momentum Margin · from Q2 onwards · High confidence 24%

This will be there from Q2 onwards. You can see that momentum of 24% margin.

— Kamlesh Shah, Group CFO
MHE Sustainable Margin Margin · next 2-3 years · High confidence 23%

And what we see that 23% is sustainable margin that we already see. When I said 23%, this over the period of next 2 to 3 years.

— Kamlesh Shah, Group CFO
Gear Division EBIT Margin Margin · yearly · High confidence 25%

And what we said yearly the margin profile for Gear division, which is 25% EBIT, I think it is achievable for us.

— Kamlesh Shah, Group CFO

Capex

Overall Capex Budget Capex · FY26-FY28 (next 3-year period) · High confidence INR 400 crores

Looking ahead, the capital expenditure budget for FY '26 to FY '28 is INR 400 crores for the next 3-year period.

— Kamlesh Shah, Group CFO
MHE Division Capex Capex · this year · High confidence INR 35 crores

And over and above this INR 400 crores, INR 35 crores, we are going to spend in MHE division also because my MHE division is also getting the momentum. That the INR 35 crores of MHE will come in this year, whereas the INR 400 crores of Gear division will be spent over the period of 3 years.

— Kamlesh Shah, Group CFO
Gear Division Capex Capex · over 3 years · High confidence INR 400 crores

INR 400 crores will be in the Gear division. And over and above this INR 400 crores, INR 35 crores, we are going to spend in MHE division also because my MHE division is also getting the momentum. That the INR 35 crores of MHE will come in this year, whereas the INR 400 crores of Gear division will be spent over the period of 3 years.

— Kamlesh Shah, Group CFO
Overall Capex Capex · FY26 · High confidence not more than INR 100 crores

The overall capex in FY '26 will not be more than INR 100 crores, overall.

— Kamlesh Shah, Group CFO

Arbitration

Arbitration Realization Arbitration · by end of this year and next year · Medium confidence INR 20 crores+

But still now we have initiated a further two arbitration proceedings one of them -- the outcome will come by end of this year and another will come in the next year sometime, where we are expecting INR 20 crores plus in terms of the realization...

— Kamlesh Shah, Group CFO

Order Inflow

Defense Sector Orders Order Inflow · this year · Medium confidence INR 200 crores

See, we are expecting close to INR 200 crores this year. And next year, we are expecting better numbers as we go further on that.

— M. M. Nanda, Head of Gear Division
MHE Export Order Order Inflow · coming quarter in Q2 · High confidence US$ 1.8 million

In fact, we are expecting one order in coming quarter in Q2. That amount is near to US$ 1.8 million.

— Kaushik Patel, Head of MHE Division
MHE Export Order Order Inflow · Q4 of this financial year quarter and quarter 1 of next financial year · Medium confidence US$ 12 million

In fact, we are also expecting one good order earliest in Q4 of this financial year quarter and quarter 1 of next financial year. ... US$ 12 million.

— Kaushik Patel, Head of MHE Division
Defense Order (Q2) Order Inflow · Q2 · High confidence nearly INR 200 crores

What you see in the Q2, we are expecting an order of nearly INR 200 crores.

— Kamlesh Shah, Group CFO
Defense Order (P-17) Order Inflow · Q4 or next year sometime · Medium confidence INR 1,000 crores plus

That we are estimating it would be INR 1,000 crores plus order.

— Kamlesh Shah, Group CFO

Revenue

MHE Division Revenue Revenue · FY26 (this year) · High confidence INR 650 crores

Full year, I think we already spell out. MHE is expected to generate a revenue of INR 650 crores for this year. That is year ended March 31, 2026.

— Kamlesh Shah, Group CFO
OEM Business Revenue Revenue · by end of this year · High confidence EUR 7 million

And by end of this year, we are confident to generate nearly EUR 7 million of business for us.

— Kamlesh Shah, Group CFO
Additional Revenue from Capex Revenue · from additional INR 300 crores capex over 3 years · High confidence INR 500 crores

Additional with this INR 300 crores capex what we did over the period of 3 years, it is going to generate additional INR 500 crores of revenue for us.

— Kamlesh Shah, Group CFO
OEM Revenue Revenue · this year · High confidence INR 70 crores

But this year, we are going to generate INR 70 crores of revenue from these OEMS.

— Kamlesh Shah, Group CFO
CAGR Revenue · next 3 years · High confidence 25%

Sir, on a TV interview, you mentioned we can grow for 25% CAGR for the next 3 years.

— Kamlesh Shah, Group CFO

Operating Expense

Consolidated Depreciation Operating Expense · FY26 (overall company) · High confidence INR 100-105 crores

Previously INR 70-75 crores → INR 100-105 crores

Overall, at the consolidated level, the depreciation would be at that level of that size. As far as for this year, my depreciation by end of the year would be nearly INR 90 crores for Gear division. ... Yes, INR100 crores, INR105 crores.

— Kamlesh Shah, Group CFO
Gear Division Depreciation Operating Expense · FY26 (this year) · High confidence INR 90 crores

As far as for this year, my depreciation by end of the year would be nearly INR 90 crores for Gear division.

— Kamlesh Shah, Group CFO

OEM Business

OEM Scale-up Start OEM Business · from January 2026 onwards · High confidence January 2026 onwards

That larger scale will start, you can say, from January 2026 onwards.

— Kamlesh Shah, Group CFO

Order Book

Order Visibility Order Book · next up to 2027 · High confidence up to 2027

And we have a clear visibility for next up to 2027, we have a very clear visibility of the order inflow as well as the execution of the order and the revenue visibility.

— Kamlesh Shah, Group CFO

Order Execution

Defense Order Execution (INR 200 cr) Order Execution · over 2 years · High confidence over 2 years

The INR 200 crores, which we just said will come by Q2 sometime, which will be executed over the period of 2 years.

— Kamlesh Shah, Group CFO
Defense Order Execution (INR 1000 cr+) Order Execution · over 3 years · High confidence over 3 years

And that the big order, which we are expecting maybe by Q4 or the next year sometime, that will be executable over the period of 3 years as per the delivery schedules.

— Kamlesh Shah, Group CFO

Product Mix

Gear Division Engineered Product Mix Product Mix · from Q2 onwards · High confidence 50-55%

Generally, normal mix in engineered product is 50% plus any time. It may be between 50% to 55% over there. I think that will start from Q2 onwards.

— Kamlesh Shah, Group CFO

Risks & concerns

Geopolitical volatility impacting overseas deliveries
medium

Hold of deliveries in the Middle East due to Israel-Iran war situation, deferring INR 14 crores of revenue to Q2/Q3.

Management acknowledged
Margin pressure in Gear division from new facility and product mix
medium

Accelerated depreciation from new manufacturing facility, increased employee costs, brand-building initiatives, and an unfavorable product mix (less engineered products) impacted Q1 EBIT margin, but expected to normalize by year-end.

Management acknowledged
Uncertainty regarding US tariffs impacting MHE export strategy
low

Plans for US assembly centers and outsourcing marketing efforts are pending the outcome of US tariffs.

Management acknowledged

Areas of evasion (2)

Specific quantum of brand-building/employee costs
Detailed sector breakups for revenue

Q&A highlights

3 direct

Decline in export revenue and geopolitical impact Direct

This was due to some hold of deliveries for the routes in the Middle East because of Israel and Iran war kind of situation, and the delivery will get clear by the Q2 sometime. ... INR 14 crores.

Reveals specific geopolitical risks impacting current quarter's overseas performance and provides a quantitative impact on deferred revenue.

Asked by Vishal, Bandhan AMC

Profitability normalization in Gear business and product mix impact Direct

I think by the end of the year, we'll sustain our margin, what we already spelt out. ... this margin is also because of the change of product mix also. Generally, my product mix between the engineered product and the standard product is 50-50. 50% plus in the engineered product. For Q1, my revenue from engineered product is 43% and 57% from the standard product.

Explains the current quarter's margin pressure in the key segment and provides insight into the ideal vs. actual product mix, indicating a temporary deviation expected to normalize.

Asked by Vishal, Bandhan AMC

Capex plans, allocation, and expected revenue generation Direct

INR 400 crores will be in the Gear division. And over and above this INR 400 crores, INR 35 crores, we are going to spend in MHE division also because my MHE division is also getting the momentum. ... Additional with this INR 300 crores capex what we did over the period of 3 years, it is going to generate additional INR 500 crores of revenue for us.

Provides clear allocation of significant capital expenditure across divisions and quantifies the expected revenue generation from these investments, crucial for future growth.

Asked by Pratik Kothari, Unique PMS

3 min read 6 chapters

Detailed narrative

Robust Q1 FY26 Performance Driven by Domestic Demand

Elecon Engineering reported a strong Q1 FY26, with consolidated revenue growing 25% year-on-year to INR 491 crores. This growth was primarily fueled by a significant 41.4% increase in domestic revenue, reaching INR 367 crores. The strong domestic performance helped offset a 7% decline in overseas revenue, which stood at INR 124 crores, partly due to geopolitical headwinds in the Middle East. The reported revenue for the quarter also included a one-time INR 25 crores from arbitration claim settlement in the MHE division.

EBITDA Expansion Despite Gear Division Headwinds

Consolidated EBITDA for Q1 FY26 increased by 41% year-on-year to INR 130 crores, with the EBITDA margin expanding to 26.6% from 23.5% in Q1 FY25. However, the Gear division's EBIT margin saw a decline to 18.4% from 23.7% in the prior year. This was attributed to accelerated depreciation from a newly commissioned manufacturing facility, increased employee costs, brand-building initiatives in overseas markets, and an unfavorable product mix (43% engineered vs. a normal 50%+). Management expects consolidated EBITDA margin to normalize at 24% and Gear EBIT margin to reach 25% by year-end as production ramps up and product mix improves.

MHE Division's Exceptional Growth Trajectory

The Material Handling Equipment (MHE) division delivered an outstanding performance, with reported revenue soaring 139% year-on-year to INR 133 crores. Excluding the INR 25 crores arbitration settlement, MHE revenue still grew by an impressive 93.6%. The adjusted EBIT margin for MHE stood at a healthy 27%, driven by a favorable product mix and higher contribution from the aftermarket business. Management projects MHE revenue to reach INR 650 crores for FY26 and aims to maintain a sustainable margin of 23% over the next 2-3 years, supported by strong demand from power, cement, and steel sectors.

Strong Order Inflow and Backlog Provide Future Visibility

Total order intake for the quarter was INR 480 crores, reflecting a healthy 21% year-on-year increase. As of June 30, 2025, the company's open order book stood at INR 710 crores, providing a strong foundation for future growth. The Gear division's overseas order inflow grew 10% year-on-year to INR 119 crores. Management expressed high confidence in future prospects, citing clear visibility for order inflow, execution, and revenue up to 2027, and projecting a 25% CAGR for the next three years.

Strategic Capex and Defense Sector Opportunities

Elecon has outlined a significant capital expenditure budget of INR 400 crores for the FY26-FY28 period, with INR 400 crores allocated to the Gear division over three years and an additional INR 35 crores for the MHE division in FY26. This capex is expected to generate an additional INR 500 crores in revenue. The company is actively pursuing substantial opportunities in the defense sector, anticipating an order of nearly INR 200 crores in Q2 and a large P-17 order exceeding INR 1,000 crores by Q4 FY26 or FY27, with execution periods of 2-3 years.

Expanding OEM Business and International Footprint

Elecon has expanded its OEM customer base to 18, with most now in commercial production, and expects a larger scale-up from January 2026. The OEM business generated EUR 2 million in Q1 and is projected to reach EUR 7 million for FY26, contributing INR 70 crores in revenue this year. The company is also strategically focused on increasing its export share to 50% of total revenue by FY30, with specific MHE export orders of US$1.8 million expected in Q2 and a potential US$12 million order by Q4 FY26/Q1 FY27, as it builds its global footprint.

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