Elecon Engineering Grows By 125% In 1 Year: What’s Driving This Stock?

Elecon Engineering Stock Price Rise

Have you ever wondered how a company can grow by a staggering 125% in just one year? Well, that’s exactly what happened with the stocks of Elecon Engineering. This impressive growth has turned heads and made many curious about what’s driving this stock to new heights.

Elecon Engineering Stock Price Rise

From record-breaking financials to strategic international expansions, several factors are at play. Want to know all the details behind Elecon’s incredible success? 

Go through this article and you’ll find it out! 

(A) Factors: What’s driving the growth of Elecon Engineering stocks?

Here are the key reasons behind this-

(A.1) Strong Financials: High Revenue & Profits

First, let’s talk numbers because, you know, they tell the real story. Elecon Engineering delivered its highest-ever revenue of Rs.1,937 crore in FY24. That’s a 27% increase year-on-year (YoY). 

Just look at their financial data taken from their official annual report (balance sheet)

Financial AspectsFY24FY23
Revenue from OperationsRs.1,937 croreRs.1,530 crore
Operating ExpensesRs.1,018 croreRs.836 crore
Gross ProfitRs.919 croreRs.694 crore
Gross Profit Margin47.4%45.4%
EBITDA Margin24.5%22.2%
Profit before Tax (PBT)Rs.465 croreRs.300 crore
PBT Margin24.0%19.6%
Profit after TaxRs.356 croreRs.238 crore
Financial Data of Elecon Engineering

And guess what? 

Their profit after tax (PAT) also hit a record high of Rs.356 crore, marking a 50% YoY jump for FY23. 

So, why is this significant? 

Well, consistently strong financial performance is like rocket fuel for a company’s stock. High revenue and profits not only attract investors but also provide the company with the necessary capital to reinvest in growth opportunities, be it in technology, infrastructure, or market expansion. 

When a company shows it can generate substantial profits, it signals strong management and operational efficiency, boosting investor confidence and driving stock prices up.

(A.2) Government Capital Expenditures and Infrastructure Development

Elecon Road Construction

Here’s another piece of the puzzle- the role of government policies. The Indian government’s emphasis on capital expenditure and infrastructure development has been a major boon for Elecon. With increased spending on infrastructure, there’s a surge in demand for industrial machinery and components, precisely what Elecon specializes in.

As you know, a wave of new roads, bridges, and industrial projects is sweeping across the country. Elecon is riding this wave, leveraging government policies to enhance its growth prospects. Their tactical focus on exports and the rising order inquiries across various products and sectors further position them to grow faster than the industry average. 

So, it’s like the government is setting the stage, and Elecon is seizing the opportunity with both hands.

(A.3) High Number of Orders from Various Industries

Speaking of seizing opportunities, let’s talk about Elecon’s strong order inflows. The company has seen robust performance in its gears segment, particularly from industries like steel, power, cement, and paper. 

Think of it this way- these industries are the backbone of infrastructure and industrial development. With the government’s push towards infrastructure, these sectors are booming, and Elecon is right in the middle of the action, supplying essential machinery and components. The high number of orders not only boosts current revenues but also secures future business, creating a stable growth trajectory for the company.

(A.4) Onboarding New OEMs in the International Market

But wait, there’s more! Elecon isn’t just relying on domestic success. They’ve successfully onboarded 11 new Original Equipment Manufacturers (OEMs) in the international market. These new partnerships are expected to generate an estimated annual business volume of around €6.0 million, with commercial production set to commence in FY25.

This is a big deal because expanding into international markets diversifies Elecon’s revenue streams and reduces dependency on the domestic market. You can assume it is like adding multiple engines to a rocket ship, ensuring it reaches greater heights. 

In simple words, by establishing a presence in the global market, Elecon can tap into new opportunities and buffer against local economic fluctuations.

(A.5) Capitalizing on Robust Replacement Demand in Key Overseas Regions

Continuing with its international strategy, Elecon has capitalized on robust replacement demand in key overseas regions. What does this mean? Well, as machinery and equipment age, they need to be replaced or upgraded, and Elecon is stepping in to meet this demand.

This replacement demand provides a steady stream of revenue as industries in these regions look to upgrade their equipment. It’s a smart move that not only boosts current sales but also establishes Elecon as a reliable supplier in the global market, enhancing its reputation and long-term growth prospects.

(A.6) Analysts’ Positive Outlook

Finally, let’s not forget the analysts. Experts at Elara Capital believe that Elecon’s revenue could grow by 20-24% CAGR over the next three years, driven by robust domestic demand and export opportunities. This positive outlook from analysts is crucial because it influences investor sentiment. 

When analysts project strong future growth, it’s like a green light for investors, leading to increased buying activity and, consequently, higher stock prices.

We hope you got a clearer view of why Elecon’s stock has soared and how strategic business decisions and favorable market conditions can drive significant growth. Now another question pops up is it a good investment opportunity? What should you do as an investor? Just go through the next section and you’ll find out!

Note: Sorry for the interruption, but let me tell you that Elecon Engineering’s stocks aren’t the only ones that saw a huge rally. There are many other companies too whose stocks have seen exponential growth. Here are some of them-

Visit these articles for more details.

(B) What should the Investors do?

What should investors do?

Okay, so let’s look into what you should consider before taking any action on Elecon Engineering stocks given their impressive 125% growth over the past year.

Here it goes-

Case 1: Buying Elecon Engineering Stocks

You know, if you’re thinking about buying more Elecon Engineering stocks, you’re probably looking at their strong performance and thinking, “This company is on fire! I want in on that action.” Here are some reasons why buying might be a good move-

  • Strong Financial Performance: With record revenue and profits, Elecon has proven its financial robustness. Investing in a company with solid financials can often lead to good returns.
  • Positive Market Conditions: The government’s focus on infrastructure development means sustained demand for Elecon’s products. As the infrastructure projects ramp up, Elecon stands to benefit significantly.
  • International Expansion: Elecon’s successful onboarding of new OEMs and its strategic moves in international markets position it for future growth. This expansion could lead to a more diverse and stable revenue stream.
  • Analyst Optimism: Analysts are projecting a 20-24% CAGR over the next three years. Such positive projections can indicate that the stock has more room to grow.

If you’re a long-term investor and believe in Elecon’s strategic direction, buying more stocks could be a good choice.

Case 2: Selling Elecon Engineering Stocks

On the flip side, you might be considering selling your Elecon stocks. Maybe you’re thinking, “The stock has already gone up by 125%. Shouldn’t I lock in these gains?” Here’s why selling might be the right move for you-

  • Profit-taking: You’ve already seen a significant return on your investment. Selling now would allow you to realize these gains and potentially invest in other opportunities.
  • Market Risks: While the outlook is generally positive, there are always risks. Supply chain disruptions, geopolitical events, or changes in government policy could impact Elecon’s performance. If you’re risk-averse, selling might be a way to safeguard your profits.
  • Portfolio Rebalancing: If Elecon now constitutes a large portion of your portfolio due to its significant growth, it might be wise to sell some shares to rebalance your portfolio and reduce risk.

Selling doesn’t mean you think the company will do poorly. It’s about managing risk and securing your profits. If your investment strategy involves regularly taking profits from high-performing stocks, this could be the right time.

Case 3: Holding Elecon Engineering Stocks

  • Long-term growth: If you believe in Elecon’s long-term growth potential, holding on to your stocks allows you to benefit from future appreciation. The company’s strategic plans and market positioning suggest there’s more growth ahead.
  • Dividend Potential: Companies with strong financials often pay dividends. If Elecon starts or increases dividends, holding the stock could provide you with regular income.
  • Capital Gains Tax: Depending on your location, selling stocks could trigger capital gains tax. Holding your stocks might be more tax-efficient, especially if you’re in a higher tax bracket.
  • Avoiding Timing Risks: Timing the market is notoriously difficult. By holding, you avoid the risk of selling too early and missing out on further gains.

Holding makes sense if you’re confident in Elecon’s future and prefer a hands-off approach. It’s a strategy that benefits patient investors who are in it for the long haul.

So what should you do?

  • Buy it if you’re confident in Elecon’s continued growth and are comfortable with potential risks.
  • Sell it if you want to lock in your gains, manage risks, or rebalance your portfolio.
  • Hold if you believe in the company’s long-term prospects and prefer to let your investment grow over time.

You see, each option has its merits depending on your individual circumstances and investment goals. So, what should you do at the end? Just think about your risk tolerance, investment horizon, and financial needs. That way, you can make the best decision for your portfolio.

So, what do you think about Elecon Engineering stock rally? Please share your thoughts in the comment section below. Thanks for reading 🙂

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Published By: Supti Nandi
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