Summary
Elecon Engineering Company Limited - Q3 FY26 Earnings Call Summary Friday, January 9, 2026
Event Participants
Executives 3 Dipak Dalwadi (Business Head of Gear Division), Kaushik Patel (Business Head of MHE Division), Narasimhan Raghunathan (CFO)
Analysts 10 Aman Soni, Ashwini Sharma, Garvit Goyal, Gaurav Nigam, Juhi, Manish Gupta, Niraj Mansingka, Raj Shah, Rohan, Saket Kapoor, Sanjay Ladha, Sani Vishe
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue from Operations | ₹552 crores | +4.3% YoY; growth driven by MHE performance while Gear division remained largely flat due to timing delays. |
| Order Intake | ₹701 crores | +7% YoY; reflects healthy underlying demand despite slower execution in the current quarter. |
| Consolidated EBITDA | ₹109 crores | -23.8% YoY from ₹143 crores; margins impacted by flat revenue, higher employee costs, and product mix. |
| EBITDA Margin | 19.8% | -720 bps YoY; temporary compression due to negative operating leverage and higher proportion of first-time indigenous orders. |
| Profit After Tax (PAT) | ₹72 crores | Reported PAT margin of 13% for the quarter. |
| Adjusted Revenue (9M) | ₹1,595 crores | Excludes ₹25 crores arbitration income; demonstrates steady volume growth over 9M FY25. |
| Adjusted EBITDA (9M) | ₹340 crores | Reflects a 9M adjusted EBITDA margin of 21.3%. |
| Net Cash Balance | ~₹600 crores | Robust liquidity position providing flexibility for capex and navigating macro uncertainties. |
Geographic & Segment Commentary
- Gear Division: Contributed 78% of Q3 revenue (₹429 crores, +1.3% YoY). Growth was muted by customer-driven dispatch deferments and execution timing, but the open order book remains strong at ₹811 crores. Strategic focus remains on the power, steel, and sugar sectors, with a 52/48 split between catalog and engineered products this quarter.
- Material Handling Equipment (MHE): Delivered 16% YoY growth with revenue of ₹123 crores. Performance was driven by robust demand in product supply and aftermarket segments within power, cement, and ports. The division has a healthy open order book of ₹561 crores and is benefiting from the exit of competitors like McNally and TRF.
- International Markets: Contributed 24% of consolidated revenue. The company maintains a long-term target of 50% export revenue by FY30, focusing on OEM tie-ups (currently 18) and expansion in the Middle East and Europe, despite current geopolitical headwinds.
Company-Specific & Strategic Commentary
- Product Indigenization: Executed specialized indigenous orders for the Indian Navy, which incurred higher learning/design costs (impacting margins by ~50 bps) but established credentials for future high-value defense contracts.
- MHE Strategic Pivot: Sustained focus on equipment supply and after-sales service while intentionally avoiding high-risk EPC business. This has improved the division’s risk profile and balance sheet strength.
- Capacity Expansion: Announced a capex outlay of ₹400 crores for FY26-FY28, including ₹35-40 crores specifically for MHE to upgrade machinery and expand internal machining capabilities.
- OEM Strategy: Secured orders worth ₹31 crores from 18 tied-up OEMs during the 9M period, viewing these as anchors for sustained, repeatable international business.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| FY26 Revenue | -5% from earlier guidance | Revised downward due to near-term execution softness and customer-driven deferments. |
| FY26 EBITDA Margin | -200 bps from earlier guidance | Lowered to reflect current product mix and higher employee-related overheads. |
| Long-term Growth | 20% - 25% CAGR | Management maintains optimism for a 3-year horizon backed by thermal power capex and steel/cement expansion. |
| Q4 Execution | ~₹575 crore Gear Revenue | Management expects a steep ramp-up in Q4 to meet revised annual targets, utilizing shorter lead times for catalog products. |
Risks & Constraints
| Risk | Context |
|---|---|
| Execution Delays | Significant timing-related deferments in Gear (₹30-40 crores) and MHE projects can lead to quarterly revenue volatility. |
| Margin Pressure | Increased employee costs and competitive pricing in the domestic market may keep margins below historical peaks in the short term. |
| Geopolitical/Macro | External factors impacting US and global growth rates may slow the trajectory toward the 50% export revenue milestone. |
| Commodity Pricing | While currently stable, any sudden spike in metal prices could impact margins on the fixed-price portion of the ₹1,372 crore order book. |
Q&A Highlights
Order Intake & Execution (Sanjay Ladha, Aman Soni)
- Question: Why has order intake slowed and how will you hit Q4 targets?
- Answer: Slowdown is timing-related; many power sector orders were received in Q3 but are scheduled for next FY. We will hit Q4 targets by executing a significant volume of catalog products (30-60 day cycle) and engineered products booked earlier (Dipak Dalwadi).
Margin Compression (Raj Shah, Niraj Mansingka)
- Question: What caused the 600-700 bps fall in gross margins this quarter?
- Answer: Primarily product mix and a one-time learning cost for an indigenous Indian Navy order (~50 bps impact). Margins should normalize as volumes scale and service revenue increases in Q4 (Narasimhan R.).
MHE Opportunity (Sunil Kothari)
- Question: How prepared is the MHE division for the thermal power cycle?
- Answer: We have upgraded designs and are investing ₹35-40 crores in new machinery. The exit of competitors like TRF and McNally leaves only a few players, and our strategy to avoid EPC keeps our risk low (Kaushik Patel).
Defense Pipeline (Raj Shah)
- Question: Status of aircraft carrier and Corvette orders?
- Answer: We expect RFPs for Next-Gen Corvettes by Q3 FY27 and the next aircraft carrier by Q1 FY27 (Dipak Dalwadi).
Key Takeaway
Elecon Engineering reported a resilient Q3 FY26 with consolidated revenue of ₹552 crores, though margins faced a temporary contraction to 19.8% due to product mix and higher employee costs. The MHE division emerged as a standout performer with 16% YoY growth, benefiting from a consolidated competitive landscape and thermal power investments. While management revised FY26 revenue guidance downwards by 5% due to execution deferments, the underlying order book remains robust at ₹1,372 crores. Strategically, the company is doubling down on its “equipment-only” model for MHE and expanding its global OEM footprint to reach a 50% export mix by FY30. Despite near-term softness, the management remains confident in a 20-25% long-term growth trajectory as the domestic capex cycle in power, steel, and cement matures. Progress in high-precision defense orders and the successful ramp-up of Q4 execution remain critical watch points for the coming months.
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