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AMSEC
Elgi Equipments (Buy)
CMP: Rs 92.1
Target: Rs 101
We visited Elgi Equipments Ltd’s plant and attended the Analyst Meet held at Coimbatore. The state-of-the-art plants emphasise the company’s manufacturing prowess, which enables it to roll out new products meeting global standards. Management discussed its broader strategy to rev up business and enhance its global footprint leveraging the two recent acquisitions. These acquisitions (leveraged buy outs) are expected to leap frog revenues, though profitability will improve with a lag.
While details of the acquisitions were not disclosed due to the confidentiality agreement with the sellers, we have modelled the financials based on management interaction. Over the medium-term, we expect profitability to be constrained and witness sharp uptick from FY15 onwards. Our revenue and profitability estimates are conservative as we await further clarity on the global business. We forecast revenue and PAT to log CAGR (compound annual growth rate) of 22 per cent and 20.7 per cent over FY12-15, respectively.
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