Edelweiss Wealth Research

Elecon Engineering Company Ltd.

Himanshu Yadav
Research Analyst
himanshu.yadav@edelweissfin.com Date: July 08, 2022
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth
• Elecon is a Gujarat-based manufacturer of industrial gears and material handling Himanshu Yadav
equipment (MHE) – its two operating segments. It is a play on industrial capex across Research Analyst
various sectors, especially in cement and steel. himanshu.yadav@edelweissfin.com
• We are positive on Elecon considering its (a) strong growth potential with a CAGR of
Date: July 08, 2022
22/26% in sales/PAT over FY22–25E, (b) significant room for operating leverage, (c)
impending net-debt-free status by FY23E and (d) RoCE expansion from 15% to 21%
over the next three years.
CMP: INR 297
• We assign a Tactical BUY rating considering the cylical nature of the business. Our TP
of INR374/share, based on 18x FY24E PE multiple, implies an upside of 26%. Rating: Tactical BUY
Target Price: INR 374
A play on upcoming industrial capex; steel and cement being key drivers Upside: 26%
Elecon is among the market leaders in its area of operations and boasts of best-in-class
manufacturing facilities. It is a play on the wide industrial capex cycle, with supplies to
sectors such as steel, cement, power, textiles, tyre and sugar, among others. Strong
Bloomberg: ELCN:IN
industrial capex is likely to drive higher utilisation in the industrial gear segment. We
envisage a particularly solid demand from the steel and cement sectors (around 25–30% of 52-week
124/ 298
Elecon’s sales) based on announcements made by major players. Management expects range (INR):
overall sales to reach INR 2,100cr by FY24E from INR1,200cr in FY22.
Share in issue (crore): 11.26

Industrial gear division to spearhead growth M-cap (INR cr): 3,332

Industrial gears accounted for 89% of the company’s FY22A sales with EBIT margin of
Promoter holding (%) 59.26
around 20%. Due to higher share in the mix, this segment is now the major earnings driver
unlike the past cycle when MHE (project based) also contributed meaningfully. The
management expects standalone revenue to touch INR1,500cr by FY24E from INR884cr in 300
FY22A, driven by growth in industrial gears. We expect the gears division, including 250
Indexed

international subsidiaries, to record a revenue CAGR of 21% over FY22-25E. 200

150
100
MHE: House now in order, returns to profitability
50
After a decade of juggling issues related to liquidity and legacy EPC projects, the MHE 0
Oct-18

Oct-19

Oct-20

Oct-21
Jan-18
Apr-18
Jul-18

Jan-19
Apr-19
Jul-19

Jan-20
Apr-20
Jul-20

Jan-21
Apr-21
Jul-21

Jan-22
Apr-22
Jul-22
segment is finally turning around after the company revised its strategy. Unlike before, it
no longer participates in EPC projects for MHE. All new orders are either product-based or
Sensex Elecon
aligned towards after-market sales. The company also freed up majority of the retention
money and resultantly reduced debt. Resolution of the remaining INR100cr expected soon.

Initiate with tactical BUY, potential upside of 26%

Elecon offers strong growth visibility with improving balance sheet. We expect a CAGR of
22% and 26% in revenue and EPS, respectively, over FY22–25E, driven by robust demand,
operating leverage and low interest expense. This will be accompanied by ROCE
improvement from 15% currently to 21% by FY25E. We assign a TP of INR374/share, valuing
the company at 18x FY24E PE.

Year to March (INR FY21 FY22 FY23E FY24E FY25E

Cr)
Revenue 1045 1204 1469 1869 2188
y-o-y -4% 15% 22% 27% 17%
EBITDA 185 246 287 361 424
EBITDA Margin 17.7% 20.5% 19.5% 19.3% 19.4%
Net Profit 58 141 175 233 283
RoACE (%) 9.9 15.3 17.8 20.8 21.5
RoAE (%) 6.5 14.3 15.5 17.8 18.3
PE 12.3 11.0 19.0 14.3 11.8
Source: Company Data, Edelweiss Wealth Research

1
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

Table of Contents

Business Structure .............................................................................................................................................. 3

Industry Charts ................................................................................................................................................... 4

Company Charts ................................................................................................................................................. 5

Investment Overview

I. A play on industrial capex; steel and cement being key drivers ..................................................................... 6

II. Strong growth opportunity in industrial gears ............................................................................................... 9

III. MHE on a recovery path under revised strategy ........................................................................................... 11

IV. Company Overview ....................................................................................................................................... 12

IV. Financial Analysis .......................................................................................................................................... 15

V. Valuation and Risks ........................................................................................................................................ 18

Financials ............................................................................................................................................................ 19

2
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

Business Structure

Elecon Engineering Company Ltd.

Elecon is one of the largest manufacturers of MHE and industrial gears in Asia, with global presence in the US, the UK and
European countries. The company primarily operates in two business segments: transmision equipment (TE) and material
handling equipment (MHE).

Transmission Equipment (TE – industrial gears) Material Handling Equipment (MHE)

(~89% sales; majority of EBIT; 25% ROCE) (~11% sales; EBIT loss in FY22)

• Elecon primarily deals with design and manufacture of industrial  Elecon manufactures raw material handling systems, stackers,
gears and gearboxes in this segment. The company supplies reclaimers, wagon and truck loaders, crushers, feeders and
domestically and globally. port equipment.

• Domestic operations account for 62% of the sales with EBIT

margin of 20%. Its RoCE profile stands at 25–30% for domestic
operations.
• Elecon also conducts international operations through its
subsidiaries, Radicon and Benzler. These account for 27% of the
sales with EBIT margin of 18%. The ROCE profile ranges from 15%
to 18%.
 This was the main business in the previous capex cycle and was
power sector heavy, slowdown in power sector led to
receivables and liquidity issues due to complications in EPC
projects.
 The company no longer takes project orders and focuses only
on the supply of products and after-sales.

• Of the total capital, INR608cr is employed at domestic operations  INR100cr of retention money stuck under receivables is
and INR266cr at international operations. expected to be freed up this year.

We expect FY22–25E sales and EPS CAGR We expect RoCE to improve from 15% Proceeds from the fresh issue will
of 22% and 26%, respectively. currently to 21% by FY25E. be mainly used to finance capital
expenditure of INR105cr and
working capital needs of INR30cr.

INR cr FY23E FY24E FY25E INR cr FY23E FY24E FY25E FY23E FY24E FY25E
Revenue 1469 1869 2188 ROCE 17.8 20.8 21.5 PE 19.0 14.3 11.8
y-o-y 22% 27% 17% CFO 172 198 262 EV/E 11.4 8.7 6.9
EBITDA 287 361 424 Debt 101 101 101
PAT 175 233 283

Upside 26%

3
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

Industry Charts
Exhibit 2: Incremental cement capacity expansion run-rate
Exhibit 1: Indian IIP growth (%) muted over last decade
to touch 30mt+ for next three years

15.5 40
12.9
11.7 11.4 32
8.6 8.2 29
27
5.3 4.6 4.4 3.8 24
2.5 2.9 3.3 3.3 4.0 3.3
-0.8 15 16

-8.5
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22

FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Exhibit 3: Steel capacity (mt) expansion picking up as

Exhibit 4: Elecon’s industrial gear revenue mix by sector
players embark on fresh capex cycle

11%
19
27% 7%
5%
10%
10
2%
6 25% 7% 3%
3 3 4%
Steel Sugar
0 0
Rubber & Plastic Cement
FY19 FY20 FY21 FY22 FY23E FY24E FY25E Lift Gears Chemical & Fertilizer
Mining Marine
Material Handling /Power Others

Exhibit 5: Domestic industrial gear market small; exports

providing huge opportunity Exhibit 6: Key players in industrial gear market

Industrial Gears INR2,000–2,500cr Domestic International

Market Size Elecon Flender
Helical ~35%
Flender SEW
Bevel ~25% SEW Sumitomo
Worm ~15% Shanthi Gears Bongfiglioli
Planetary ~25%
Premier Dana
NAW Hyosung
Source: Company Data, Edelweiss Wealth Research

4
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

Company Charts
Exhibit 7: Strong growth ahead; management guides Exhibit 8: Industrial gears prominent in revenue mix as MHE
INR2,100cr topline by FY24 wounded down
2,500 87% 89% 90% 87% 87%
20.5 19.5
19.3 19.4 79%
2,000 17.8 72%
68%
14.5
13.4 12.9
1,500
10.6 11.5
1,000 32% 28%
21%
500 13% 11% 10% 13% 13%

0
FY21

FY23E

FY24E

FY25E
FY16

FY17

FY18

FY19

FY20

FY22

FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Industrial Gear MHE

Income from operations EBITDA margins (RHS)

Exhibit 9: Industrial gear EBIT margin improved while MHE

Exhibit 10: Elecon to be net-debt-free this year, INRcr
turned around
21.6% 19.8% 508
18% 473
12% 14%
10% 357

9% 155
39
-4% -4.7%
-1% -8%

(61)
-36.3%
(186)
FY17 FY18 FY19 FY20 FY21 FY22

Industrial Gear MHE (396)

FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Exhibit 11: RoE/RoCE set to improve materially Exhibit 12: PAT to post 26% CAGR over FY22–25E
281
20.8 21.5
232
17.8
15.3
174
17.8 18.3 139
9.9 15.5
14.3 90
6.1 6.0
11.1 61 70
4.8 58
29 37
14 17 11 8
6.5
5.3
1.1
FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23E

FY24e

FY25e

FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E

ROE (%) ROCE (%) PAT, INR cr

Source: Company, Edelweiss Wealth Research

5
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

Investment Overview
I. A play on industrial capex; steel and cement being key drivers
Elecon is among the market leaders in its area of operations and boasts of best-in-class manufacturing facilities. It has been a
play on the wide industrial capex cycle, with supplies to sectors such as steel, cement, power, textiles, tyre and sugar. Strong
industrial capex is likely to drive higher utilisation in the industrial gear segment. We envisage a particularly strong capex demand
from the steel and cement sectors (around 25–30% of Elecon’s sales) based on announcements by major players.

Confident of pick-up in demand, Elecon’s management guides for a topline of INR2,100cr by FY24E (1,200cr in FY22A), including
INR1,500cr at the standalone level.

a. Elecon a play on early cycle capex recovery

We believe the capex cycle is showing signs of recovery. Although a full-blown recovery and revisit of the 2000–08 cycle appears
unlikely, the commentary by various industry participants has been encouraging. While large capital goods players switched focus
to automation, the production of key industrial components is being shifted to low-cost destinations such as China and India.

Indian IIP growth was lacklustre over the last decade and Elecon’s topline advanced in line with muted developments on the
industrial capex front. Elecon derives its growth through industrial capex in general, and a mix of end-use industries contribute to
the demand for industrial gears. Anything that requires rotation and related power transmission in an industry would involve
industrial gears. Mostly industrial gears find application in a plant along with industrial motors.

Exhibit 13: IIP growth lacklustre over last decade

15.5
12.9
11.7 11.4
8.6 8.2

5.3 4.6
4.0 4.4 3.8
2.9 3.3 3.3 3.3
2.5

-0.8

-8.5
FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

Source: Edelweiss Wealth Research, IIP data

Elecon’s management expressed confidence in the company’s growth visibility. We observe the management commentary
strengthened over the last few quarters, driven by pick-up in order enquiries. Despite headwinds on the macro-economic front,
we highlight the increased investment activity in many sectors such as steel, cement and coal mining. Typically, their capacity
expansion plans consider a decadal growth opportunity, and near-term headwinds do not lead to capex deferment, especially
when balance sheets are lean.

6
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

A change in the industry outlook could imply a high delta for Elecon as the company has significant room to capture this growth
without incurring capacity expansion. We believe Elecon could witness operating leverage at play, as the current

utilisation of industrial gear capacity is low (60–65%). The management believes the company can support topline of INR2,000cr
without incurring significant capex.

b. Industrial gear demand not tied to a single sector

Elecon’s sectoral demand mix has varied over the years. Growth in industrial gears is led by sectors such as steel, cement, mining,
sugar, material handling, rubber & plastic and marine. Demand from the MHE segment is skewed towards the power, cement,
mining and metal sectors. Recently, due to a large order, the marine sector held a meaningful share in Elecon’s revenue. However,
if we consider the five-year average, the industrial gear demand is not heavily reliant on a single sector.

Exhibit 14: Elecon’s industrial gear revenue mix by sector (FY15–20 average)
11%

27% 7%

5%

10%

2%
3%
25% 7%
4%
Steel Sugar Rubber & Plastic Cement
Lift Gears Chemical & Fertilizer Mining Marine
Material Handling /Power Others

Source: Edelweiss Wealth Research, Company data

c. Strong capacity expansion lined up in steel and cement

Although Elecon’s demand is not tied up to any sector in particular, to understand the demand visibility for indsutrial gears, we
analysed two sectors, namely, steel and cement. These two sectors account for 20–30% of Elecon’s transmission division revenue
over the last decade.

Exhibit 15: Incremental cement capacity (mt) expansion run-rate to touch 30mt+ for next three years

40

32
29
27
24

15 16

FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Source: Edelweiss Wealth Research, Company data

7
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

Capex activity in the cement sector increased as players compete for market share. Cement demand is supported by the
government’s infra push and strong housing demand. Irrespective of the demand scenario, the sector is moving towards
aggressive capacity expansion as the competitive landscape transformed following the Adani Group’s entry into cement and its
consequent

purchase of Holcim’s assets – Ambuja and ACC. The Adani Group plans to double its cement capacity to 140mt by FY25E through
a partially inorganic route. In response to Adani’s aggressive plans, sector leader Ultratech also strategised to add 22mt of
incremental capacity over the next three years. We expect the cement sector to add 30mt+ of cement capacity every year for the
next three years.

Exhibit 16: Steel capacity (mt) expansion picking up as players embark on fresh capex cycle

19

10

6
3 3
0 0

FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Source: Edelweiss Wealth Research, Company data

Similarly, the steel sector has come up with multiple capex announcements. Unlike cement, steel capex was muted over the last
three years, but most steel players meaningfully delevaraged their balance sheets in the recent commodity boom. Typical to the
steel cycle, a period of muted capex and associated deleveraging leads to a heavy capex phase for the next cycle. We estimate
the steel capacity to increase at a CAGR of 8% over FY22–25E. The steel sector consumes high-value gears which will help margins
of players like Elecon.

8
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

II. Strong growth opportunity in industrial gears

We expect Elecon’s transmission equipment revenue to increase at a CAGR of 21% over FY22–25E, with domestic sales recording
a strong CAGR of 24% and international subsidiaries posting a CAGR of 13%. The management is guiding the industrial gear
business to reach INR1,800cr by FY24E. However, given the risk of macroeconomic headwinds, we give a conservative projection
of INR1,600cr in FY24E.

Exhibit 17: Transmission equipment division to post 21% CAGR over FY22–25E

1,906
1,624

1,321
1,068
908 878 859 905
814 806

FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Transmission Equip. Revenue

Source: Edelweiss Wealth Research, Company data

a. Elecon the domestic market leader with ~35% share

Based on our interaction with industry participants, the Indian industrial gear market stands at INR2,000–2,500cr and Elecon has
30–35% market share. Slowdown in the sector led to the market stagnating over time, and we recall certain annual reports of
peers indicating the market size at INR3,000cr before FY13. Given the current demand pick-up and Elecon’s topline
expectations, it will potentially reach 50%+ market share by FY25E.

Exhibit 18: Domestic industrial gear market size

Industrial Gears Market Size INR 2,000 – 2,500 cr
Helical ~35%
Bevel ~25%
Worm ~15%
Planetary ~25%
Source: Industry Data, Edelweiss Wealth Research

Given the market size and technical nature of the work, only a few credible players operate in the market. Elecon’s main domestic
competitors in industrial gears include Flender (ex-Siemens), SEW, Shanthi Gears (337cr), Premier (~300cr) and NAW (~100cr).
The Flender India unit is used by its German parent as a manufacturing hub to supply to the international market, and its product
mix is tilted towards the wind sector.

Shanthi Gears is a listed competitor and on a direct comparison its margin profile appears better than Elecon. However, it is to
be noted that Shanthi’s size is much smaller than Elecon. Moreover, Shanthi focuses mostly on niche orders whereas Elecon is a
much higher volume play that lead to somewhat lower margins historically.

9
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

Exhibit 19: Peer Comparison

Name FY17 FY18 FY19 FY20 FY21 FY22
Revenue
Elecon 1,202 1,180 1,225 1,088 1,044 1,204
Shanthi Gears 183 214 242 242 216 337

EBITDA
Elecon 174 126 140 140 185 246
Shanthi Gears 36 37 41 35 27 60

EBITDA margin
Elecon 14.5% 10.6% 11.5% 12.9% 17.7% 20.5%
Shanthi Gears 19.7% 17.3% 16.9% 14.5% 12.5% 17.8%

PAT
Elecon 10 8 71 90 58 141
Shanthi Gears 23 29 33 25 20 42
Source: Company Data

c. Medium-term growth to come from exports and international subsidiaries

International revenue accounts for 35% of Elecon’s consolidated sales, including revenue from exports and international
subsidiaries. Elecon acquired the international business in the form of Radicon and Benzlers from the David Brown Group in 2011.

Global market size is much larger at ~USD30bn and growing at 4–5%. Many established companies command a healthy market
share globally. Key international players include Flender, SEW, Sumitomo, Bongfiglioli, Hyosung and Dana. Elecon has made
inroads into the replacement market through exports. For further growth, it needs to establish relationships with international
clients and compete for OEM business. The company claims to have made some progress towards this, justifying its growth
expectation.

We believe exports will play a critical part in helping the company meet its revenue guidance. Given the limited domestic market
size, Elecon will have to improve its current export mix of 10–13%. The company aims to reach 50% export mix by 2030. It
believes exports have the potential to increase 3–4x in the next two years (from ~INR100cr currently), driven by the company’s
efforts towards developing client relationships.

10
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

III. MHE on a recovery path under revised strategy

The MHE segment has been under acute pressure over the last several years, with the slowdown in the power sector and
subsequent delays in EPC projects leading to liquidity issues. A significant portion of receivables were stuck as the company found
it difficult to free up retention money.
Resultantly, Elecon had to pivot its strategy for the MHE division wherein it stopped pursuing EPC orders. It now focuses only on
product-based orders and after-market sales. This led to a significant change in the company’s revenue mix. Earlier, MHE used
to account for 40–50% of Elecon’s sales. This has now dropped to just 10–15%.

Exhibit 20: MHE sales nosedived as company recalibrated its strategy, INRcr

528
500

383
345
282
245
229

139 135 149

FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E

MHE (Material Handling Equipment)

Source: Edelweiss Wealth Research, Company data

Elecon made substantial progress in freeing up money and closing legacy projects, resulting in major reduction in debt. The
company now eyes the net-debt-free status by FY23. In terms of retention money, around INR100cr remains to be received and
the company expects this to happen within the current year. These legacy projects were with PSUs such as NTPC and NMDC.

Exhibit 21: Improvement in receivables on closure of legacy projects

241 236

201 208 205

191
177 177

126

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22

Receivables Days

Source: Edelweiss Wealth Research, Company data

11
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

IV. Company Overview

Established in 1951, Elecon is a Gujarat-based manufacturer of industrial gears and material handling equipment (MHE). The
company operates under two divisions: power transmission (industrial gears) and material handling equipment (MHE).

Exhibit 22: Elecon’s key segments

Source: Company

Elecon started as a material handling player manufacturing conveying equipment. The company later forayed into bulk material
handling plants and established a separate gear division in 1976 for its captive needs. During the 2000–08 capex cycle, it grew in
line with end-use sectors, especially power. Following the Great Financial Crisis of 2008, the power sector was out of favour and
Elecon’s main MHE business slowed down.

Exhibit 23: Historical timeline of Elecon

Source: Company

12
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

a. Revenue mix now skewed towards industrial gears

The next decade turned out tough for Elecon as it battled demand slowdown and liquidity issues. At the same time, it acquired
the overseas business of Radicon and Benzlers in 2011, which further pressurised the group’s resources. Eventual slowdown in
demand led Elecon to correct its course as it tried to decrease MHE’s contribution and expand industrial gears. Resultantly, it
closed most of its legacy projects, recovered the retention money and paid the debt at the subsidiary level. The change in strategy
and prevalent business conditions considerably altered the company’s revenue mix.

Exhibit 24: Change in revenue mix reflecting change in market conditions and company strategy

13% 11% 10% 13% 13%

21%
32% 28%
38% 38% 37% 38%
42%
49%

87% 89% 90% 87% 87%

79%
68% 72%
62% 62% 63% 62%
58%
51%

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Industrial Gear MHE

Source: Edelweiss Wealth Research, Company data

Elecon’s revenue mix is skewed towards the power transmission segment (90% of sales). Because of the change in strategy, the
MHE division now stands at just 10% of the total sales with no new projects undertaken in the MHE segment. Elecon stands to
benefit from the strong demand and has substantial room to improve its capacity utilisation (~60-65% in the gear segment).

b. Product lifecycle characteristics

Industrial gears find application in all the areas where rotatory motion is required, and these are often used along with industrial
motors. Gearboxes find application in fresh and replacement capex. Large gearboxes have a lifespan of five to six years, while
the small ones last for two to three years.

Elecon’s gear division is among the most modern in the country. All machineries and testing equipment are computer controlled
and as per international specifications. It produces two types of gearboxes based on client requirement: standard and customised.
Currently, standard gearboxes account for about 60% of the mix, while customised gearboxes make up for the remaining 40%.
As the name suggests, customised gear boxes cater to particular client needs, involving an element of design unqiue to the
application needs. Therefore, customised gearboxes earn higher margins than the standard ones.

A typical customised gearbox product cycle is three to six or eight months from design to delivery. Standard gearbox can be
delivered in one to two month. Customised gearboxes take longer due to the design requirements. The design phase for
customised gearboxes lasts one to three months, increasing the overal product cycle from procurement to delivery to around six
months. Generally, there is no major seasonality in product demand as clients undergo maintenance, leading to replacement
demand, even during lean periods.

Steel is the major raw material for industrial gears and usually not a pass through due to a short product cycle. For standard
gears, price is usually reviewed once a year but is lately being revisited every quarter due to hightened commodity volatility.

13
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

c. Revenue mix
Elecon’s sectoral demand mix has varied over the years. Growth in industrial gears is driven by sectors such as steel, cement,
mining, sugar, material handling, rubber & plastic and marine. Demand from the MHE segment is skewed towards the power,
cement, mining and metal sectors. Recently, due to a large order, the marine sector held a meaningful share in Elecon’s revenue.
However, if we consider the five-year average, the industrial gear demand is not heavily reliant on a single sector. Replacement
demand accounts for about 20% of the revenue for Elecon.

Exhibit 25: Elecon’s industrial gear revenue mix by sector (FY15–20 average)

11%

27% 7%
5%

10%

2%
25% 7%
4% 3%

Steel Sugar Rubber & Plastic Cement

Lift Gears Chemical & Fertilizer Mining Marine
Material Handling /Power Others

Source: Edelweiss Wealth Research, Company data

d. Elecon’s subsidaries and shareholding

Elecon’s efforts are led by Mr. Prayasvin B. Patel, Chairman and MD. Promoter owns 59.3% in the company through various
entities. Being a micro cap, the instituional holding in the stock is low at 1.71% and 1.85% by FII and DIIs, respectively. Elecon also
owns a small stake (16.6%) in Eimco Elecon, listed with market cap of ~INR218cr, and recognises it as an associate in the
consolidated financials. Overall, profit form associate stands at an insignificant INR1cr and it produces underground mining
machinery. Elecon’s major subsidary contributing to the financials pertain to the Radicon and Benzler business acquired in 2011.

Exhibit 26: Peer Comparison

Name Ownehrship Consolidation
Radicon Transmission UK Ltd.
100% Full
(incl wholly owned subs.)
Benzlers Systems AB 100% Full
AB Benzlers 100% Full
Radicon Drive Systems Inc. 100% Full
Benzler Transmission AS. 100% Full
Benzler TBA B.V. 100% Full
Benzler Antriebstechnik GmBH 100% Full
OY Benzler AB 100% Full
Benzlers ltalia SRL 100% Full
Elecon Singapore Pte. Limited 100% Full
Elecon Middle East FZE 100% Full
Eimco (Eiecon) India Limited 16.6% Equity Method
Elecon Eng. (Suzhou) Co. Limited* 50% Equity Method
Elecon Africa Pty. Limited* 50% Equity Method
Elecon Australia Pty. Limited* 50% Equity Method
Source: Company Data, ICRA rating report; *Note: Company in process of obtaining approval from RBI for liquidation of (*) marked entities

14
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

IV. Financial Analysis

a. Revenue to grow at a CAGR of 22% over FY22–25E, driven by industrial gears
We expect Elecon’s consolidated revenue to increase at a CAGR of 22% over FY22–25E, with standalone sales posting a strong
CAGR of 25% and international subsidiaries recording a CAGR of 13%. The management is guiding overall sales to reach
INR2,100cr by FY24E. However, given the risk of macroeconomic headwinds, we give a conservative projection of INR1,870cr
in FY24E.

Exhibit 27: Revenue to record 22% CAGR over FY22–25E

282

245 464
149 422
795 664 528
502 517 135 367
500 383 345
229 139 319
318 334 269 253 249 1,442
255 338 360 306 269 1,202
954
609 607 657 749
574 586 493 494 574 508 537

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Transmission Equip. standalone Transmission Equip. subsidary MHE

Source: Edelweiss Wealth Research, Company data

b. EBITDA margin to remain healthy

Elecon clocked EBITDA margin of 20.5% in FY22, which we believe is close to its peak potential. High steel prices are likely to
impact margins in the short term, although the recent correction in commodities bodes positive for margins. Moreover, following
the completion of a high-margin navy order, margins are likely to slightly moderate.

However, the management remains confident on margins as it believes any pressure will be countered by strong sales-led
operating leverage. It continues to guide margins levels to be around the current level. We have built-in moderation in the
margins of industrial gears. However, MHE’s margins will increase as it turns around and the latest order book with better margins
is executed. Overall, we expect margins to remain around 19.5%.

Exhibit 28: Management expects to maintain margins, but we build in some moderation

20.5
19.5 19.3 19.4
17.8
14.5
13.4 12.9
10.6 11.5

FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E

EBITDA margins

Source: Edelweiss Wealth Research, Company data

15
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

c. Substantial reduction in interest cost to further boost PAT

As the issues in the MHE segment were resolved, Elecon decreased its debt substantially. The management now guides for
reaching net-debt-free status by FY23. The capex plan of INR50cr for the next two years will be met through internal accruals.
Therefore, Elecon expects only remaining debt to be of working capital nature. This will lead to interest costs reducing from
INR37cr in FY22 to INR13–15cr in FY23E.

Exhibit 29: Elecon to be net-debt-free by FY23E, INRcr

584
491 508
473
357

155
39

(61)
(186)

(396)

FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Source: Edelweiss Wealth Research, Company data

Due to the above reduction in interest cost, any weakness (if at all) in EBITDA margin will be nullified at the PAT level. We expect
PAT to increase at a CAGR of 26% over FY22–25E.

Exhibit 30: Strong growth in PAT ahead, we expect 26% three-year CAGR
283

233

175

141

90
71
61 58
37
29
14 17 11 8

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY24e FY25e

PAT, INR cr

Source: Edelweiss Wealth Research, Company data

16
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth
d. Receivables improved materially
Elecon has had high receivables in the past, mainly due to the MHE segment, which had more WC days than the industrial gear
segment. With the closure of legacy projects and freeing up of retention money, the receivables days considerably reduced. In
terms of retention money, around INR100cr remains to be received and the company expects this to happen within the current
year. These projects were with PSUs such as NTPC and NMDC.

Exhibit 31: Improvement in receivables on closure of legacy projects

241 236

201 208 205

191
177 177

126

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22

Receivables Days

Source: Edelweiss Wealth Research, Company data

e. Strong revenue growth, better utilisation to help improve return ratios

We expect Elecon’s RoCE to improve considerably from 15% currently to 21% by FY255E. This will be majorly driven by higher
asset turns and reduced leverage. We modelled asset turns to 3.8x by FY25E vs. the previous high of 3.2x in FY12. The
management indicated the company has the potential to clock INR2,100cr of sales without much incemental capex. Thus, there
is significant room for operating leverage as Elecon rides the capex demand cycle.

Exhibit 32: RoE/RoCE set to improve materially

21.5
20.8

17.8
15.3
17.8 18.3

15.5
14.3
9.9
7.9 8.1
11.1
6.1 6.0
4.8
6.5
5.3
4.3

1.5 1.1
FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E

ROE (%) ROCE (%)

Source: Company Data, Edelweiss Wealth Research

17
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

V. Valuation and Risks

Elecon offers strong growth visibility and improving balance sheet. The scope for higher utilisation brings in good earnings delta
and ability to capture the upswing in industrial capex. We expect a CAGR of 22% and 26% in revenue and EPS, respectively, over
FY22–25E, driven by robust demand, operating leverage, and low interest expense. This will be accompanied by ROCE
improvement from 15% currently to 21% by FY25E. We assign a TP of INR374/share, valuing the company at 18x FY24E PE.

Exhibit 33: Elecon one-year fwd PE valuation range not instructive due to earnings volatility
160
140
120
100
80
60
40
20
0
May-16
Jul-16

May-17
Jul-17

May-18
Jul-18

May-19
Jul-19

May-20
Jul-20

May-21
Jul-21

May-22
Mar-16

Nov-16
Jan-17
Mar-17

Sep-17
Nov-17
Jan-18
Mar-18

Nov-18
Jan-19
Mar-19

Nov-19
Jan-20
Mar-20

Nov-20
Jan-21
Mar-21

Nov-21
Jan-22
Mar-22
Sep-16

Sep-18

Sep-19

Sep-20

Sep-21
Source: Company Data, Bloomberg, Edelweiss Wealth Research

Exhibit 34: One-year fwd PE on a shorter time frame also skewed lower due to Covid
30

25

20

15

10

0
Oct-18

Oct-19

Oct-20

Oct-21
Dec-18

Feb-19

Apr-19

Dec-19

Apr-20

Dec-20

Apr-21

Dec-21

Apr-22
Jun-18

Aug-18

Jun-19

Aug-19

Feb-20

Jun-20

Aug-20

Feb-21

Jun-21

Aug-21

Feb-22

Jun-22

1 yr fwd PE +1 SD -1 SD Mean

Source: Company Data, Bloomberg, Edelweiss Wealth Research

We argue that historical valuation range of Elecon is not of much use as pre FY15, EPC business was a major share of the
revenues, and it commands a lower valuation vs. a product business. However, one also needs to keep in account the cyclical
nature of the business. Even on a shorter time frame, the averages shrink due to Covid impact and hence optically current
valuations look elevated. Elecon is at the cusp of strong growth ahead coupled with significant improvement in RoCE, which
we believe justifies our target multiple.

Key downside risks to our price target include inability to grow as expected or a material slowdown in industrial capex. High metal
prices also pose a risk to margins. We also remain watchful of the remaining retention money (~INR 100cr) that the company
expects to recover in FY23. Company has been reducing the shares pledged by the promoter entity, which we believe is a positive
for the stock.

18
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

Financials
Income statement (INR crs)
Year to March FY21 FY22 FY23E FY24E FY25E
Income from operations 1,045 1,204 1,469 1,869 2,188
Direct costs 485 572 708 897 1,029
Power & Fuel 8 9 11 14 16
Employee costs 118 128 140 150 164
Other expenses 248 248 324 447 555
Total operating expenses 859 957 1,182 1,508 1,764
EBITDA 186 246 287 361 424
Depreciation and amortisation 52 49 50 52 54
EBIT 134 198 237 310 371
Interest expenses 60 37 13 10 10
Other income 6 9 8 10 15
Profit before tax 79 169 232 309 375
Provision for tax 23 30 58 77 94
Core profit 56 139 174 232 281
Reported net profit 56 139 174 232 281
Adjusted Net Profit 58 141 175 233 283
Equity shares outstanding (cr) 11.2 11.2 11.2 11.2 11.2
EPS (INR) basic 8.0 5.1 12.5 15.6 20.8
Diluted shares (Cr) 11.2 11.2 11.2 11.2 11.2
EPS (adj) fully diluted 5.2 12.5 15.6 20.8 25.2
Dividend per share 0.4 1.4 1.5 2.0 2.4
Dividend payout (%) 8% 11% 10% 10% 10%

Common size metrics- as % of net revenues

Year to March FY21 FY22 FY23E FY24E FY25E
Operating expenses 82.2 79.5 80.5 80.7 80.6
Depreciation 5.0 4.0 3.4 2.8 2.5
Interest expenditure 5.7 3.1 0.9 0.5 0.5
EBITDA margins 17.8 20.5 19.5 19.3 19.4
Net profit margins 5.4 11.6 11.8 12.4 12.9

Growth metrics (%)

Year to March FY21 FY22 FY23E FY24E FY25E
Revenues (4.0) 15.2 22.1 27.2 17.1
EBITDA 32.2 32.8 16.5 25.9 17.4
PBT 342.8 112.9 37.1 33.4 21.4
Net profit (35.4) 142.5 24.8 33.1 21.2
EPS (35.4) 142.5 24.8 33.1 21.2

19
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

Balance sheet (INR crs)

As on 31st March FY21 FY22 FY23E FY24E FY25E
Equity share capital 22 22 22 22 22
Reserves & surplus 897 1,028 1,186 1,397 1,653
Shareholders funds 919 1,050 1,209 1,420 1,676
Secured loans 297 151 101 101 101
Unsecured loans 0 0 0 0 0
Borrowings 297 151 101 101 101
Net Debt 155 39 -61 -186 -396
Other liabilities 85 77 77 77 77
Sources of funds 1,301 1,278 1,387 1,597 1,853
Gross block 928 962 1,012 1,062 1,092
Depreciation 320 369 419 471 525
Net block 607 593 593 591 567
Capital work in progress 0 1 1 1 1
Total fixed assets 608 593 593 591 567
Other non-current assets 168 155 155 155 155
Investments 79 80 81 82 84
Inventories 250 262 319 406 476
Sundry debtors 508 415 507 645 755
Cash and equivalents 141 112 162 287 497
Loans and advances 234 98 98 98 98
Total current assets 1,134 887 1,086 1,436 1,825
Sundry creditors and others 666 417 509 648 758
Provisions 26 23 23 23 23
Total CL & provisions 692 440 533 671 782
Net current assets 442 446 554 765 1,043
Net Deferred tax 5 4 4 4 4
Uses of funds 1,301 1,278 1,387 1,597 1,853
Book value per share (INR) 82 94 108 127 149

Cash flow statement (INR crs)

Year to March FY21 FY22 FY23E FY24E FY25E
Net profit 58 141 175 233 283
Add: Depreciation 52 49 50 52 54
Add: Others 119 114 61 76 88
Gross cash flow 229 304 287 361 424
Less: Changes in W. C. and tax -19 53 115 164 163
Operating cash flow 248 250 172 198 262
Less: Capex 3 41 50 50 30
Free cash flow 245 209 122 148 232

20
Tactical Buy
Elecon Engineering Co. Ltd.
Geared for Growth

Ratios
Year to March FY21 FY22 FY23E FY24E FY25E
ROE (%) 6.5 14.3 15.5 17.8 18.3
ROCE (%) 9.9 15.3 17.8 20.8 21.5
Debtors (days) 177 126 126 126 126
Inventory (days) 87 79 79 79 79
Payable (days) 233 126 126 126 126
Cash conversion cycle (days) 32 79 79 79 79
Debt/EBITDA 1.6 0.6 0.4 0.3 0.2
Adjusted debt/Equity 0.2 0.0 (0.1) (0.1) (0.2)

Valuation parameters
Year to March FY21 FY22 FY23E FY24E FY25E
Diluted EPS (INR) 5.2 12.5 15.6 20.8 25.2
Y-o-Y growth (%) (35.4) 142.5 24.8 33.1 21.2
CEPS (INR) 9.8 16.9 20.1 25.4 30.0
Diluted P/E (x) 12.3 11.0 19.0 14.3 11.8
Price/BV(x) 0.8 1.5 2.7 2.3 1.9
EV/Sales (x) 0.8 1.3 2.2 1.6 1.3
EV/EBITDA (x) 4.7 6.4 11.4 8.7 6.9
Diluted shares O/S 11.2 11.2 11.2 11.2 11.2
Dividend yield (%) 1% 1% 1% 1% 1%

21
Edelweiss Broking Limited, 1st Floor, Tower 3, Wing B, Kohinoor City Mall, Kohinoor City, Kirol Road, Kurla(W)
Board: (91-22) 4272 2200

Vinay Khattar
Head Research
VINAY Digitally signed by
VINAY KHATTAR

vinay.khattar@edelweissfin.com
KHATTAR Date: 2022.07.08
12:05:49 +05'30'

22
Disclaimer

Edelweiss Broking Limited ("EBL" or "Research Entity") is regulated by the Securities and Exchange Board of India ("SEBI") and is licensed to carry on the business of broking,
depository services and related activities. The business of EBL and its associates are organized around five broad business groups – Credit including Housing and SME
Finance, Commodities, Financial Markets, Asset Management and Life Insurance. There were no instances of non-compliance by EBL on any matter related to the capital
markets, resulting in significant and material disciplinary action during the last three years. This research report has been prepared and distributed by Edelweiss Broking
Limited ("Edelweiss") in the capacity of a Research Analyst as per Regulation 22(1) of SEBI (Research Analysts) Regulations 2014 having SEBI Registration No. INH000000172.

Broking services offered by Edelweiss Broking Limited under SEBI Registration No.: INZ000005231 (Member of NSE, BSE, MCX and NCDEX). EBL CIN:
U65100GJ2008PLC077462. Research services offered by Edelweiss Broking Ltd. under SEBI Registration No. INH000000172. Depository Participant SEBI Registration No.:
IN-DP-656-2021 with NSDL having DP ID: IN302201 & IN303719 and with CDSL having DP ID: 12032300. Investor grievance resolution team: 040-41151621; Email ID:
Helpdesk@edelweiss.in (for trading related) and dpservicesebl@edelweiss.in (for demat related). Name of the Compliance Officer for Trading & DP - Mr. Pranav Tanna,
Email IDs: complianceofficer.ebl@edelweissfin.com / ebl.dpcompliance@edelweissfin.com. Edelweiss Broking Ltd. also acts in the capacity of distributor for Products such
as OFS, Mutual Funds and NCD etc
Corporate Office: Edelweiss House, Off CST Road, Kalina, Mumbai - 400098, Contact 18001023335 / (022)-42722200 / 022-40094279.

This Report has been prepared by Edelweiss Broking Limited in the capacity of a Research Analyst having SEBI Registration No.INH000000172 and distributed as per SEBI
(Research Analysts) Regulations 2014. This report does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation
of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable. This report is provided for assistance only and
is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each
recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred
to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment
discussed or views expressed may not be suitable for all investors.

This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on
directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or
use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or
use would be contrary to law, regulation or which would subject EBL and associates / group companies to any registration or licensing requirements within such jurisdiction.
The distribution of this report in certain jurisdictions may be restricted by law, and persons in whose possession this report comes, should observe, any such restrictions.
The information given in this report is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This
information is subject to change without any prior notice. EBL reserves the right to make modifications and alterations to this statement as may be required from time to
time. EBL or any of its associates / group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in
the information contained in this report. EBL is committed to providing independent and transparent recommendation to its clients. Neither EBL nor any of its associates,
group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including loss of revenue
or lost profits that may arise from or in connection with the use of the information. Our proprietary trading and investment businesses may make investment decisions
that are inconsistent with the recommendations expressed herein. Past performance is not necessarily a guide to future performance .The disclosures of interest statements
incorporated in this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The information
provided in these reports remains, unless otherwise stated, the copyright of EBL. All layout, design, original artwork, concepts and other Intellectual Properties, remains
the property and copyright of EBL and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright
holders.

EBL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in
the system, break down of the system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the EBL
to present the data. In no event shall EBL be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or
expenses arising in connection with the data presented by the EBL through this report.
We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers simultaneously, not all customers may receive
this report at the same time. We will not treat recipients as customers by virtue of their receiving this report.

EBL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to time, have long or short positions in, and
buy or sell the securities thereof, of company(ies), mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other
compensation or act as a market maker in the financial instruments of the subject company/company(ies) discussed herein or act as advisor or lender/borrower to such
company(ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of
research report or at the time of public appearance. EBL may have proprietary long/short position in the above mentioned scrip(s) and therefore should be considered as
interested. The views provided herein are general in nature and do not consider risk appetite or investment objective of any particular investor; readers are requested to
take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with EBL.

EBL or its associates may have received compensation from the subject company in the past 12 months. EBL or its associates may have managed or co-managed public
offering of securities for the subject company in the past 12 months. EBL or its associates may have received compensation for investment banking or merchant banking or
brokerage services from the subject company in the past 12 months. EBL or its associates may have received any compensation for products or services other than
investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EBL or its associates have not received any compensation
or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or EBL’s associates may have financial
interest in the subject company. EBL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any
recommendation and related information and opinions at the time of publication of research report or at the time of public appearance.
Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large
fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in
equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the
value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume
currency risk.

Research analyst has served as an officer, director or employee of subject Company: No

EBL has financial interest in the subject companies: No

23
Disclaimer

EBL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of
publication of research report.
Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the
date of publication of research report: No

EBL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research
report: No
Subject company may have been client during twelve months preceding the date of distribution of the research report.

There were no instances of non-compliance by EBL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three
years.
A graph of daily closing prices of the securities is also available at www.nseindia.com

Analyst Certification:
The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and
its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Additional Disclaimer for U.S. Persons

Edelweiss is not a registered broker – dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United
States. In addition Edelweiss is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the
1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment
services provided by Edelweiss, including the products and services described herein are not available to or intended for U.S. persons.

This report does not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not
be considered as an advertisement tool. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated
under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under certain rules.

Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc.

Additional Disclaimer for U.K. Persons

The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA").
In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to
investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including
high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together
being referred to as “relevant persons”).

This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates
is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research
report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person.

Additional Disclaimer for Canadian Persons

Edelweiss is not a registered adviser or dealer under applicable Canadian securities laws nor has it obtained an exemption from the adviser and/or dealer registration
requirements under such law. Accordingly, any brokerage and investment services provided by Edelweiss, including the products and services described herein, are not
available to or intended for Canadian persons.
This research report and its respective contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or
investment services.

Disclosures under the provisions of SEBI (Research Analysts) Regulations 2014 (Regulations)
Edelweiss Broking Limited ("EBL" or "Research Entity") is regulated by the Securities and Exchange Board of India ("SEBI") and is licensed to carry on the business of broking,
depository services and related activities. The business of EBL and its associates are organized around five broad business groups – Credit including Housing and SME
Finance, Commodities, Financial Markets, Asset Management and Life Insurance. There were no instances of non-compliance by EBL on any matter related to the capital
markets, resulting in significant and material disciplinary action during the last three years. This research report has been prepared and distributed by Edelweiss Broking
Limited ("Edelweiss") in the capacity of a Research Analyst as per Regulation 22(1) of SEBI (Research Analysts) Regulations 2014 having SEBI Registration No.INH000000172.

24