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Share price of engineering company Elecon Engineering hit a new high of 434 yesterday as shares surged over 3%.

In the past one year, the engineering company has delivered multibagger returns. If you’re wondering why the stock continues to rally, we have the answer.

One reason the stock has gained in recent days is because seasoned investor Vijay Kedia has increased his stake in the company in the most recent September 2022 quarter.

According to the latest shareholding pattern, Kedia holds 2,175,000 shares or 1.94% stake in Elecon Engineering. In the previous quarter, he held 2,075,000 or 1.85% stake, implying an addition of 100,000 shares or 0.09% stake.

This is not the first time Kedia has reaffirmed his bullish stance. In the June 2022 quarter, he had increased his stake for the second consecutive quarter.

Before we dig in to find out what's making Elecon Engineering the seasoned investors' hot pick, let us first talk about who Vijay Kedia is.

A word about Vijay Kedia

Vijay Kishanlal Kedia is an Indian investor and trader based out of Mumbai. His company - Kedia Securities - is the largest shareholder (after the promoter) in several listed companies.

Kedia has been involved in the Indian stock market since the age of 19. He has been described by many as a 'market master'.

To point out a few of his investments, he boughtACCat 300 in 1992-93 and sold the stock around 3,000 within a year and a half.

During years 2004 and 2005, he picked severalmultibagger stockswhich gave returns of over 1,000% in the next 10-12 years. Few of these stocks were Atul Auto, Aegis Logistics, and Cera Sanitary.

Why did Vijay Kedia increase stake in Elecon Engineering?

While we can't know for sure why the star investor bought into it, there are some reasons that we can guess...

#1 Industrial boost

Elecon Engineering has a presence in industrial capital expenditure (capex) across various sectors, especially in cement and steel.

Over the last decade, steel, andcement sectorshave accounted for 20-30% of revenue of the company's transmission segment.

The company derives its growth through industrial capex. With the capex cycle showing signs of recovery, the company is set to benefit big time.

Also, prospects of cement sector have improved in recent months. It appears the sector is now today where the paper sector was a year ago.

Price hikes have started while promoters have also started to buy shares in select counters.

The effect is visible on the companies’ results. Even after reporting not so good results, cement stocks haven’t fallen much.

#2 Rising demand for industrial gear

Strong industrial capex is likely to drive higher utilisation in the industrial gear segment.

This is expected to boost the revenue of the company. After all, Elecon Engineering is a market leader in the manufacturing of industrial gears.

The company holds 30-35% market share in the Indian industrial gear market.

Apart from the early capex cycle boost, a high number of end-use industries contribute to the demand for industrial gears.

#3 Steady and improving financials

Take a look at the table below which shows the financial performance of Elecon for the past five years.

Financial snapshot.
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Financial snapshot.

As can be seen, the company has made its way into the list of fundamentally strong stocks. It registered strong growth in net profit in financial year 2021-22.

The company has deleveraged its balance sheet over the last few years. Thedebt-to-equityhas decreased from 0.7 in 2019 to 0.1 in 2022.

#4 Strong revenue guidance

In an interview, the company’s CFO Narsimhan Raghunathan had said revenues are expected to reach 15 bn mark by financial year 2023-24. This on the back of strong domestic demand and the export potential.

He also said that the company will become debt free by March 2023.

How Elecon Engineering has performed recently

There’s no stopping Elecon Engineering for the time being as the company continues to scale new highs every day.

Today, Elecon Engineering gained 4% to hit a new 52-week high of 434.

In fact, shares of the company are currently trading at their highest level surpassing the 2008 highs.

Elecon Engineering.
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Elecon Engineering.

Check out the below table which compares Elecon with its peers on valuations and other important metrics.

Comparative analysis.
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Comparative analysis.

About the company

Elecon Engineering is one of the largest manufacturers of material handling equipment and industrial gears in Asia.

The company has a global presence with clients in the US, UK, and European countries.

Disclaimer:This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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