SWOT Analysis ELECON ENGINEERING LIMITED

Strength
Strong presence in coal handling plant (CHP) segment: Over the years EEL has developed expertise in CHP vertical of balance of plant (BOP). It is has executed several projects and is one of the dominant players in the vertical. It is one of the few companies, which manufacture equipments as well as execute complete EPC contracts. Out of total 52 CHP projects under execution in 2009, EEL was executing 5 CHP (complete EPC) contracts, signifying EELs strong presence in the segment. Qualified manufacturer for supplying BOP: As per CEA, there are limited numbers of companies in India who qualify for manufacturing equipments used in BOP. The numbers of vendors available for manufacturing equipments for CHP including EEL are 8. As a result EEL also receives product orders from other EPC contractors like Tecpro Systems, BGR Energy Ltd, etc in addition to turnkey EPC contracts orders. Out of above-mentioned TSLs 10 CHP project under execution, EEL received equipments order from TSL for 4 of its CHP projects. The company also received orders to supply equipments to BGRs 2 CHP projects. Strong presence in industrial gear: EEL is one of the largest gear manufacturers with a market share of ~26%. The company has a strong foothold in worm gears, helical gears, different types of couplings and customized power transmission products and has executed prestigious orders like large size planetary gearboxes, supply of marine gears for battle ship, etc. Other players in the industry include Shanthi gear, Premium, Flender and others. De- risked business model: Industrial gear segment constitutes ~40% of total revenue. Industrial gears have varied application and are used across industries, thus the gear segment is not dependent on capex in a particulars sector and benefits from investment across the industries. In FY10, no single sector contributed more than 25% to its revenue. Order inflows in industrial gears segment are also relatively stable than order inflow in the MHE segment. Hence, presence in the gear segment provides diversification and reduces overall business risk of the company. Order inflows gaining momentum: After muted order inflows throughout FY10, order inflows improved significantly in Q1 FY11. Both divisions experienced significant jump in order intake as the company registered total order inflows ~ Rs. 6 billion in Q1 FY11 vs. 7.5 billion for the whole of FY10. Going ahead, the current trend in order inflow is expected to sustain, the company currently has inquiries of ~ Rs. 40 billion worth of orders.

Weakness
Stretched working capital: EELs working capital block is higher than its peers, primarily on account of higher inventory days (required for gear division). EELs maintains inventory of ~110 days as compared to ~ 40 days maintained by peer group. Advances from customers are 8 % of

sales for EEL as compared to peers who receive ~20% of sales, since advances are not received on all gear orders by EEL. This further stretches the working capital requirement. Higher working capital requirement results in higher debt; EEL D/E ratio is highest among its peers. Working capital loans required are ~36% of the sales as compared to peers requirement which is ~15% of sales. Thus, as the business is working capital intensive and as working capital requirement is primarily funded through short-term loans, working capital management is important. Increase in working capital requirement has a direct impact on interest cost and profitability.

Opportunities
Industrial capex picking up: Industrial recovery started gaining traction in the later half of 200910, with IIP registering a double-digit growth. Growth in the economy is not only strong but also broad based with large number of sectors contributing to growth. The Capital goods and consumer durables have contributed the most to industrial growth. Consistent good performance of capital goods sector suggests investments activities gaining momentum and growing confidence in the economy. As per CMIE, fresh projects announcements have increased significantly from Rs.1.9 trillion in June `09 to Rs. 5.8 trillion in June`10. Industry is not only witnessing announcements of fresh projects but also increase in projects under implementation, indicating conversion of announcements in to investments. Increase is investments activity augurs well for EEL as both gear division and MHE are dependent on industrial capex. GOI thrust on power sector: GOI has planned 1, 00,000 MW of capacity addition during the twelfth plan. Considering a ~70,000 MW of capacity addition expected during the twelfth plan, investments worth ~ Rs. 231 billion would be required to be made in CHP segment of BOP, which presents significant opportunity for EEL.

Threats
Competition: Competition is intense, especially for CHP projects tendered as complete EPC orders. There are ~25 to 30 players including EEL, TRF, Mcnally Bharat, Tecpro systems, L&T that compete for these projects. Gear division also faces competition from players like Shanthi gears, Flender, Premium & other unorganized players. Slow down in industrial capex: Revenues are largely dependent on capital investments made by user industries. Hence, any deceleration in industrial capex has an adverse impact on growth of the company. Business Strategy Development Being the largest manufacturer, in India, of Transmission Equipments, your Company has to adhere to the high quality standards to maintain its market share. The Company is building a new state-of-the-art manufacturing plant as an expansion of the Gear Division at Anand to double the

gear box manufacturing capacity using world class quality and toensure on-time delivery within a short span of time. The new premise is named as "Bhanubhai Memorial Centre of Excellence". The new plant will produce internal components of the helical gear box and has a capacity of manufacturing 1000 gear boxes per month. The overall efficiency and condition of the equipment as well as the selection of machines, work holding devices, tool management, swarf management, coolant management and work handling systems will be optimal, thus minimizing labour fatigue. The components will be produced in a dust-free & eco-friendly environment. Your Company values its customers business and aspire to create a world class gear business to serve the global needs of the market. The construction of this modern facility will be another step towards your Companys motto Always a step ahead in Technology. Infrastructure Number of Employees: Above 1000.