Emco Net Debt / EBITDA jumped on 1.6x from 5.7x to 7.3x in 2015 and Debt jumped on 17.4%

29-05-2015 • About Emco ($EMCO) • By InTwits

Emco reported FY2015 financial results today. Overall the company's long term financial model is characterised by the following facts:

EBITDA Margin is quite volatile: 9.3% in FY2015, 11.3% in FY2014, 9.5% in FY2013, 7.4% in FY2012, -1.0% in FY2011
Emco has medium CAPEX intensity: 5 year average CAPEX/Revenue was 5.6%. At the same time it's in pair with industry average of 5.7%.
CAPEX is quite volatile: 341 in FY2015, 174 in FY2014, 151 in FY2013, 1,308 in FY2012, 572 in FY2011
The company has potentially unprofitable business model: ROIC is at 6.1%
It operates with high leverage: Net Debt/EBITDA is 7.3x while industry average is 3.0x

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Emco ($EMCO) key annual financial indicators

mln. INR	2011	2012	2013	2014	2015	2015/2014
P&L
Revenue	10,618	8,588	7,469	8,974	9,709	8.2%
EBITDA	-108	635	712	1,011	906	-10.4%
Net Income	-584	-156	-90	-42	-116
Balance Sheet
Cash	395	65	37	73	251	242.0%
Short Term Debt	3,502	4,670	4,299	4,789	5,000	4.4%
Long Term Debt	846	568	939	1,088	1,896	74.3%
Cash flow
Capex	572	1,308	151	174	341	95.8%
Ratios
Revenue growth	-4.5%	-19.1%	-13.0%	20.2%	8.2%
EBITDA growth	-109.4%	-685.1%	12.1%	42.0%	-10.4%
EBITDA Margin	-1.0%	7.4%	9.5%	11.3%	9.3%	-1.9%
Net Income Margin	-5.5%	-1.8%	-1.2%	-0.5%	-1.2%	-0.7%
CAPEX, % of revenue	5.4%	15.2%	2.0%	1.9%	3.5%	1.6%
ROIC	-3.0%	4.3%	6.1%	7.4%	6.1%	-1.3%
ROE	-10.4%	-3.0%	-1.8%	-0.9%	-2.4%	-1.6%
Net Debt/EBITDA		8.1x	7.3x	5.7x	7.3x	1.6x

Revenue and profitability

The company's Revenue increased on 8.2% in FY2015. Revenue growth was financed by EBITDA margin decline. EBITDA Margin decreased slightly on 1.9 pp from 11.3% to 9.3% in FY2015.

Net Income marign decreased slightly on 0.72 pp from -0.47% to -1.2% in FY2015.

Capital expenditures (CAPEX) and working capital investments

In FY2015 Emco had CAPEX/Revenue of 3.5%. CAPEX/Revenue dropped on 11.7 pp from 15.2% in FY2012 to 3.5% in FY2015. It's average CAPEX/Revenue for the last three years was 2.5%.

Return on investment

The company operates at low but positive ROIC (6.11%) and negative ROE (-2.43%). ROIC decreased slightly on 1.3 pp from 7.4% to 6.1% in FY2015. ROE decreased slightly on 1.6 pp from -0.87% to -2.4% in FY2015.

Leverage (Debt)

Company's Net Debt / EBITDA is 7.3x and Debt / EBITDA is 7.6x. Net Debt / EBITDA jumped on 1.6x from 5.7x to 7.3x in FY2015. Debt jumped on 17.4% in FY2015 while cash surged on 242% in FY2015.

Appendix 1: Peers in Heavy Electrical Equipment

Below you can find Emco benchmarking vs. other companies in Heavy Electrical Equipment industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Swelect Energy Systems ($SWELECTES)		17.5%	-70.6%	-0.0%	25.7%
T D Power Systems ($TDPOWERSYS)		19.4%	-43.1%	-18.2%	24.4%
Sterlite Technologies ($STRTECH)		15.9%	17.9%	-17.1%	20.8%
Voltamp Transformers ($VOLTAMP)		4.3%	-7.7%	-13.7%	16.2%
Techno Electric And Engineering Co. ($TECHNO)		13.6%	-15.7%	1.7%	12.6%
Median (13 companies)	4.1%	13.7%	-7.7%	1.7%	2.0%
Emco ($EMCO)		-19.1%	-13.0%	20.2%	8.2%

Top companies by Gross margin, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Suzlon Energy ($SUZLON)	30.3%	33.2%	27.2%	28.6%	31.3%
Median (1 company)	30.3%	33.2%	27.2%	28.6%	31.3%

Top companies by EBITDA margin, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Ujaas Energy ($UJAAS)	9.3%	1.2%	18.7%	17.4%	38.1%
Techno Electric And Engineering Co. ($TECHNO)	23.3%	27.0%	34.5%	28.5%	26.5%
Techno Electric & Engineering Company ($TECHELE)	23.3%	27.0%	34.5%	28.5%	26.5%
Sterlite Technologies ($STRTECH)	11.8%	7.5%	7.5%	10.8%	15.0%
Crompton Greaves ($CROMPGREAV)	13.1%	7.1%	3.2%	6.2%	8.8%
Median (13 companies)	12.5%	9.4%	8.8%	6.6%	8.3%
Emco ($EMCO)	-1.0%	7.4%	9.5%	11.3%	9.3%

Top companies by CAPEX/Revenue, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Sterlite Technologies ($STRTECH)	19.8%	24.9%	47.2%	64.9%	37.4%
Swelect Energy Systems ($SWELECTES)	2.9%	5.1%	42.5%	50.8%	21.8%
Transformers And Rectifiers (India) ($TRIL)	2.5%	5.7%	8.4%	2.8%	5.8%
T D Power Systems ($TDPOWERSYS)	1.5%	3.7%	14.5%	15.1%	3.8%
Suzlon Energy ($SUZLON)	4.6%	4.2%	3.7%	3.4%	3.7%
Median (13 companies)	5.2%	5.1%	3.6%	2.6%	2.5%
Emco ($EMCO)	5.4%	15.2%	2.0%	1.9%	3.5%

Top companies by ROIC, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Ujaas Energy ($UJAAS)	10.6%	0.0%	28.5%	33.7%	10.2%
Alstom India ($AIL)	44.3%	27.2%	25.6%	13.2%	10.7%
Bharat Heavy Electricals ($BHEL)	46.1%	41.5%	29.5%	10.3%	4.0%
Crompton Greaves ($CROMPGREAV)	32.5%	12.9%	3.5%	10.1%	4.1%
Bgr Energy Systems ($BGRENERGY)	25.9%	15.5%	11.9%	9.7%	2.8%
Median (17 companies)	19.5%	15.3%	7.1%	9.3%	4.1%
Emco ($EMCO)	-3.0%	4.3%	6.1%	7.4%	6.1%

Top companies by Net Debt / EBITDA


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Suzlon Energy ($SUZLON)	9.7x	6.1x		87.6x	19.1x
Bgr Energy Systems ($BGRENERGY)	1.9x	2.6x	3.5x	4.1x	13.0x
Sterlite Technologies ($STRTECH)	2.8x	4.6x	10.2x	15.4x	11.1x
Transformers And Rectifiers (India) ($TRIL)	0.8x	-0.9x	4.2x	4.1x	4.8x
Crompton Greaves ($CROMPGREAV)	0.1x	0.6x	3.9x	1.9x	2.8x
Median (13 companies)	1.1x	1.5x	2.6x	2.5x	2.6x
Emco ($EMCO)		8.1x	7.3x	5.7x	7.3x

Emco stock price chart

Emco financials

mln.	FY2010	FY2011	FY2012

Revenue	11,116	10,618	8,588
EBITDA	1,156	-108.495	634.9
Net income	1,281	-583.888	-155.907
CAPEX	332.9	572.0	1,308
Debt	3,873	4,348	5,237
Cash	112.4	394.7	65.316

About Emco

EMCO Limited provides products and solutions for power generation, transmission, distribution utilities, and industry. It manufactures various transformers, such as distribution transformers, power transformers, furnace transformers, rectifier transformers, traction power transformers, and locomotive transformers primarily to power utilities, steel mills, cement plants, petro chemical complexes, fertilizer plants, independent power plants, etc.; and static energy meters and metering solutions that support communication through various media, such as radio frequency, GSM, GPRS, CDMA, PLCC, etc. for use in residential, commercial, industrial, and special purpose applications. The company also undertakes various activities ranging from concept to the commissioning of sub-stations, including GIS, industrial switchyards, and power distribution systems, as well as upgrading and revamping of existing distribution systems and power evacuation system for power projects. In addition, it is engaged in the engineering, design, construction, testing, manufacturing, and execution of transmission line towers. Further, the company offers repair, overhauling, erection, testing, and commissioning services for transformers, as well as supplies spares. Additionally, it is involved in the power generation business from solar and wind farms, as well as investments in coal mine projects located in Indonesia. Emco Limited exports its products and solutions to approximately 50 countries in the Americas, Europe, the Middle East, the Asia Pacific, Africa, and the Indian sub continent. The company was founded in 1964 and is headquartered in Thane, India.