Emco Net Debt / EBITDA surged on 3.8x from 7.3x to 11.2x in 2016 while Revenue dropped on 13.1%

30-05-2016 • About Emco ($EMCO) • By InTwits

Emco reported FY2016 financial results today. Here are the key drivers of the company's long term financial model:

Emco is a company in decline: FY2016 revenue growth was -13.1%, 5 years revenue CAGR was -4.5%
Emco has medium CAPEX intensity: 5 year average CAPEX/Revenue was 5.1%. At the same time it's in pair with industry average of 5.8%
CAPEX is quite volatile: ₹250m in FY2016, ₹341m in FY2015, ₹174m in FY2014, ₹151m in FY2013, ₹1,308m in FY2012
The company has potentially unprofitable business model: ROIC is 3.4%
It operates with high leverage: Net Debt/EBITDA is 11.2x while industry average is 1.2x

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

Revenue and profitability

Emco's Revenue dropped on 13.1%. During the last 5 years Revenue growth topped in FY2014 at 20.2% and was decelerating since that time. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 6.2 pp from 3.6% to 9.8% in FY2016. During the last 5 years EBITDA Margin topped in FY2014 at 11.3% and was declining since that time.

Net Income margin decreased on 4.1 pp from -1.2% to -5.3% in FY2016. During the last 5 years Net Income margin topped in FY2014 at -0.47% and was declining since that time.

Investments (CAPEX, working capital and M&A)

In FY2016 Emco had CAPEX/Revenue of 3.0%. Emco showed small growth in CAPEX/Revenue of 0.94 pp from 2.0% in FY2013 to 3.0% in FY2016. Average CAPEX/Revenue for the last three years was 2.8%.

Return on investment

The company operates at low but positive ROIC (3.4%) and negative ROE (-10.1%). ROIC decreased on 2.8 pp from 6.1% to 3.4% in FY2016. ROE decreased on 7.6 pp from -2.4% to -10.1% in FY2016. During the last 5 years ROIC topped in FY2014 at 7.4% and was declining since that time. During FY2012-FY2016 ROE topped in FY2014 at -0.87% and was declining since that time.

Leverage (Debt)

Debt level is 11.2x Net Debt / EBITDA and 11.4x Debt / EBITDA. Net Debt / EBITDA jumped on 3.8x from 7.3x to 11.2x in FY2016. Debt decreased slightly on 1.9% while cash dropped on 47.6%. During the last 5 years Net Debt/EBITDA bottomed in FY2014 at 5.7x and was growing since that time.

Emco has short term refinancing risk: cash is only 2.6% of short term debt.

Financial and operational results

Emco ($EMCO) key annual financial indicators

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	8,588	7,469	8,974	9,709	8,434	-13.1%
EBITDA	635	712	1,011	906	593	-34.5%
Net Income	-156	-90	-42	-116	-450
Balance Sheet
Cash	65	37	73	251	132	-47.6%
Short Term Debt	4,670	4,299	4,789	5,000	5,105	2.1%
Long Term Debt	568	939	1,088	1,896	1,660	-12.4%
Cash flow
Capex	1,308	151	174	341	250	-26.7%
Ratios
Revenue growth	-19.1%	-13.0%	20.2%	8.2%	-13.1%
EBITDA growth	-685.1%	12.1%	42.0%	-10.4%	-34.5%

EBITDA Margin	7.4%	9.5%	11.3%	9.3%	7.0%	-2.3%
Net Income Margin	-1.8%	-1.2%	-0.5%	-1.2%	-5.3%	-4.1%
CAPEX, % of revenue	15.2%	2.0%	1.9%	3.5%	3.0%	-0.5%

ROIC	4.3%	6.1%	7.4%	6.1%	3.4%	-2.8%
ROE	-3.0%	-1.8%	-0.9%	-2.4%	-10.1%	-7.6%
Net Debt/EBITDA	8.1x	7.3x	5.7x	7.3x	11.2x	3.8x

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	FY2012	FY2013	FY2014	FY2015	FY2016
Ujaas Energy ($UJAAS)	-	614.7%	116.7%	-78.9%	149.4%
Techno Electric And Engineering Co. ($TECHNO)	-	-15.7%	1.7%	12.6%	38.9%
Techno Electric & Engineering Company ($TECHELE)	-	-15.7%	1.7%	12.6%	38.9%
Voltamp Transformers ($VOLTAMP)	-	-7.7%	-13.7%	16.2%	9.0%
Transformers And Rectifiers (India) ($TRIL)	-	-1.3%	42.8%	-24.3%	7.4%
Median (16 companies)	-	-5.3%	0.8%	1.1%	-5.3%
Emco ($EMCO)	-	-13.0%	20.2%	8.2%	-13.1%

Top companies by Gross margin, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Suzlon Energy ($SUZLON)	33.2%	27.2%	28.6%	31.3%	40.6%
Median (1 company)	33.2%	27.2%	28.6%	31.3%	40.6%

Top companies by EBITDA margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Ujaas Energy ($UJAAS)	1.2%	18.7%	17.4%	38.1%	22.6%
Sterlite Technologies ($STRTECH)	7.5%	7.5%	10.8%	15.0%	20.9%
Techno Electric And Engineering Co. ($TECHNO)	27.0%	34.5%	28.5%	26.5%	20.2%
Techno Electric & Engineering Company ($TECHELE)	27.0%	34.5%	28.5%	26.5%	20.2%
Suzlon Energy ($SUZLON)	8.9%	-5.3%	0.8%	4.0%	11.7%
Median (15 companies)	9.2%	8.1%	6.4%	5.5%	8.0%
Emco ($EMCO)	7.4%	9.5%	11.3%	9.3%	7.0%

Top companies by CAPEX/Revenue, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Swelect Energy Systems ($SWELECTES)	5.1%	42.5%	50.8%	21.8%	44.0%
Sterlite Technologies ($STRTECH)	24.9%	47.2%	64.9%	37.4%	10.3%
Bharat Heavy Electricals ($BHEL)	3.3%	3.6%	4.1%	1.1%	5.3%
Suzlon Energy ($SUZLON)	4.2%	3.7%	3.4%	3.7%	4.3%
T D Power Systems ($TDPOWERSYS)	3.7%	14.5%	15.1%	3.8%	3.4%
Median (13 companies)	4.7%	3.3%	2.4%	2.2%	2.6%
Emco ($EMCO)	15.2%	2.0%	1.9%	3.5%	3.0%

Top companies by ROIC, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Ujaas Energy ($UJAAS)	0.0%	28.5%	33.7%	10.2%	16.2%
Techno Electric And Engineering Co. ($TECHNO)	15.5%	12.6%	9.3%	10.2%	11.3%
Techno Electric & Engineering Company ($TECHELE)	15.5%	12.6%	9.3%	10.2%	11.3%
Voltamp Transformers ($VOLTAMP)	8.7%	6.5%	1.9%	5.4%	9.8%
Suzlon Energy ($SUZLON)	6.2%	-9.4%	-3.5%	-0.1%	9.4%
Median (17 companies)	15.3%	7.1%	9.3%	4.0%	5.7%
Emco ($EMCO)	4.3%	6.1%	7.4%	6.1%	3.4%

Top companies by Net Debt / EBITDA


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Suzlon Energy ($SUZLON)	6.1x	-	87.6x	19.1x	9.5x
Bgr Energy Systems ($BGRENERGY)	2.6x	3.5x	4.1x	13.0x	6.9x
Schneider Electric Infrastructure ($SCHNEIDER)	2.2x	5.5x	-	-	4.2x
Transformers And Rectifiers (India) ($TRIL)	-0.9x	4.2x	4.1x	4.8x	3.6x
Swelect Energy Systems ($SWELECTES)	0.5x	1.3x	5.0x	-8.1x	3.0x
Median (14 companies)	1.6x	2.6x	2.5x	2.6x	1.9x
Emco ($EMCO)	8.1x	7.3x	5.7x	7.3x	11.2x

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.