Why Elecon share is falling?
Why Elecon share is falling. It is that stock which has appreciated at 28% CAGR in the last 10 years, but since last 6 months it is really struggling. In the last 6 months the stock has fallen by -24.5%. What long term investors do with this stock now?
The stock has dropped 24.5% in six months due to profit growth stopping despite revenue rising 14.8%.
The main culprit is margin compression in the Gear division. It is the company’s profit-making engine that contributes 76% of revenue.
The problem is product mix. Cheaper standardized products jumped from 45% to 54% of sales. Higher-margin customized products fell.
Additionally, the company added depreciation burden from a new manufacturing facility not yet generating proportional revenue.
Between Mar’25 and June’25 (Q1), the stock appreciated by about 80% from its bottom. Q1 results looked artificially strong because of Rs. 80 crores one-time investment gain and Rs. 35 crores from an arbitration settlement, which disappeared in Q2 (it was expected).
Beyond internal issues, the broader industrial sector is also struggling. Steel, cement, and power companies are Elecon’s primary customers.
These companies are facing slowdowns due to weak construction demand and falling commodity prices.
India’s core sector growth has slipped to just 3%, the lowest in months. International business, which should be growing, has stalled because of geopolitical tensions in the Middle East affecting order deliveries.
Foreign investors have been selling their stakes, adding downward pressure on the stock price.
However, I think long-term investors should not panic completely.
The company carries no debt, has Rs. 995 crores in cash, maintains 38-40% market share in Indian gears. Elecon also has a healthy order book of Rs. 1,226 crores. This provides visibility for seven months of revenue.
The Material Handling Equipment division is growing at 33% with 25.7% margins. Management expects margins to recover in the second half of the financial year.
So the current negative performance appears to be a temporary cyclical weakness rather than a fundamental business deterioration.
I’ll wait for Q3 & Q4 results to confirm recovery before making fresh investment decisions.
Disclaimer: This content is for informational purposes only and should not be considered investment advice.
