Elgi Equipments

Elgi Equipments Face Value - Rs 1 Buy Rs 59.35

Ticker: 522074 Equity: Rs 6.00 crore H/L: Rs 68/46.65

Elgi Equipments is currently the market leader and Asia's largest manufacturer of air compressors and automobile service station equipments. Its core business of air compressor will witness strong growth. Elgi is all set to benefit from the rising capex in its client industries like mining, defence, transport, pharmaceuticals, power, oil, railways, textiles, printing, ship building, paper and electronics. All these industries require air compressors.
Elgi has planned capital expenditure of Rs 536 million over the next 12-18 months. This demonstrates the confidence the company currently has, in its businesses since Elgi is undertaking a capex of such a magnitude after ten long years.
Elgi has recently entered into the manufacturing engineering business which is a high-margin low-volume business. A significant part of the company's planned capital expenditure would go into this business. The company also plans to enter into the gas compressor business if it gets a right technology partner. This is a huge opportunity for Elgi
On the Valuation front, the CMP of Rs 59.40 discounts its trailing 12 month earnings by 20x and we feel the company is expected to post good results in FY08. On the other parameters too, the company looks cheap with a market cap to sales ratio of 1.25x. So, we recommend investors to buy this scrip at the current level.