A Detailed Equity Research Report on Elin Electronics Limited

Summary

A Detailed Equity Research Report on Elin Electronics Limited with a tagline A leading electronics manufacturing services (EMS) provider.

ELIN ELECTRONICS LIMITED

Company Background:

ü  Incorporated in 1969, Elin Electronics Limited is a leading electronics manufacturing services ("EMS") provider. The company is a manufacturer of end-to-end product solutions for major brands of lighting, fans, and small/ kitchen appliances in India, and is one of the largest fractional horsepower motors manufacturers in India.

ü  The company has three manufacturing facilities which are strategically located in Ghaziabad (Uttar Pradesh), Baddi (Himachal Pradesh), and Verna (Goa).

ü  It has been allotted land measuring approximately 16,200 square meters and 3,600 square meters on 99 years and 90 years leases in Bhiwadi (Rajasthan) and Noida (Uttar Pradesh), respectively. As of Dec 2022, the allotment of these land parcels had yet to be registered as leases.

ü  The company also has a centralized R&D center in Ghaziabad (Uttar Pradesh), focusing on the research and development of all aspects of OEM and ODM models including concept sketching, design refinement, generating optional features, and testing.

KEY STOCK STATISTICS:

Market Capitalization (crs):  862/-

Book Value: Rs. 100.20/-

Face Value: Rs.5 /-

52 week High/Low:  244/116

P/E Ratio: 83.50

P/BV: 1.70

Dividend Yield: 0.58/-

Source: www.sharescart.com 

Sharing Pattern:

Source: www.bseindia.com

Returns(%):

Source: Company, KFO Research 

GLOBAL ECONOMY:

The global economy is rebounding well since early 2022, led by countries like the United States, China, and India. Nations have learned from the Covid-19 pandemic and are preparing for future black swan events. A powerful post-recession recovery is underway, driven by increased demand and improved supply.

In 2023, the global economy encountered challenges like the Russia-Ukraine conflict, resurgence of the Covid-19 pandemic, and commodity price fluctuations. The International Monetary Fund (IMF) reports a dip from 3.4% (2022) to 2.8% (2023), but expects 3.0% growth in 2024, indicating a positive trajectory. Advanced economies slow down to 1.3% (2023) and 1.4% (2024) due to geo economic fragmentation, while emerging markets project stronger growth at 3.9% (2023) and 4.2% (2024). Tightened monetary policies are likely to cool commodity prices and demand. Recovery signs are likely to emerge through easing inflation and accommodative banking, hinting at a brighter 2023 path with a focus on emerging markets’ resilience and supply chain resolution. Despite surpassing 2022 growth expectations, aggressive policy tightening, geopolitical uncertainties, and declining business sentiment dampen global growth outlook. Policy responses prioritising stability, inclusivity, and sustainability are crucial in shaping the future trajectory of the global economy.

(Source: https://www.imf.org/en/Publications/WEO/ Issues/2023/04/11/world-economic-outlook-april-2023)

INDIAN ECONOMY:

India’s economy has demonstrated remarkable resilience, positioning itself as a key driver of global economic progress. This robust economic growth is underpinned by a confluence of factors. Notably, an upsurge in domestic consumption, increased capital expenditure, and foreign investments contribute significantly to this expansion. Favourable Government policies and a thriving manufacturing sector are likely to further propel the nation’s economic prosperity. India’s commitment to innovation is evident through key initiatives like PM Gati Shakti, the National Logistics Policy, and Production Linked Incentive (PLI) Scheme. As of March 2023, India’s GDP stood at approximately USD 3.75 Trillion as a result of which the country secured its place among the top five fastest-growing economies in 2022, surpassing the UK. Based on the RBI’s projections, India’s GDP is expected to grow at the rate of 7.2% in 2023 and 6.5% in 2024. The Union Budget 2023-24 outlines the vision of ‘Amrit Kaal,’ aiming for an inclusive economy with increased capital expenditure. However, challenges like slower consumption growth, external conditions, rising borrowing costs, and stagnant income may hinder private consumption and overall economic development. Prudent policies and strategies are essential to address these impediments effectively.

(Source: https://www.forbesindia.com/article/explainers/ gdp-india/85337/1)

GLOBAL ELECTRONICS INDUSTRY

Over the past six decades, the global electronics industry has undergone significant advancements. The industry’s expansion has been primarily fuelled by emerging technologies, generating a robust demand worldwide. It encompasses a wide range of sectors, including electronics products, design, components, and manufacturing services. Historically, the electronics market has shown substantial growth. Furthermore, according to Frost & Sullivan’s analysis, the industry is projected to exhibit a compound annual growth rate (CAGR) of 5.2%, reaching USD 2,955 Billion by 2025. This growth is being propelled by several key factors, such as increasing disposable income, a higher acceptance of audio and video broadcasting, wider internet penetration, the younger generation’s fascination with next-gen technologies, and the emergence of e-commerce, among others.

INDIAN EMS INDUSTRY

India’s EMS market is projected to grow to USD 135 Billion by 2025-26, at a CAGR of 30.3%. In the EMS market, original equipment manufacturing (OEM) holds an 80% share, while original design manufacturing (ODM) accounts for 20%. Limited product differentiation exists as OEMs provide reference designs to EMS providers. To adapt, EMS companies are embracing ODM models, offering turnkey solutions from design to reverse logistics. They diversify products, leverage global footprints, and ensure swift deliveries, outperforming competitors. Furthermore, the growth of India’s EMS sector is driven by a robust consumer economy and rising demand for consumer and industrial electronics. The Government’s favourable policy initiatives and shifts in global manufacturing have further strengthened India’s position as a preferred destination for electronics manufacturing investments, with a focus on import substitution. Brands are increasingly embracing the ODM model and exploring new product segments, propelling them toward EMS engagement. As the demand increases, EMS/ODM players are encouraged to establish a local component ecosystem, bolstering domestic electronics capabilities. Moving ahead fractional horsepower motors (FHP) with power ratings below one horsepower are used in lowvoltage applications like electric fans, mixers, and juicer mixers. The Indian market is price competitive, but valueadded services can sway customers. Electrification, decreasing prices, and new manufacturing facilities will drive the demand for FHP motors in household appliances.

  Source: Company Annual Report

BUSINESS HIGHLIGHTS & ANALYSIS:

PROS

• Company has reduced debt.

CONS

• Promoter holding is low: 33.0%
• Company has a low return on equity of 10.9% over last 3 years.
• Dividend payout has been low at 9.43% of profits over last 3 years

 Source: Company Report, KFO Research

Growth Drivers for Elin Electronics

1. Urbanisation and Income Rise: Growing urbanisation and rising incomes drive the demand for consumer electronics. The expanding middle class, changing lifestyles, and easy financing options shorten product replacement cycles. Electronics are now essential utilities, not just luxuries.
2.  E-Tail Boom: E-commerce thrives due to internet expansion and smartphone usage, offering speed, cost savings, and scalability. Consumers are embracing online shopping due to the convenience and competitive prices.
3.  Tech Advancements: Rapid technological progress leads to price reductions, fuelling electronics sales. The ‘Make in India’ initiative attracts investments, creating more affordable products from computers to smartphones.
4.  Favourable Policies: Government support, favourable policies, and investments boost the consumer electronics sector’s growth, driving India’s global prominence. India’s proactive initiatives covers Production Linked Incentive (PLI) Scheme, Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), Modified Electronics Manufacturing Clusters Scheme (EMC 2.0), and MSIPS.
5. Benefits of EMS Model: Rising electronic product demand leads brands to partner with EMS providers, gaining cost-effectiveness, quick manufacturing, and reliable aftermarket support.
6. China + 1 Strategy: Increasing Chinese manufacturing costs drive OEMs to explore alternatives alongside China, considering comparable pricing, quality, and responsiveness.
7. Focus on Domestic Manufacturing: India’s robust electronics growth, driven by local demand and Government initiatives (Make in India, Digital India), attracts significant EMS investments.
8. Export Focus: India’s potential as a top manufacturing destination supports ‘Make in India for the World.’ Government-industry collaboration is key for Electronic System Design and Manufacturing (ESDM) production success.

 Source: Company Annual Report

FUTURE OUTLOOK:

ü  Enhance customer base and relationships through cross selling and product development.

ü  Expand ODM share of the business.

ü  Focus on one-stop-shop facility with an increased degree of backward integration.

ü  Augmenting our R&D capabilities.

 Source: Company Annual ReporT

VALUATIONS:

ü  On the basis of EPS Multiple Method, we are recommending ‘Buy’ for the stock. Since the stock offers good opportunity, we initiate a ‘BUY’ signal on the stock with 12-month price target of Rs 244/- share an upside of 41.04 % from current levels.

PEER COMPARISON:

 source: www.sharescart.com

BALANCE SHEET:

PROFIT AND LOSS ACCOUNT:

CASH FLOW STATEMENT : 

source: www.sharescart.com

Copmpany, KFO Research

SSource:  Company, KFO Research

RETURNS (%):