Ladies and gentlemen, good day and welcome to Elecon Engineering Limited's Conference Call hosted by Emkay Global Financial Services Limited. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone.
I now hand the conference over to Mr. Abhishek Taparia, Emkay Global Financial Services Limited. Thank you, and over to you.
Good afternoon, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Mr. Chintan Shah, CFO, Mr. Dipak Dalwadi, Head of Gear Division, and Mr. Kaushik Patel, Head of Material Handling Equipment Division. I shall now hand over the call to the management for the opening remarks. Over to you, gentlemen.
Thank you, Abhishek. Good evening, and a very warm welcome to Elecon Engineering's Q1 FY 2027 earnings conference call. Joining with me today are Mr. Dipak Dalwadi, Head of Business, Gear Division, and Mr. Kaushik Patel, Head of Business for MHE Division. Our earnings press release and investor presentation have been submitted to the stock exchanges and are also available on our website. We will start by sharing an overview of our business. This will be followed by a detailed review of our financial performance, after which we will be happy to take your questions. Elecon Engineering today stands among Asia's leading manufacturers of industrial gear solutions and material handling equipment. It is built on decades of engineering excellence, deep domain expertise, and trusted customer relationships.
In our Gear Division, Elecon continues to maintain a leadership position in India's organized industrial gear market, offering one of the industry's broadest product portfolios across sectors such as steel, cement, power, and marine. Our Material Handling Equipment Division is backed by over 75 years of experience. The division possesses the capability to design and manufacture large, complex, and high-capacity equipment such as wagon tipplers, stacker reclaimers, crushers, and specialized conveyor systems. Our key differentiator is fully integrated manufacturing model, where every critical process from drawing to design to manufacturing to testing to quality control is carried out under one single roof. Today, Elecon serves customers across more than 95 countries through its domestic operations and overseas subsidies. It provides us with a diversified growth platform.
With that, I would like to hand over the call to Mr. Dipak Dalwadi and then to Mr. Kaushik Patel to discuss the performance of the Gear and MHE division, respectively.
Thank you, Chintan-ji. The Gear Division, which contributed nearly 80% of our consolidated revenue to INR 416 crores during the quarter, delivered a strong performance, with revenue growing by 16.3% year-on-year. The growth was underpinned by steady execution of our order book and supported by a gradual improvement in the international market. The international market has accounted for nearly 36% of our consolidated Gear Division revenue, showing a robust growth of 37.6% YoY. Similarly, the growth momentum can also be seen in our order inflows and our open order book. The consolidated order intake increased 18.8% year-on-year to INR 570 crores during the quarter. Moving on to our open order book, which currently stands at INR 1,043 crores, is up 46.9% year-on-year, providing strong revenue visibility and giving us confidence in our growth trajectory over the coming quarters. This demand is shown across key user industries.
However, the major key contributors were from power, steel, cement, and MHE. Specifically, the power sector has contributed approximately 27% of revenue in the form of a large single order, which was mentioned during our Q4 FY 2026 con call. As we look ahead, the business environment continues to remain encouraging. Inquiry activity has been healthy, and order inflows are showing steady improvement across both domestic and international markets. Demand across our key user industries continues to strengthen, providing greater visibility for rest of the financial year. We remain confident in Gear Division's ability to build on this momentum and deliver sustainable growth going forward.
With that, I would like to hand over the call to Mr. Kaushik Patel, Head of our Material Handling Equipment Division, who will take you through the performance of MHE business. Thank you.
Thank you, Dipak-ji. The MHE Division reported a marginal decline in revenue during the quarter, with revenue moderating by 2.9% year-on-year. This was primarily on account of project execution delays. Nevertheless, the underlying business momentum remained encouraging. Our healthy order book and improving order inflow provide strong visibility for the quarters ahead. During the quarter, order intake witnessed a significant growth of 38.1% year-on-year, reaching INR 185 crores. The order intake was primarily driven by the strong demand from power, cement, followed by port, reflecting the continued investment momentum in these key end user industries. Our open order books stood at INR 475 crores as of June 30th, 2026, reflecting an 18.8% increase compared to the corresponding period last year. These indicators reinforce confidence in the Division's growth trajectory as project execution gathers pace.
We continue to see encouraging inquiry activity across the key sectors, which provides confidence in the medium to long-term outlook for the division. We are pleased to share that the MHE division has secured overseas orders worth approximately INR 21 crore in port industry, reflecting the growing acceptance of our capability in international market.
With that, I would now like to hand the call back to Mr. Chintan Shah, who will take you through Elecon's financial performance in greater detail. Thank you.
Thank you, Kaushik bhai. I will now briefly review our consolidated financial performance for the quarter. Before I begin, I would like to highlight that all year-on-year growth comparisons are based on Q1 FY 2026 adjusted performance. The Q1 FY 2026 numbers have been adjusted to exclude the impact of INR 25 crores towards arbitration award, the additional INR 10 crores towards arbitration claim settlement, both recorded under other income, and also excludes the one-time exceptional income of INR 80 crores arising from the unrealized mark-to-market gain on the reclassification of investment, which was recorded below PBT as exceptional income. All these three income of INR 25 crores, INR 10 crores, and INR 80 crores respectively are pre-tax numbers that we have excluded.
For the quarter ended June 2026, Elecon reported consolidated revenue from operation of INR 521 crores. This represents a healthy year-on-year growth of 11.9% over adjusted revenue of INR 465 crores in Q1 FY 2026. This performance was primarily driven by the Gear Division, which returned to a stronger growth trajectory during the quarter. During the quarter, our revenue mix witnessed a shift. Our overseas business contributed INR 151 crores, which was approximately 29% of consolidated revenue. This reflects the improving momentum across our international markets while the domestic business environment remained relatively muted. Despite a spike in input cost due to geopolitical tensions, our consolidated EBITDA remained resilient and grew by 3.9% year-on-year to INR 109 crores. EBITDA margins remained stable and sustainable at 21%, reflecting the strength of our business model, disciplined cost management, and continued focus on the operation efficiency.
Profit after tax stood at INR 70 crores with a margin of 13.5%, registering a growth of 2.3% year-on-year. Our consolidated order intake increased by 23% year-on-year to INR 755 crores from INR 614 crores in the corresponding quarter of the previous year. Our consolidated open order book also strengthened significantly, rising 36.8% year-on-year to INR 1,518 crores, providing a healthy revenue stability for the quarters ahead. Now moving on to the divisional performance, I will begin with our Gear Division. In Gear Division, we delivered a stronger quarter with revenue increasing to INR 416 crores, up by 16.3% year-on-year. This reflects healthy execution and sustained demand across all our key markets. EBIT grew by 14.7% year-on-year to INR 75 crores. Despite higher input costs during the quarter, we maintain a resilient EBIT margin of 17.9% through disciplined cost management and operational efficiencies.
Moving now to MHE Division. MHE division reported revenue of INR 105 crores during the quarter, compared to adjusted revenue of INR 108 crores in Q1 FY 2026. This represents a marginal decline of 2.9% year-on-year. As highlighted earlier, the moderation in the revenue was primarily due to temporary delays in the project execution. [audio distortion] EBIT for the quarter stood at INR 27 crores, declining by 25.3% year-on-year. This was largely due to sales mix during the quarter, coupled with the increase in the input cost and delayed execution of few critical orders. The underlying fundamentals of the division remain strong, and we are confident of the MHE business regaining the momentum in the coming quarters. The strength of our order pipeline, the healthy order intake, and robust inquiry levels provide us with a strong visibility and confidence for the quarters ahead.
Moving on to our overseas business, we delivered a strong performance during the quarter. This was supported by improving market conditions and gradual easing of geopolitical tensions. Overseas revenue increased to INR 151 crores from INR 124 crores in the corresponding quarter of the previous year. This registered a year-on-year growth of 21.9%. The momentum was equally encouraging on the order front. Overseas order intake grew by 63% year-on-year to INR 194 crores, with INR 21 crores contributed by the MHE division. Our overseas open order book is now strengthened significantly. It has increased by 73% year-on-year, and it has reached to INR 256 crores as of June 30, 2026. This provides healthy visibility for the future growth in this market.
Moving on to balance sheet and capital allocation. We continue to maintain a strong balance sheet with a net cash position of approximately INR 700 crores. We also remain committed to our previously announced capital expenditure program of approximately INR 400 crores over FY 2026 to FY 2028. The CapEx program remains on track. As we progress through FY 2027 and complete our first quarter, it is a time for us to provide full year guidance. Given the ongoing macroeconomic uncertainty and limited near-term visibility, we are targeting to have a low double-digit consolidated revenue growth while maintaining the EBITDA margin as we had it in the last year. This is supported by a healthy order book, strong inquiry pipeline, and disciplined execution. We remain confident in our long-term growth prospects.
With that, I would now like to open the floor for the questions.
Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Shubhi Gupta with Trinetra Asset Managers. Please go ahead.
Good afternoon, sir. My question is that our MHE division margins fell this quarter. I wanted to understand how much of that is from product mix change and how much is from the higher costs. My second question is that 29% of our revenue is coming from international markets. I wanted to understand, does this business carry a higher margin profile than the domestic business?
Yeah. Coming back to the margin decline, there are three factors which has contributed to margin decline when it comes to MHE business. One is the shift in the sales mix, second is the input cost increase, and third is overall revenue de-growth. Our data suggests that it's almost 2.5%-3% margin decline is because of the input cost increase. Almost 3% margin decline we see is because of the change in the sales mix. Rest 3% we see the balance is declined because of the lower throughput volume for the quarter for the MHE division. Coming back to the export market, we do have slightly higher margins on the products that we supply to the exports market. We continue to see that margin profile for the coming quarters also.
Sir, what should be the sustainable margin for MHE division going forward?
We are seeing a 22%-24% EBITDA margin for MHE business for the year as a sustainable margin.
Just one more last question. Sir, I see that we have few patents that we have applied for. Just wanted to know what are the commercial prospects for the same.
We have these patents which we have applied for, but we would not like to openly discuss the kind of markets that we are targeting and the segments we are targeting as of now. We'll remain silent on that.
Sure, sir. Thank you.
Thank you. The next question comes from the line of Balasubramanian with Arihant Capital. Please go ahead.
Sir, thank you so much for the opportunity. Sir, on the international revenue side, it has grown 82% this quarter. Could you please talk about which are the geographies majorly contributed for this growth? Also, you can talk about Middle East impact on the international revenue side. Is there any specific end markets within Middle East regions like oil and gas and infra driving this weakness? When we can expect a recovery in Middle East side?
Right. Bulk of the growth that we see right now in this quarter has come from Middle East as well as U.S. Both these growth we have because some of the orders which were on hold in Q4 last year, because of the improvement in the macroeconomic conditions, the hold has eased out. So we have started doing the dispatch. This is number one. Number two, if we look at the open order book as well as the nature of and the quantum of the inquiries, we also see that both these regions witnesses a stronger traction. What was your next question?
Middle East.
Which area of the?
Sorry, can you repeat your question, please?
Which sector?
In Middle East, which are the specific end markets, like oil and gas infrastructure? Which are the things we are seeing weakness and growth?
Mainly it's the cement and mining and minerals.
Okay. Sir, my second question. Sir, last two questions. [audio distortion]
Sir, we are unable to hear you. Could you please come closer to the mic?
[audio distortion] Sir, we have goodwill of INR 102 crore [ audio distortion]
We are sorry, we can't hear you properly. Can you come to the mic and repeat your question, please?
Yes. Sir [ audio distortion]
I'm sorry to interrupt, sir. Balasubramanian here. We can't hear you clearly. Could you please come to a better network area?
Sir, I think some network issues. I'll come back.
You can continue, sir, now. The voice is more clear.
Sir, goodwill related to 2010-2011, Benzler, Radicon Europe acquisitions was impaired. That balance sheet is around INR 102 crore in FY 2025. It's reduced to nil in FY 2026. Also, tax deduction of GBP 1 million remains over five years in the U.K. entity. I'm trying to understand, does this goodwill impairment have any cash tax impact, or it was purely a non-cash accounting charge? Whether we can expect any future tax benefits from this write-down. Is there any changes in our future acquisition strategy?
I will break your question into two parts. One is the tax impact on the goodwill, and secondly, on the acquisition strategy. In the year ending on 31st March 2026, we did the impairment of goodwill. We did the impairment in the consolidated financial statement. The goodwill which was recorded as an asset in the local books of accounts, in European entities. There is a tax deduction which is available, and we have been claiming on a yearly basis by way of amortization. The accounting impact of the impairment of goodwill is purely a non-tax. There is no tax impact of this impairment of goodwill. There is a marginal amount of goodwill which is now left as a book value in a European entity that we have it, and we will continue to amortize over the balance years, which are three to four years now.
Coming back to the acquisition opportunities, we are not actively looking for any acquisition opportunity in European region, especially where the opportunity demands significant investment in a manufacturing setup. This is what all we can communicate right now.
Okay, sir. Sir, on that thirdly small question. On the defense side, if you are taking order, it will take execution of at least two to three years. While other sectors, it may be less than a year. I'm trying to understand what is the working capital cycle difference between defense and other sectors. Is there any upfront investment required on the defense side?
Yes, we have done the investments over the last three- four years, where we have kind of created a dedicated, not just the manufacturing setup, but also the business and operating vertical for the defense. In terms of working capital cycle, naturally, if we have execution timeline over two- three years, the working capital for that particular business will have a higher number of days. That being said, what we are communicating is that, the total order that if at all we receive, we will execute over two- three years. Within those two to three years' time, we can always plan our manufacturing in line with the dispatch schedule and try and see how we can keep our working capital at the minimum level.
In the past also, we had similar execution of the orders where working capital was increased by 15%-20% compared to overall Gear Division that we had it. This is how we see right now, but at the same time, with the margins slightly higher in those kind of orders, we'll be able to absorb the cost of the working capital interest for that particular business.
Got it, sir. Thank you.
Thank you. The next question comes from the line of Raj Shah with Enam AMC. Please go ahead.
Yeah. Am I audible?
Yes, sir, you're audible. Please go ahead.
Yeah. Thank you for the opportunity. My first question was regarding the margins. As you mentioned that in MHE, there have been two, three reasons why margins have declined. On consolidated level also, if we see, there has been a decline in gross margins. If you may explain within Gear why there was no margin growth despite having revenue growth?
Yeah. Within Gears, the margin growth has not happened because whatever growth that we could see, that has been dragged by raw material price increase at the Gear business also. That is the reason it has slightly lower margin, or maybe I would say it's the same margin percentage in Gear compared to last corresponding quarter. At the same time, what we see is that in a Gear business for the full year, last year, we did EBIT margin of about 18.8%. Right now we are at 17.9% EBIT margin. We are hopeful that we will be able to regain the margin loss that we had. We are seeing it right now. Similarly, for MHE, if you look at, if we compare for the last corresponding quarter, then yes, there is a margin decline.
We also had published over the last year, the results on MHE division and categorically said that Q1 was a quarter with the exceptional margin because of the couple of orders that we added. If you look at MHE division for the full year, FY 2026, we had EBIT margin of 24.7%. Against that, we are at EBIT margin of 25.6%. Which is broadly in line with what we were expecting for this quarter and this year going forward. I hope this answers your question.
Got it. Secondly, on the revenue growth, I was not able to understand if our order book is up by 37%, our order inflows are up by 23%, I think we are running on record order books now. Why are we guiding only for low double-digit revenue growth?
I'll tell you what happens is this. This quarter, Q1, the way we see Q2, we see the quarter with a high input cost. We are not talking about a minor increase. We are talking about a significant increase in the raw material price. With this kind of increase in the price, the time taken for converting the inquiries into order has significantly increased. That is the reason, even if we had a good order book in Q1, we ended up with a very high order book, and we could not convert the order book into the revenue. This is number one. Secondly, in the Q2 also, we are seeing that the market will pick up, but it will still gradually pick up. We are expecting Q2 also with the improvement, but not that steep percentage improvement.
Q3 and Q4 is what we are expecting to improve significantly when it comes to market acceptance of the stabilized prices.
Okay, got it. Within material handling, you mentioned that there is some, even in the press release, that there is some execution related temporary moderation that you are seeing. Can you go little specific in which kind of orders? Is there any large order where you are seeing some kind of delays or, and by when do you see the pace increasing to the normal?
Yeah. Kaushik here. In MHE, yes, there are, I think, two big order we have. In fact, in MHE, let me give you the update. All the products are customized, and the major business, we are getting it from power sector. In fact, what two orders I am talking about, those are related to power sector. Normally, design engineering taking much time. In fact, in this particular case, in fact, we were expecting to get our design engineering clearance, I think in beginning of quarter, in month of April itself, but somehow we could not get success. Design engineering taking much time for end customer. We are not directly relying with the end user. It is through their main contractor who are taking complete EPC. There are number hierarchy, and that is the reason it is taking time.
Over the period, I think in quarter two, yes, we will see some progress on it, and we will get good amount of revenue in Q2 from those orders.
Okay. Got it. Lastly, for this Gears, can you give us a breakup of catalog and engineered products? [audio distortion]
Sorry. [crosstalk] For the quarter, catalog product, even the revenue mix is 54%.
For catalog product.
For the catalog product, and for the engineers product, it is 46%.
Okay. Thank you. I will get back in touch.
Thank you. The next question comes from the line of Abhijeet Singh with Systematix. Please go ahead.
Yeah, thank you for the opportunity, sir. Sir, first question, could you give me the split of the geographies in terms of the export revenues for the full year?
For the full year means you are saying guidance to be broken into respective geographies?
No, sir. This year, FY 2026 export revenue to be broken down into geographies.
Okay. FY 2026 to be broken down into geography. Okay. Almost INR 66 crores we had it from Middle East. Almost INR 102 crores we had it from Radicon, U.S.A. U.K. contributed again INR 102 crores. We call it Benzler Europe Group, where we had INR 171 crores. Singapore about INR 22 crores.
All right. Sir, in terms of the commodity price impact on our margins, sir, have you taken any price hikes in any of the segments?
Yes. Most of the orders that we have accepted in Q1, these are with the price increase. The moment we have the orders acceptance, we have a back-to-back strategic tie-ups with all our key raw material suppliers, where we lock the raw material prices.
Right. I'm trying to understand why in the MHE division, we have seen a larger impact compared to the Gear division. What are the dynamics that play out that bring out these differences?
MHE, as just we discussed, right, it's purely an engineering business. There is no EP and CP. In Gear, we have a EP plus, we have more than 50%, close to 50%, 54% comes from a catalog project. In catalog products, we have a price list, which is refreshed on every one month basis, right? Imagine a business where 55% of the revenue comes where the prices are always almost the latest prices. That's how your 50%, 60% of the impact is diluted. The second is a EP business where we have also had the raw material price locking, which we had done it. Right? That's how the impact in the EP business also reduced. When it comes to MHE, what happens is that it is a business which involves a lot of customization, and it includes working at a project level.
When we are talking about the conveyor belt system, the wagon tipplers, the crushers and everything, it is installed in an integrated way at the particular client's location. Right? There, even if we try to lock the raw material, there are also other components than the raw material, which includes our delivery cost, which is like fuel cost, packing material cost, so on and so forth. These are the reasons where we are seeing that there is a price increase impact, which is broader in material handling equipment division versus what we see in a Gear business.
Okay. Thank you sir. Lastly, sir, you mentioned that we have seen a large impact on the commodity front. Given our business, I would assume that impact would be not as large maybe. What would be the blended, the BOM increase in the BOM cost for Q1?
It all depends upon the product to product, because if I break down our key raw materials, which are like steel, where we see 5%-7% increase in a particular grades where we are operating. Some of the bearings we have about 6%-7% increase. Fabricated gear case, in a case to case basis, we do procurement from outside, is about 7% increase. The tooling is also about 6%-10%. The combination of these materials can change the BOM cost, but on an average basis, I would say there is a 5% increase the way we see as on today, is a BOM cost increase.
Thank you, sir. Thank you for answering the questions.
Yeah.
Thank you. The next question comes from the line of Pratik Kothari with Unique PMS. Please go ahead.
Yes. Good afternoon, and thank you. Sir, my question specific on the India or the standalone business in Gear. I mean, if you look at last few quarters, the growth there has not been very high, I mean, low single digits. While the order book, et cetera, has been building out. If you just call out, I mean, these are some legacy orders which are not going through, customer is asking something. Earlier our execution also used to be very quick. Just something about here what By the way, winning orders, the order inflow also is very strong, but the execution is not happening.
Yeah. If we look at couple of events which has happened last year, I will be able to relate it more with the last year. See, last year we had a good start in Q1, but immediately from Q2 onwards, we had the tariff from U.S. side. That event significantly impacted the order pipeline that we had. The Q4 event which happened between U.S. and Iran. Two major events which has happened, Gear Division. Typically, Gear Division compared to MHE has a long lead time, whatever orders which we receive from MHE, we are able to convert. In the Gear, which is not the case. I mean, if you look at CP itself, catalog product, which is on a monthly price list basis, that also goes down. We were not able to grow it the way we wanted. So is the EP.
Even in the current quarter, even if we are sitting on a very healthy order book for a Gear Division, a bulk of the order has been received in May second part and the June. That is why we have not been able to convert these orders into the kind of the revenue that we would like to see. That is the only reason we are having with the open order book of INR 1,000 crore+ . During the quarter itself, if you look at the quality of orders, we received the order for 27% for CP business and 37% for EP business. That speaks about the volume drop, and the huge order book that we have on hand.
On this segment's margin again. Like, yes, while you compare it to last year, for those 18% odd, but the same segment used to report 24%, 25%, 26% margins. I mean, one part I understand there is depreciation in the CapEx that has gone through and hence low level on this standalone Gear, it is materially lower than what it was two, three years back. Just to supplement this, we called out that EP order book, like you said, this quarter has been strong. Last quarter also, we had called out EP has been strong, exports will be stronger. Why only match last year's kind of margins? Do we ever go back to those numbers that we saw for three, four years in mid 20s?
I think our immediate focus is on the current year, where we are giving a guidance, where we will be able to reach back to the margins that we had in the last year. If you ask me, loosely speaking, we should be able to maintain 24% EBITDA margin for Gear Division. 1% above the current level, about 18.8%, is what we had in the last year. We should be able to somewhere around 19%-20%. 20% on an average is what we are maintaining at EBIT level margin for Gear. That is how we see right now for a year plus one year from now.
Lastly, sir, on exports from India. For last three quarters, we have seen material deceleration in exports. Last quarter, we called out the war, and hence we could not ship out things. Again, this quarter, it is down 35%-odd. I am seeing exports from India, which is sub INR 30 crores now. If you just talk about what is happening there, because this was a large focus area for us. We are focusing on OEMs exporting things from here.
Yeah. At an organization level, we look at the total exports rather than the exports from India. The reason is we also have set up the assembly centers, multiple assembly centers outside of India. The whole reason of setting up these assembly centers is to have the customers connect and customers proximity. That is how we are seeing it. Nevertheless, when it comes to exports, we are expecting a growth from now. In terms of the overall growth, we will see a double-digit higher percentage growth, at least for this year when it comes to exports.
Fair to assume the assembly centers, these are all purely assembly, right? The main manufacturing happens here in Anand.
There are certain parts in those assemblies which are locally outsourced also because it is not cost effective for us to transfer from this location. There's a lot of value addition which happens from those assembly centers.
Correct. Fair enough. Thank you, and all the best.
Yeah.
Thank you. The next question comes from the line of Prolin Nandu with Edelweiss Public Alternatives. Please go ahead.
Hi, team. Thank you for giving me the opportunity. Just on this, again, the gear part. The mismatch between revenue growth and the order book growth and your guidance for the whole year. You mentioned that there is a price inflation which has took place. Last year also, we called out that there have been some delays and the orders are more back-ended. When you think about the tenure of the order book or in what time this order book will convert to sales, how was it one year back? Where is it right now? From a point of view of the customer. Let's say, for example, he's building a large factory. He's not going to stop his CapEx for a 5%, 6% increase in the gear cost, right?
All these delays that you talk about, the whole idea is that our product is so small in the overall scheme of things that such costs should be easier to pass on, especially in the gears part. Is our understanding wrong in the quality of our product or where it goes in the entire factory or entire CapEx or the industrialization cycle? Has the tenure of the execution of order book increased significantly versus what it used to be historically?
I think I will divide your questions into multiple parts. One is what your observation about average BOM cost increase of 5% and our gear portion, in the overall CapEx population of the customer. Your observation is correct, the problem that we have is a large part of our business is rooted through PSUs, typically, PSUs are dependent on many factors. The fiscal budgets released by the government and the fund allocation, and all and not. We have a dependency on sectors like thermal power, cement, and the steel, all the three segments are dominated by many PSU sectors. Any macroeconomic conditions or even the conditions at our own economy level disturbs the CapEx plan, which in turn delays the kind of the projections that we see for the gear business. This is number one.
Number two, if I look at the quality of order book today, almost INR 1,050 crore order book we have open order book for Gear Division. Out of that, we see almost INR 160 crore of the order book, which are beyond FY 2027, which is in line with typically the kind of order that we receive on year-on-year basis. We do not see any major shift in this kind of timelines. I hope I'm able to answer your question.
No. I want to double-click on this. Steel, cement, and--
Power.
power, right? In some sense, while I agree that in power it's lots of PSU, but in steel and cement, most of the CapEx is done by private sector. What is our share of the business which is coming from PSU?
I'll give you the interesting story. The large part of cement industry is growing because a lot of initiatives on infrastructure is taken by government. Cement is dependent on a couple of things. One is the infrastructure, and secondly, you might have heard about government building a lot of dams across the Chenab River . There are four to five projects, large scale, which is going on since last 1.5 year. A lot of factors like this drive the expansion in the cement industry and also the steel industry. That in turn drive their CapEx plan and our growth plan.
Okay, understood. Is there any competitive intensity which has gone up, which is taking us longer, for us to pass on the price increases? In any segment, do you see heightened competitive intensity? I am talking about the Gear part of it, in a way. Anything that you want to call out, some of the MNCs are putting local plants here. Is that any which way is affecting our competitive position and our ability to pass on the increase in prices?
There are two events happens. Whenever there is abnormal price increase, the market works towards the corrections and then toward the acceptance. We have seen Q1 as more of a corrections, and we are seeing Q2 is more of a acceptance. Let us take an example what I'm trying to convey. Whenever there is a steep price increase, the customer gets the quote, and whenever the customer gets a quote, he would like to revalidate as much as possible. There'll be always few players in the market who will be sitting on with the higher inventory. Higher inventory at a lower price or at the historical prices. Therefore, the customers will try to squeeze Elecon as a company by taking the advantage of some of the competition sitting on the higher inventory.
Typically, whenever there is a price increase of this kind of scenario happens, the market works towards the correction, where the inventory level gradually goes down and every player in the market will then end up with a similar level of prices for their inventory. We are moving through that phase. In Q2, we are looking forward to have the acceptance phase. When it comes to the competition landscape where some of the multinationals are putting their facilities and doing expansion, I have Mr. Dipak Dalwadi to focus more on that. Dipak-ji, can you please add on that?
Actually, for this kind of competition and for the gear being a product, for the catalog product, its manufacturing cycle is two to three months, and for engineering product, it's four to five months. Even in the competition, whatever orders are on hand, we are taking and protecting the price. For the new projects, definitely, there will be a price pressure from the MNCs and all the competitions. It's a strategic call we are taking and at the same time, we are the preferred suppliers to all our industry segments. Being a quality and having infrastructures which can produce at a very quick time compared to the customers. Being a preferred suppliers, we can take care of the price, and at the same time, we are competing with the MNCs, even though if they are offering at a competitive price.
Thank you. One last set of questions. On the export side, now, our relationship with the OEMs have increased. In terms of number of OEMs we have relationship with. When do you think is the time to monetize these relationships? Because Europe in some sense is going through the whole cycle of increase in defense spending, some increase in industrial cycle as well. Are we seeing more near-term opportunities to monetize some of the relationships that we have with OEMs on the export part?
As you rightly said, even in the previous few questions, we said that we have grown in the Middle East as well as U.S.A. We are expected to grow in both these regions based on the earlier signs that we see based on the inquiry in the open order book. In the European market, we are still expecting the traction to happen. Based on the early feelers, it looks like two quarters minimum that we see for the European market to bounce back.
Thank you so much, management. All the very best.
Thank you.
Thank you. The next question comes from the line of Garvit Goyal with Serene Alpha. Please go ahead.
Thanks for the opportunity. Most of my questions are answered, but I still wanted to get more clarity on the demand side. Two things are there. Number one is the international market, where the tariff situation is more clear now as compared to last year. Government has signed many FTAs now, specifically with Europe. Domestic side of it, we are seeing steel, power, defense, shipbuilding, all are doing well. I also want you to put some color on sugar, how you are seeing that with their own. Considering all these things and also the orders, order books that we are getting Right. Why we are thinking about again this lower double digits? That again is not making sense from our perspective, because demand environment is good. What I understand is if a company in a good demand environment and capability like you people, right?
You have been working here for so long time, the kind of capability and the kind of market share do we have, why we are not able to reap the fruits from this? That's what I wanted to understand, sir.
You see, when we look at the lower double-digit growth percentage, we are doing that projection for the full year of FY 2027, where we have already lost Q1. Q2 also as of now, as we speak, we are seeing improved traction, but not that significant improved traction. In fact, there are too many variables which are still playing around. If you look at last 48 hours event itself, the intensity between U.S. and Iran again has picked up. These kind of things are still not giving us enough comfort for the full year guidance. This is the reason we are a little conservative in the numbers that we have, and we want to be conscious in whatever communication and expectations that we set for our shareholders for the year.
Okay. Regarding the pass on, previous participant also raised this question. 5% increase for our kind of company should not be a big problem in passing on, isn't it? Are you really facing some challenges even in the domestic market in terms of the competitive intensity, that you people are not able to pass on the same? Is that the situation right now?
As you rightly said, as I explained in one of the questions earlier, that the Q1 we see as a quarter with consolidations, where some of the players in the market were sitting on the inventory with the very traditionally historical low cost, and so we had a steep competition. Nonetheless, given the legacy that we have, the 75+ years of experience that we have now, the proven track record that we have, we still carried a significant competitive edge, and we have been able to get the orders. This is the reason that we have the high order books to start for the upcoming quarters.
Okay. What is the update on the defense side of it? We were expecting some orders there, and also from the shipbuilding side of it, sir.
There is no significant update in last 90 days. Whatever guidance we had, the update that we had in the call that we had given in April versus today, there is no significant movement. The same update.
Yes. Okay. How is the outlook on sugar side of it after this ethanol blending is getting further traction? How are you looking from the perspective near to medium term?
See, so far sugar sector is concerned, this year the monsoon has again, I mean, prolonged and not a good rain situation, what we are experiencing. So far sugarcane crop is concerned, the sugar season is not anticipated the good traction. We are hopeful that if ethanol idea and ethanol is working well, then again the sugar plant can be expanded and we can have a better traction from the sugar. As of today, because the rain is not as expected, so sugar is--
Muted.
Muted, actually.
Okay. Sir, are we looking to get some certifications in aerospace kind of area? I mean, is it a possibility going ahead?
No. Far in aerospace, still we are not so deeply working on it.
Okay. Got it. That's it from my side, sir. All the best for the future. Thank you.
Thank you.
The next question comes from the line of Vaibhav Mehta with Axis Mutual Fund. Please go ahead.
Hi, sir. Thanks for taking my questions. While we have given low double-digit growth for FY 2027, sir, my question was from long-term and medium-term perspective. We might not be able to give exact guidance in terms of number, but what are our aspirations for the same, given the fact that we are doing significant CapEx around INR 400 crore till FY 2028? Sir, secondly, with regards to that, I would want to understand the split of CapEx between Gear and MHE division, if you can provide the same.
Yeah. Coming back to the lower single-digit growth for this FY 2027, as I said, it's conservative, and as the things improve, we might even revisit in the next quarterly call that we have. This is number one. Number two, when it comes to now the midterm guidance, we had set the target of reaching to INR 5,000 crore in a top line by FY 2030. That target looks challenging but still achievable for us, given the fact that we are targeting couple of large inquiries from marine, given the fact that we are targeting expansion in export territories, and given the fact that we are still sticking to our CapEx plan, what already has been committed, and we are further evaluating Other CapEx, which we'll seek the board's approval in a near future time. This is the midterm guidance that we would like to stick to.
Sure, sir. Thanks. Split between MHE and Gear Division?
We are expecting Gear to take a larger role. The kind of revalidation that we have done internally for the numbers that we would like to achieve by FY 2030, we expect Gear to be almost 70%-75% of the total revenue in FY 2030, and almost 24%-30% for MHE for the overall revenue in FY 2030. When we say Gear will also include the marine business.
Got it. Thank you.
Yeah. Thank you.
Thank you. The next question comes from the line of Sanjay Ladha with Bastion Research. Go ahead.
Hi, sir. Thank you for the opportunity. Sir, my first question is on, in the last quarter, you said that INR 77 crore revenue would be shifted to Q1 FY 2027. The Gear Division, which we see the growth is largely because of last quarter deferment of revenue, or is there something else attached to that?
This quarter, we had the revenue carryover of the last quarter, as you rightly said. At the same time, what happened is that during the quarter, since we had delayed receipt of the orders and also clearances from the customers, this quarter also, we have FGs, which were like INR 70 crore, which we could not convert into the sales. Let me tell you, these all FGs were dispatched before 30th June, because of the India AS compliance that we have to do in terms of the cutoff for the sales, we could not do the revenue recognition because the timeline for those goods to reach to the customers and conversion of title from us to the customer, that criteria, we could not meet it.
Again, as I said, it is just because the delayed clearance from the customer and delayed receipt of the order, which typically happen in the later part of the quarter.
Sure. Sir, my another question would be, in the last quarter as well, and the last year as well, you said that this Naval Gearbox project has an impact of 1% or 2% due to learning and manufacturing cost. Are these costs now largely behind us going forward? How do we see Gear Division margin? Because as MHE Division margin, you rightly said that it is roughly around 22%-24% you are expecting. Is there any ballpark number or range expectation for Gear Division margin? Is there any? Yeah, please.
Let me break your questions into multiple parts. The first part is about the cost that we had, where there was an impact on the margin for 1% or 2% when we were executing one of the naval orders. I think that order was way back, and that order has already been executed. The reference to that cost came because we were discussing on the anticipated large orders, and there was a question on whether we will have good margins on those orders, or we will have a margin similar to what we had in the executed order. We responded that the first of the kind order that we had, we had a lot of learnings, a lot of engineering back and forth, and so we had a lower margin compared to what we were targeting.
If we receive the similar orders, we will have a edge because we already have our own curve of learnings. We already have the detail engineering done for the similar products that we have supplied. This is one. In terms of the margin guidelines for the Gear, we expect Gear EBITDA to be in the range of about 24%. This is how we would like to maintain.
Okay. Sir, my last question would be, in the last year, we said that Q3 onwards, you are expecting some order from naval or defense probably, if I am not wrong. The INR 1,000 crore order book, which you guys mentioned in the last year, is that timeline attached to that, or are we seeing some difficulty going forward?
In our guidance in our call for the Q4 last year, we stated that the inquiry of these orders are likely to be released in Q4 of this year. As on today, we maintain the same communication.
Okay, sir. Thank you. Thank you so much for answering.
Yeah.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Thank you all for your participation and continued support. As we discussed, the Gear Division delivered a strong start to the year, driven by healthy demand and execution. While the MHE division continues to be supported by a strong order pipeline despite a relatively softer quarter. This is supported by a robust order book, strong balance sheet, and continued focus on operational excellence. Based on this, we remain well-positioned to pursue sustainable growth and create long-term value for our stakeholders. We appreciate each of you for your continued support and continued interest in Elecon Engineering and look forward to speaking with you again next quarter. Thank you, and have a good evening.
Thank you. On behalf of Emkay Global Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.