Premium Machinery Compounder vs. Battered Turnaround
Everyone has an opinion on the India capex story. The roads, the metros, the dams, the new factories. But the loudest names in that trade are usually the large engineering firms you already know. However, that is not where the SMILE investor Vijay Kedia has been shopping.
Kedia built his reputation on a simple idea he calls SMILE, which stands for small in size, medium in experience, large in aspiration and extra-large in market potential. His portfolio currently shows that idea pointed firmly at hard infrastructure. Alongside names like Om Infra and a fresh entry in SPML Infra, two holdings stand out because they sit a layer or two below the headline projects. One makes the gears that turn inside heavy plants. The other digs the tunnels and pours the dams.
What makes the pair interesting is that they are nothing alike on the inside. One is a polished, high return compounder that the market already loves and prices richly. The other is a bruised, leveraged turnaround that the market still doubts, trading below the value of its own books. Same cycle, two very different ways to play it. Let us dive in to find more about them.
#1 Elecon Engineering: Driving the Heavy Machinery Value Chain
Incorporated in 1960, Elecon Engineering is one of Asia’s largest makers of industrial gears and material handling equipment. If a steel mill, cement kiln, sugar plant or power station has something heavy that needs to turn, there is a good chance an Elecon gearbox is turning it.
With a market cap of Rs 12,496 cr, the company’s client list includes Adani, Tata Steel, NTPC, BHEL and the Dalmia Bharat group. The second leg of the business builds the conveyors, stackers and port equipment that move bulk material around.
Kedia has been holding a stake in the company since the quarter ending June 2021 and as per the exchange filings for the quarter ending March 2026, he now holds 1% of Elecon, or 22.5 lakh shares. At the current price, that stake is worth close to Rs 125 cr. He has trimmed it from about 1.3% two years ago, but it remains a clear position in his book.
Moat Verification: Why the Gearbox Entry Barrier is Real
Industrial gears are not a commodity you buy off a shelf. A heavy-duty gearbox for a mill or a port has to be custom engineered, built to fine tolerances, and trusted to run for years without failing. Once a plant qualifies a supplier and designs the machine around that gearbox, switching to a rival is slow, costly and risky. That stickiness is the moat. It is why Elecon has held a strong share of India’s organised gear market for years, and why its margins have widened rather than shrunk as it has grown.
The financials reflect this moat in a clear way.
| Financial Year | FY21 | FY22 | FY23 | FY24 | FY25 | FY26 | 5-Yr CAGR |
| Sales (Rs cr) | 1,044 | 1,212 | 1,530 | 1,937 | 2,227 | 2,366 | 18% |
| EBITDA (Rs cr) | 186 | 252 | 341 | 475 | 548 | 523 | 23% |
| Net Profit (Rs cr) | 58 | 140 | 238 | 356 | 415 | 341 | 43% |
Over the five years to FY26, sales have grown at about 18% a year, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) at about 23% a year, and net profit at about 43% a year off a low FY21 base.
But notice the last row. Net profit actually fell in FY26, from Rs 415 cr to Rs 341 cr. The reason sits in the March 2026 quarter, where a sharp negative swing in other income and an unusually high tax charge pulled quarterly profit down to almost nothing. Strip that one quarter out and the underlying business kept doing what it has done all decade. It is worth knowing about, but it looks like a one-off rather than a turn in the trend.
The company’s balance sheet is in good shape. It is almost debt free a couple of years ago and has only let borrowings creep up to about Rs 273 cr as it funds new capacity and overseas expansion, including a freshly set up subsidiary in Mexico.
Capital Performance & Valuation Metrics: Assessing Elecon’s Market Premium
The share price of Elecon was about Rs 70 in June 2021 and as of closing on 16th June 2026 it was Rs 556, which is an absolute jump of almost 690% in 5 years. Per Screener, the stock has compounded at about 54% a year over five years. Rs 1 lakh invested five years ago would be worth roughly Rs 8.5 lakh today.
The stock now sits near the upper half of its 52-week range of about Rs 352 to Rs 683, having recovered strongly from its lows. The attraction is a high quality, high return franchise. The catch is that you are buying it when very little is on sale.
Regarding valuation, Elecon trades at a PE of 35x which is slightly below industry median of 37x. The 10-year median PE for the company is 23x while the industry median for the same period is 40x. In other words, you are paying a small premium to its own recent history for a business the market clearly rates highly.
As per the company’s most recent investor presentation from April 2026, at the end of March 2026 its open orders stood at Rs 1,292 cr, which is a 36% YoY increase.
#2 Patel Engineering: Deep-Value Tunnelling with Complex Financial Legacies
Set up in 1949, Patel Engineering is a heavy civil construction firm that specialises in the hard deliverables: hydropower projects, tunnelling, dams and irrigation. Over its long history it has completed more than 85 dams, over 40 hydroelectric projects and more than 300 km of tunnelling, mostly for central and state government clients.
With a market cap of Rs 2,843 cr, the company boasts of a clientele that includes NHPC, CIDCO, NHAI, CVPP, Ircon International Ltd, TANGEDCO, Rail Vikas Nigam Ltd, etc.
Per the March 2026 filings, Vijay Kedia holds about 1.0% of Patel, or just over 1 crore shares, worth close to Rs 29 cr, held through his investment vehicle Kedia Securities. His position here has moved in and out of the disclosed shareholding over the past two years and shows up again in the recent filings, which makes the bet worth a closer look.
Hydro & Tunneling: Assessing Patel’s Core Competency
Plain road building and general construction are crowded, low margin businesses. Tunnelling and hydropower are not. They demand specialised equipment, hard won technical know-how and a track record that takes decades to build. Few firms can credibly bid for a Himalayan hydro tunnel.
That scarcity is Patel’s edge, and it is arriving at a good time. India is pushing hard on hydro and pumped storage projects to firm up its renewable grid. Management has guided that its order book, already near Rs 16,500 cr, could climb towards Rs 20,000 to Rs 25,000 cr by FY27. That gives several years of revenue visibility.
The Turnaround Reality: Margin Trajectory vs. Pledged Assets
Here the story needs honesty rather than a tidy growth rate. Patel has a history of loss years, so a single five year profit CAGR would be misleading. The cleaner way is to look at the actual journey.
| Financial Year | FY21 | FY22 | FY23 | FY24 | FY25 | FY26 | 5-Yr CAGR |
| Sales (Rs cr) | 1,995 | 3,380 | 3,891 | 4,544 | 5,093 | 5,103 | 21% |
| EBITDA (Rs cr) | 244 | 530 | 562 | 690 | 749 | 684 | 23% |
| Net Profit (Rs cr) | -291 | 72 | 183 | 290 | 248 | 269 | Turnaround |
Sales have grown at about 21% a year over five years, and operating profit faster, off a depressed pandemic era base. But the net profit line is the real tell. The company swung from a loss of Rs 291 cr in FY21 to steady profits of roughly Rs 250 cr to Rs 290 cr since. That is a genuine repair job, helped by lower debt.
Borrowings have come down from about Rs 2,296 cr to roughly Rs 1,560 cr, and in June 2026 the rating agency Infomerics upgraded the company’s long-term rating to A.
The company completed a rights issue of Rs. 399 Cr in Dec 2025. The proceeds from the issue will primarily be utilised toward debt repayment of Rs. 254 cr across FY26 and FY27.
Valuation Matrix: Historical Multiples vs. Market Premium
The share price of Patel Engineering was about Rs 17 in June 2021 and as of closing on 16th June 2026 it was Rs 28.
The stock trades at about 0.64 times its book value, per Screener, which is unusual for a profitable, order rich contractor. As for valuations, the stock is trading at a PE of 7x which is lower than the industry median of 18x. The 10-Year median PE is 14x while the industry median for the same period is about 17x.
Risk Mechanics: Promoter Pledges and Off-Balance-Sheet Liabilities
Cheapness usually comes with a reason, and Patel has several. Promoters have pledged about 87% of their holding, which is high and worth watching closely. Their stake has also slipped to about 31.5%, down from 36% a year earlier. The company carries contingent liabilities of around Rs 2,681 cr, and despite reporting profits it pays no dividend. None of this kills the turnaround thesis, but it is the kind of baggage that keeps the valuation low and the risk real. This is a stock for investors who understand exactly what they are buying.
As per the latest investor presentation from March 2026, the company’s order book at the end of March 2026 was about Rs 15,119 cr. That includes the December 2025 MoU the company signed with the Government of Arunachal Pradesh for the restoration and development of critical infrastructure corridors in the region.
Balancing Quality and Discounted Risk the Kedia Way?
Look at the two together and Kedia’s thinking comes into focus. He hasn’t picked the obvious infrastructure headline. He is buying the gear and the ground beneath it. Elecon supplies the high precision machinery that heavy projects cannot run without. Patel does the specialised civil work that few rivals can execute. Both feed off the same national build out, from opposite ends of the value chain.
For a retail investor, the choice is really a choice about temperament. Elecon offers quality, a strong balance sheet and high returns, but at a full price and with the recent profit wobble to digest. Patel offers deep value, a real order book and a credible repair story, but with a pledged promoter, a low promoter stake and a bumpy past.
One asks you to pay up for certainty. The other asks you to stomach risk for a discount. Neither is a recommendation. Both, for very different reasons, are worth adding to a watchlist and following closely.
Disclaimer:
Note: We have relied on data from http://www.Screener.in and http://www.trendlyne.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Suhel Khan has been a passionate follower of the markets for over a decade. During this period, he was an integral part of a leading Equity Research organisation based in Mumbai as the Head of Sales & Marketing. Presently, he is spending most of his time dissecting the investments and strategies of the Super Investors of India.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.