For 2QFY2016, Elecon Engineering Company (Elecon) reported standalone numbers broadly below our estimates, except at the operating level. The top-line for the quarter declined by 5.5% yoy to `111cr. However, the operating performance improved significantly, led by a 1,516bp yoy decline in raw material cost to 43.9% of sales. Although, this benefit was partially offset by a 394bp yoy and 236bp yoy increase in employee and other expenses to 12.4% and 18.9% of sales, respectively; overall, the EBITDA margin expanded by 859bp yoy to 24.9%. Led by the favorable operating performance, the standalone net profit increased by 158.9% yoy to Rs7cr. Recovery in capex taking longer than expected, long term prospects intact: The Material Handling Equipment (MHE) business of the company continued to remain under pressure on account of delay in capex in core sectors and due to slower execution at the customer level. On the other hand, the Power Transmission Equipment (PTE) business, which had been holding its ground, has now been facing some pressure (in 1HFY2016). However, the margins have improved considerably, which is a positive sign for the business. Although the recovery in capex in core sectors has been slower than expected, the long term prospects for...