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Strong all-round performance continues…

Elgi Equipments (Elgi) reported a strong Q4FY21 with consolidated revenue up 34.3% YoY to | 610.6 crore vs. I-direct estimate of | 548.8 crore. Standalone revenue (domestic & direct exports compressor) grew by a robust 57.5% YoY to | 392.0 crore (~64% of consolidated topline) amid low base led by better demand in domestic market and robust exports while the international compressor business came in almost flat at | 167.5 crore, YoY (contributing ~27% of consolidated topline), the automotive segment revenue rebounded with | 34.4% growth to | 50.5 crore, YoY (~9% of revenue). EBITDA margins improved significantly by 180 bps QoQ to 13% in Q4FY21 (vs. our estimate of 11.4%) primarily due to better revenue booking and controlled operating expenses and demand sustained in key geographies. Consequently, absolute EBITDA trebled to | 79.2 crore YoY (vs. our estimate of | 62.8 crore). PAT came in at | 43.4 crore, up 25.3% QoQ partly aided by higher other income.

India business seeing decent traction amid economic recovery

Elgi’s standalone air compressor (domestic & direct exports compressor) grew 57.5% YoY to | 392.0 crore (~64% of consolidated topline). Pure domestic air compressor sales are estimated to have grown at more than 36% YoY (contributing ~55% to overall air compressor sale). Elgi is on track in its strategy to optimise employee cost and primarily in India business. Its disrupted AB series oil free compressor is gaining good traction in India and abroad as economies gather pace worldwide. After-market (~20-25% to India topline), continues to see strong traction across geographies. For FY21, consolidated debt has reduced by | 20 crore to | 370 crore YoY. While working capital remains stable, cash position remains strong.

Strong international performance; to drive incremental growth

In Q4FY21, air compressor international sales (including exports from India) is estimated to have contributed ~45% to air compressor sales in Q4FY21. It continues to perform well in key international markets led by Australia, US, Europe while South East Asia and Gulf are expected to rebound gradually. Margins are expected to further improve due to ramp-up in international business, optimisation of operating cost leading to incremental revenue, future growth and positive operating leverage. Also, Elgi is expected to resume its strategic investment initiatives in Europe from FY22E onwards.

Valuation & Outlook

Going ahead, further traction in international market, new products like oil free compressors (AB series) would aid growth while India business has started seeing good traction and would further aid topline. Also, its strategy on cost reduction and focus on operating cash business would help deal with working capital, debt reduction and liquidity situation. We expect revenue, EBITDA CAGR of 14%, 38.4%, respectively, in FY20-23E backed by international growth and positive operating leverage. We revise our target price to | 260 (earlier | 210), 40x FY23 EPS of | 6.5 and maintain BUY rating.

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