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Beat on all fronts!

About the stock: Elgi Equipments (Elgi) manufactures a wide range of air compressors (~92% of revenue) and automotive equipment (~8%).

* Elgi is the second largest player in the Indian air compressor market (~22% market share) and among the top eight players globally

* Expansion in new international markets to drive long term incremental growth (rest of the world contributed ~50% in FY22)

Q4FY22 Results: Elgi reported strong Q4FY22 results higher than our estimates

Consolidated revenues came in at | 727.6 crore, up 19.2% YoY

* EBITDA margins came in at 14.6% in Q4FY22 (above our estimates of 11.1%) despite higher commodity prices and operating costs

* Consequently, PAT was at | 73.1 crore, up 68.5% YoY

What should investors do? Elgi’s share price has grown by ~4.5x over the past six years (from ~| 65 in March 2016 to ~| 370 levels in February 2022).

* We remain long term positive on the stock and change our rating from HOLD to BUY

Target Price and Valuation: We value Elgi at | 390 i.e. 45x P/E on FY24E EPS

Key triggers for future price performance:

* Going forward, accelerated growth in international markets, new products like disrupted AB series compressors, good traction in India business to drive long term incremental growth

* We expect revenue, EBITDA to grow at CAGR of 20.5%, 27.2%, respectively, in FY22-24E owing to various cost control initiatives improving margins  Net debt free b/s, double-digit return ratios & strong cash generation

Alternate Stock Idea: We also like ABB in our coverage

* It expects operating margins to improve with increase in capacity utilisation, change in revenue mix, cost optimisation programmes and localisation

* BUY with target price of | 2625

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