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Strong all-round performance…

Elgi Equipments (Elgi) reported a strong Q3FY21 with consolidated revenue up 18.1% YoY to | 547.1 crore vs. I-direct estimate of | 505.4 crore. Standalone revenue (domestic & direct exports compressor) grew 14.2% YoY to | 323.0 crore (~59% of consolidated topline) while the international compressor business registered robust growth of 26.3% YoY (contributing ~32% of consolidated topline). Automotive segment revenue fell 23.8% YoY (~9% of topline). EBITDA margins improved significantly by 420 bps YoY to 11.2% in Q3FY21 (vs. our estimate of 13.5%) primarily due to better revenue booking and reduction in operating expenses as business operations and demand sustained in key geographies. Hence, absolute EBITDA grew 32.3% to | 61.5 crore YoY (vs. our estimates of | 68.2 crore). PAT came in at | 34.6 crore, up 169%, YoY partly aided by lower effective tax rate. However, other income fell 12.1% to | 6.7 crore YoY.

India business seeing decent traction amid economic recovery

Elgi’s standalone air compressor (domestic & direct exports compressor) grew 14.2% YoY to | 323.0 crore (~59% of consolidated topline). Pure domestic air compressor sales came in better than expected with growth of ~20% YoY | 264 crore. Elgi is on track in its strategy to optimise employee cost and primarily in India business. Elgi has seen activities across all major industries and expects further revival in capacity building with smaller incremental investments by industries. Its disrupted AB series oil free compressor is gaining good traction in India and abroad. After-market (~20- 25% to India topline), continues to see strong traction across geographies. Debt has reduced by | 40 crore to | 109 crore in Q3FY21 QoQ. While working capital remains stable, cash position remains strong.

Strong international performance; to drive incremental growth

In Q3FY21, air compressor international sales (including exports from India) contributed ~47% to air compressor sales in Q3FY21 topline with ~16.2% growth to | 235 crore YoY. It performed well in key international markets led by Australia, US, Europe while South East Asia and Gulf reported moderate performances. Margins are expected to improve due to ramp-up in international business, optimise operating cost to lead incremental revenue, future growth and positive operating leverage. Also, Elgi is expected to continue its strategic investment initiatives in Europe from FY22E.

Valuation & Outlook

Going ahead, further traction in international market, new products like oil free compressors (AB series) would aid growth while green shoots of revival visible in India business 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 12.3%, 34.9%, respectively, in FY20-23E backed by international growth and positive operating leverage. We revise our target price to | 210 (earlier | 190), 35x FY23 EPS of | 6.0 and maintain BUY rating.

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