Accumulate Elgi Equipments Ltd For Target Rs. 559 - Prabhudas Liladhar Capital Ltd
Healthy Q4; global business is key monitorable
Quick Pointers:
* During the quarter, the compressor sales mix was 52% from India and 48% from the RoW.
* Management has guided for 10% YoY revenue growth with an EBITDA margin of ~16%.
Elgi Equipments (ELEQ) reported a healthy quarter, with revenue growing 14.7% YoY and EBITDA margin improving by 64bps to 15.1%. During the quarter, the domestic order inquiries remained strong though the order finalizations were delayed. ELGI’s newly launched ‘Stabilisor’ is on track for a full market rollout by Q3FY26. High margin Aftermarket sales remain a key focus amid the growing installation base aiding margin expansion. Internationally, the tariff uncertainty still looms over the USA business while weakness in Europe persists. Meanwhile, the Australian business appears to have been bottomed out and shows signs of gradual recovery. The management have guided for a ~10% YoY growth with margins of ~16% in FY26. We roll forward to Mar’27E and downgrade our rating from ‘Buy’ to ‘Accumulate’ given the recent rally in the stock. We value the company at a PE of 37x Mar’27E (37x Sep’26E earlier) with a revised TP of Rs559 (Rs517 earlier). Downgrade to ‘Accumulate’.
Long-Term View: We believe ELEQ is poised for healthy long-term growth on the back of 1) it being among top 2/10 players in the Indian/global air compressors market, 2) technology development along with strong backward integration, 3) its growing global installed base driving high-margin aftermarket sales, 4) new product launches and 5) market leadership in automotive garage equipment. The stock is currently trading at a PE of 38.6x/33.1x on FY26/27E.
Improved operating leverage drive EBITDA margin: Consolidated Revenue increased by 14.7% YoY to Rs9.9bn (Ple: Rs9.5bn) driven by 12.8% YoY growth in Air Compressors sales to Rs9.0bn and 36.6% YoY growth in Automotive equipment sales to Rs938mn. EBITDA grew by 19.7% YoY to Rs1.5bn (Ple: Rs1.4bn). EBITDA margin also expanded by 64bps YoY to 15.1% (Ple:14.5%) primarily due to lower employee cost to Rs1.7bn (-227bps YoY as % of sales). PBT increased by 26.1% YoY to Rs1.4bn (Ple: Rs1.3bn). Adj. PAT increased by 33.4% YoY to Rs1.0bn (Ple: Rs860mn) supported by lower effective tax rate (down by 310bps to 27.5%) and higher other income (+14.4% to Rs167mn).
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