Buy Ellenbarrie Industrial Gases Ltd for the Target Rs 380 by Motilal Oswal Financial Services Ltd
Capacity ramp-up to unlock growth and operating leverage
* Ellenbarrie Industrial Gases (ELLEN) delivered a strong performance in 1QFY27, with EBITDA growing 23% YoY to INR376m and EBITDA margins expanding to 38.1% from 36.7% in 1QFY26, driven primarily by improved operating efficiencies at the new plant, disciplined cost-control measures, and a modest benefit from higher Argon prices.
* We expect growth momentum to accelerate, driven by the ramp-up of the Uluberia-II (220 TPD) facility, the commissioning of the East India on-site plant (320 TPD) in 2QFY27, and the upcoming North and Central India merchant plants, expected to be operational in FY27 and FY28, respectively.
* Backed by a strong 1QFY27 and EBITDA margin guidance, we raise our FY27/ FY28 earnings estimates by 10%/7%. We reiterate our BUY rating with a TP of INR380 (based on 30x FY28E EPS)
Healthy volume growth and cost-control measures support earnings
* ELLEN reported a total revenue of INR987m (in line) in 1QFY27, up ~18% YoY.
* Its EBITDA margin was 38.1% (est. 35%) vs. 36.7% in 4QFY26, supported by higher volumes, disciplined cost control, and a modest rise in Argon prices.
* EBITDA grew 23% YoY to INR376m (est. INR333m) for the quarter.
* Adj. PAT grew 87% YoY to INR350m (est. INR227m), led by higher other income (up 2.5x YoY).
* Gases and related products & services revenue grew 20% YoY to IN947m, EBIT grew 21% YoY to INR367m, and EBIT margin was 38% (flat YoY).
* Project engineering revenue declined 50% YoY to INR14m. EBIT stood at INR3m, up 1% YoY. EBIT margin stood at 22% (vs. 11% in 1QFY26).
Valuation and view
* Going forward, we expect margins to improve, supported by power-cost optimization through Power Purchase Agreements (PPAs), higher Argon realizations, ramp-up of newly commissioned capacities, and improved energy efficiency at newer plants.
* Further, ELLEN’s growth story will be led by
1) capacity expansion across India
2) normalization of Argon prices along with stable prices of oxygen and nitrogen
3) increasing traction in inquiries for onsite plants
4) stable demand from welldiversified core industries
5) India’s manufacturing expansion and accelerating industrial activity.
* Backed by a strong 1QFY27 and EBITDA margin guidance, we raise our FY27/ FY28 earnings estimates by 10%/7%. We reiterate our BUY rating with a TP of INR380 (based on 30x FY28E EPS).
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