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Industrial Gases: Building scale, driving profitability

Ellenbarrie Industrial Gases (ELLEN), with a legacy of over five decades, is among the oldest industrial gas companies in India. The company manufactures and supplies a broad portfolio of gases, including oxygen, nitrogen, argon, hydrogen, helium and carbon dioxide. These gases are integral to essential systems and applications across industries such as steel, pharmaceuticals, healthcare, engineering, defense, energy, and food & beverages, supporting recurring demand and fostering long-term customer relationships.

* The company’s business model is underpinned by strong customer retention and high entry barriers, arising from the core nature of industrial gases and the structural rigidity of long-term pipeline contracts that limit supplier substitution.

* Geographical expansion continues to be a core priority of ELLEN, as it is progressing toward a pan-India footprint by increasing its presence in the northern and western parts of India while strengthening its manufacturing capabilities in the eastern and southern regions.

* India’s industrial gas demand is projected to reach ~USD1.75b by CY28 from USD1.3b in CY24 at a CAGR of 7.5%, providing a favorable backdrop for ELLEN’s expansion strategy. The company has scaled its capacity 4.5x over FY23-25 to 3,870 tons per day (tpd), led by 18x growth in onsite capacity from 176tpd in FY23 to 3,172tpd in FY25. ELLEN aims to increase its capacity to 4,630tpd by FY27.

* Steel/Pharmaceutical & Chemicals sectors are key growth drivers of the company, with sales contributions of ~37%/26% in FY25. ELLEN’s sectorally diversified model drives stable and scalable growth, with onsite steel plants ensuring steady offtake and strategically located ASUs catering to rising pharma and chemical demand. ELLEN also sees future opportunities in electronics through high-purity gases. These factors, along with capacity expansion in key clusters, position the company for stable growth and margin expansion.

* EBITDA posted an 81% CAGR over FY23-25, and margins improved from 16.4% in FY23 to 22.8% in FY24 and further to 35.1% in FY25. We expect ELLEN to maintain a strong EBITDA growth trajectory at 39%/42%/43% in FY26/FY27/FY28, driven by higher contributions from argon, green energy initiatives, capacity ramp-up (which leads to operating leverage), and lower power consumption in new plants.

* We expect a CAGR of 39%/49%/52% in revenue/EBITDA/PAT over FY25-28. ELLEN is currently trading at 49.8x/30.6x/25x FY26E/FY27E/FY28E PE. We initiate coverage on ELLEN with a BUY rating and a TP of INR680, based on ~40x FY27E EPS.

* Key downside risks: a) dependent on key customer relationships, b) prolonged disruption in facilities, c) slower demand in key sectors like steel.

Leading Indian-owned industrial gas player

* ELLEN is one of the oldest companies operating in industrial gases in India, with a rich legacy of over 50 years. It manufactures and supplies industrial gases, including oxygen, nitrogen, argon, hydrogen, and other gases like carbon dioxide, acetylene, nitrous oxide, and helium

* These products serve a wide spectrum of industries such as steel, pharmaceuticals, healthcare, engineering, defense, energy, and food & beverages, ensuring recurring demand and long-standing customer relationships.

* In addition to manufacturing and supplying gases, ELLEN leverages its deep technical expertise to deliver turnkey project engineering services for air separation units (ASUs) and medical gas pipeline systems. It also supplies essential medical equipment like ventilators, anesthesia workstations, and sterilizers.

* The company is one of the important manufacturers of industrial gases in East India and South India, and the market leader in West Bengal, Andhra Pradesh and Telangana in terms of installed manufacturing capacity as of Mar’25. ELLEN is well positioned to sustain its well established market presence.

Long-term customer relationship and geographic expansion strategy

* The company’s business model is anchored to high entry barriers and strong customer stickiness, driven by the core nature of industrial gas supply and the prevalence of long-term pipeline contracts that make switching suppliers operationally complex.

* Customers, including marquee names such as Tata Steel, NMDC, Dr. Reddy’s, Laurus Labs, Nueland and Hindustan Shipyard, exercise significant caution in supplier selection, with strong evaluation processes.

* Geographical expansion remains a strategic priority. The company is actively working toward establishing a pan-India footprint, with new facilities planned in northern and western India, while strengthening manufacturing capabilities in eastern India and southern India.

Capacity augmentation and diversified growth strategy

* India’s industrial gas market, valued at USD1.3b in CY24 is primarily driven by oxygen, followed by nitrogen and argon. Within this market, ELLEN has established itself as a leading player with the largest installed capacities in West Bengal, Andhra Pradesh, and Telangana, supported by a network of nine strategically located facilities near high-demand clusters.

* The company has expanded its capacity by 4.5x over FY23-25 to 3,870tpd (led by 18x growth in onsite capacity from 176tpd in FY23 to 3172tpd in FY25) and is targeting 4,630tpd by FY27. Ongoing projects in East and North India are expected to further strengthen its geographic reach, with a planned capex of INR4.1b earmarked to capture growth opportunities across new regions and industries.

* Inorganic growth remains an important lever as demonstrated in the recent acquisition of TrueAir Industrial Gases for INR54m. TruAir operates a cylinder filling station for industrial gases, marketing, and trading. This acquisition will facilitate the company’s entry into the Bengaluru market, strengthening its regional presence and expanding its customer base.

* ELLEN expects argon’s revenue contribution to rise to ~15% when the full operational capacity is commissioned (from ~8%/~9% in FY25/1QFY26), led by the development of higher capacity plants (above 150tpd). This will enable ELLEN to boost the production of argon gas, which has higher margins.

Well poised to capitalize on industry tailwinds

* ELLEN is poised to capture multi-sector growth in India’s expanding industrial gas market, underpinned by high entry barriers, sticky customer relationships, and strategically located production assets.

* The global industrial gas market, valued at USD105.6b in CY24, is set to clock a 5.5% CAGR to USD131.1b by 2028. Meanwhile, India’s market currently stands at USD1.31b and is projected to reach USD1.75b by CY28, growing faster at a 7.5% CAGR, driven by rapid industrialization, government initiatives, and rising demand in the steel, pharmaceuticals, chemicals, healthcare, and electronics sectors.

* Steel/pharmaceutical & chemicals are key growth drivers of the company, contributing ~37%/26% of revenue from sales of gases, related products and services in FY25. Healthcare also plays a pivotal role with ~9% revenue contribution in FY25.

* ELLEN’s onsite plants in the steel sector embedded at customer sites ensure stable offtake, operational efficiencies, and strong margins.

* In pharma and chemicals, the company leverages strategically positioned ASUs, including its Vizag plant inside a pharma park, to serve high-growth demand for oxygen and nitrogen from expanding domestic and export-oriented production.

* Electronics segment represents a high-potential emerging vertical, and ELLEN plans to capture demand for high-purity gases when the ecosystem is built up.

* This sectorally diversified growth pipeline, combined with capacity expansion in key demand clusters, positions ELLEN better to deliver scalable growth in the medium term, along with margin expansion.

Valuation and view – initiate with BUY

* ELLEN operates through a diversified portfolio of gases, supported by long-term contracts that ensure stable demand and customer retention. Its balanced business model across bulk, packaged, and onsite supplies contributed 67%, 18%, and 15% of revenue in FY25, respectively.

* Over FY23-25, ELLEN has expanded its capacity by 4.5x to 3,870tpd (led by 18x growth in onsite capacity from 176tpd in FY23 to 3172tpd in FY25). It aims to expand the capacity to 4,630tpd by FY27, with new plants in East and North India. Strong execution capabilities, an in-house project engineering team, and a multi-vendor procurement strategy are further strengthening its execution capabilities.

* Looking ahead, ELLEN aims to improve margins through higher contributions from argon, green energy initiatives, capacity ramp-up leading to operating leverages, and lower power consumption in the new plants.

* The Indian industrial gas market is projected to grow to USD1.75b by CY28 at a 7.5% CAGR, which provides a favorable backdrop. Financially, ELLEN delivered a CAGR of 23% in revenue, 81% in EBITDA, and 71% in PAT over FY23-25.

* We estimate ELLEN to deliver a CAGR of ~39%/49%/52% in revenue/EBITDA/PAT over FY25-28, driven by capacity additions, a better product mix, and market share gains. The company is currently trading at49.8x/30.6x/25x FY26E/FY27E/FY28E PE, with RoE/RoCE of ~20.7%/19.6% in FY27E and ~20.6%/20.1% in FY28E. We initiate coverage with a BUY rating and a TP of INR680, based on ~40x FY27E EPS (51% discount to Linde).

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