Elgi Equipments volume-led growth and aftermarket support margin expansion outlook

Investment View and Company Overview

ICICI Securities Retail Research, in its August 16, 2026 result update on Elgi Equipments, retains a BUY recommendation based on healthy volume-led growth, expected margin expansion and longer-term opportunities from product innovation and aftermarket penetration.

Elgi manufactures air compressors, which account for about 91 per cent of revenue, and automotive equipment, contributing about 9 per cent. The company is the second-largest participant in the Indian air-compressor market with about 22 per cent share and is among the top eight globally. Rest-of-world markets contributed about 48 per cent of FY25 revenue.

The broker’s target price is Rs 740, based on 40 times FY28E EPS, compared with a CMP of Rs 610.

Q1 FY27 Financial Performance

Elgi Equipments reported consolidated Q1 FY27 revenue of Rs 1,062 crore, up 22.6 per cent year-on-year, supported by India and the Americas, while Europe and Australia were subdued. EBITDA rose about 28 per cent year-on-year to Rs 155 crore, and EBITDA margin expanded 64 basis points year-on-year to 14.6 per cent despite gross-margin pressure. PAT increased 20.7 per cent year-on-year to Rs 98 crore.

Gross margin declined 196 basis points year-on-year to 50.2 per cent as material costs increased to 49.8 per cent of revenue from 47.8 per cent.

Segment and Geographic Performance

Management said India standalone revenue rose 28 per cent year-on-year, led by industrial, portable, aftermarket and vacuum businesses, with strong traction in the EV, renewable-energy and semiconductor ecosystems. North America grew 37 per cent, Europe 21 per cent and Australia about 17 per cent.

Management expects North America momentum to continue. Australia is expected to recover by Q3 or Q4 FY27 after service and distribution challenges, while Europe is focused on sustainable profitability and expansion into Germany and Eastern Europe.

Volume Growth, Aftermarket and Margin Outlook

Management characterised growth as primarily volume-led and said enquiries remain strong, although order finalisation periods are longer than normal. Aftermarket contributes around 28 to 30 per cent of India revenue and around 17 to 20 per cent globally, including parts and service, making it an important profitability driver.

Raw-material costs increased 5 to 6 per cent versus the initially anticipated 3 to 4 per cent. Higher material costs, tariffs and product mix affected Q1 contribution. Management expects margin improvement from price corrections, cost reduction, re-engineering, insourcing and fixed-cost rationalisation.

Benefits from pricing actions are expected towards the end of Q2 FY27 and more fully in Q3 FY27. Management targets an 18 per cent EBITDA margin by FY31, assuming stable tariffs.

Product Innovation and Growth Opportunities

Demand Match, launched in September 2025, has gained strong acceptance in India and is being rolled out globally in FY27. Elgi has validated its Tier-4 low-cost compressor range, received first orders and plans a formal September 2026 launch.

Management expects marginal FY27 revenue from this range but views it as a meaningful growth opportunity over the following years.

Estimates, Valuation and Key Risks

ICICI Securities forecasts revenue CAGR of 12.5 per cent and PAT CAGR of 17 per cent over FY26 to FY28E. Its FY28E estimates are revenue of Rs 5,000 crore, EBITDA of Rs 785 crore and PAT of Rs 588 crore.

The Rs 740 target price is based on 40 times FY28E EPS. Key risks identified by the broker are a demand slowdown and delayed breakeven or growth in international geographies.