Ellenbarrie Industrial Gases capacity ramp-up supports growth and operating leverage

Investment View and Valuation

Motilal Oswal Financial Services retained its Buy rating on Ellenbarrie Industrial Gases in its August 10, 2026 1QFY27 result update and raised its FY27E and FY28E earnings estimates following a strong quarter and management’s EBITDA margin guidance.

The investment thesis centres on capacity ramp-up, operating leverage, power-cost optimisation and improving Argon realisations. The target price of Rs 380 is based on 30 times FY28E EPS, implying 29 per cent upside from the report’s CMP of Rs 296.

Strong 1QFY27 Financial Performance

Ellenbarrie Industrial Gases reported 1QFY27 total revenue of Rs 987 million, up about 18 per cent year on year and broadly in line with Motilal Oswal’s expectations. EBITDA increased 23 per cent year on year to Rs 376 million, ahead of the broker’s estimate of Rs 333 million.

EBITDA margin expanded to 38.1 per cent from 36.7 per cent in 1QFY26 and exceeded the estimated 35 per cent. The improvement was supported by higher volumes, disciplined cost control, improved operating efficiency at the new plant and a modest increase in Argon prices.

Adjusted PAT rose 87 per cent year on year to Rs 350 million, above the broker’s estimate of Rs 227 million, aided by other income rising 2.5 times year on year.

Segment Performance

The gases and related products and services segment generated revenue of Rs 947 million, up 20 per cent year on year. Segment EBIT increased 21 per cent to Rs 367 million, while the EBIT margin was 38 per cent, flat year on year.

Project engineering revenue declined 50 per cent year on year to Rs 14 million. Project engineering EBIT was Rs 3 million, up 1 per cent year on year, while its margin improved to 22 per cent from 11 per cent in 1QFY26.

Steel accounted for 35 per cent of revenue by industry in 1QFY27, followed by pharmaceuticals and chemicals at 20 per cent. The dealer and retail network contributed 13 per cent.

Capacity Ramp-Up and Growth Drivers

Management said the 320 TPD East India on-site plant was under commissioning and should begin contributing in 2QFY27. The Kurnool and Uluberia-II merchant plants, including Uluberia-II’s 220 TPD capacity, are expected to be important FY27 growth drivers as utilisation improves.

Planned North and Central/West India merchant plants are expected to add 440-500 TPD. The North India plant is expected in FY27, while the Central India plant is expected in FY28.

Management cited healthy manufacturing-led demand and a pipeline of large-volume inquiries, particularly from steel. It expects EBITDA margin to sustain at 40 per cent or higher as operating efficiencies improve.

Argon Pricing and Margin Outlook

Management described Argon pricing as constructive, with a recovery since 2HFY26 and a modest sequential increase due to healthy end-user demand. It acknowledged possible near-term price volatility and is exploring long-term contracts to reduce this exposure.

Motilal Oswal expects margin improvement from power purchase agreements that optimise power costs, higher Argon realisations, new-capacity ramp-up and better energy efficiency at newer plants.

Earnings Estimate Revisions

The broker cut FY27E and FY28E revenue estimates by 2 per cent to Rs 4,550 million and Rs 6,041 million, respectively. However, it raised EBITDA estimates by 7 per cent and 8 per cent, PAT estimates by 10 per cent and 7 per cent, and EPS estimates by 10 per cent and 7 per cent for the two respective years.