Europe Turnaround and North America momentum to drive growth …
About the stock: Elgi Equipment (Elgi) manufactures a wide range of air compressors (~91% of revenue) and automotive equipment (~9%).
• Elgi is the second largest player in the Indian air compressor market (~22% market share) and among the top eight players globally
• Expansion in new international markets to drive long term incremental growth (rest of the world contributed ~49% in Q4FY26) Q4FY26 performance: ELGi Equipment’s reported a healthy Q4FY26 performance with consolidated revenue growing 12.1% YoY to ₹1,113 crore, driven by steady demand across key business segments. Operating EBITDA increased 14.4% YoY to ₹173 crore, while operating EBITDA margin expanded ~30 bps YoY to 15.5% supported by better operating leverage and improved product mix. PAT rose strongly by 25.5% YoY to ₹128 crore compared to ₹102 crore in Q4FY25, reflecting improved profitability and efficient cost management.
Investment Rationale:
• Improving Global Profitability with Multiple Growth Drivers: ELGi is entering FY27 with strong momentum across its key markets. India continues to see healthy industrial demand, while North America is benefiting from manufacturing reshoring and successful organizational restructuring. At the same time, Europe has completed its cost rationalization program and management expects the region to move from losses in FY26 to breakeven or marginal profitability in FY27. ELGi has already implemented 2.5–3% price increases and remains willing to take additional hikes. management believes competitive intensity will remain manageable, supporting margin protection despite cost pressures. With FY26 revenue growing 12% YoY further margin improvement from Europe and operating leverage from North America could drive earnings growth ahead of revenue growth.
• Strong Balance Sheet Supporting Long-Term Market Share Gains: ELGi continues to generate approximately 100% EBITDA-to-cash conversion and maintains a strong net cash position, providing significant financial flexibility. The company is investing in differentiated technologies such as Demand Match compressors, next-generation in-house motors and a new low-cost compressor platform scheduled for launch in September 2026 to counter Chinese competition. Combined with ongoing digital transformation, inventory optimization and a ₹200 crore growth-oriented capex plan, ELGi is strengthening its competitive position while preserving balance sheet strength, creating a foundation for sustainable market share expansion globally.
Rating and Target Price
• We expect Revenue and PAT to grow at 12.5% and 18.8% CAGR over FY26-FY28E and maintain Buy on Elgi with a Target Price of ₹765 (based on 40x P/E on FY28E EPS)
