ICICI Direct recommended is bullish on Elgi Equipments has recommended buy rating on the stock with a target price of Rs 350 in its research report dated May 29, 2019.
ICICI Direct's research report on Elgi Equipments
Elgi Equipments (Elgi) reported a robust Q4FY19 performance. Topline, EBITDA, PAT recorded growth of 14.2%, 19.3%, 31.6%, respectively, YoY. On a segmental basis, air compressor grew 16.3% YoY to Rs 476.9 crore while automotive equipment de-grew 2.1% YoY to Rs 51.2 crore. EBITDA margins were at 11.6% due to lower input costs and operational expenses slightly offset by an increase in personnel costs. Overall, the company’s products continue to gain traction across markets. In addition, Elgi is carrying out upfront costs i.e. scaling up manpower count to expand in key geographies like Europe in FY20E, benefits of which are expected to accrue in the medium term.
Going forward, continued traction in international market, steady demand from domestic market and successful launch of new products will drive future growth. Elgi also continues to strengthen its balance sheet through moderating debt, efficient working capital management driven by an able management. Overall, we expect Elgi to deliver revenue, EBITDA, PAT growth of 18.0%, 24.7%, 29.0% CAGR, respectively, in FY19-21E. Accordingly, we ascribe a P/E multiple of 32x on FY21E EPS of Rs 10.8 to arrive at a fair value of Rs 350. We have a BUY rating on the stock.
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