Hold Elgi Equipments; target of Rs 160: ICICI Direct

ICICI Direct's research report on Elgi Equipments

Elgi Equipments (Elgi) continued to report a subdued Q4FY20 performance with consolidated revenue decline of 13.9%, YoY to Rs 454.7 crore. On a segmental basis, the domestic compressor business (domestic + direct exports) de-grew 26.2% YoY to Rs 249.3 crore amid the economic slowdown, while international business grew 20.8% to Rs 168 crore YoY while automotive (ATS) segment de-grew 26.6% YoY to Rs 37.5 crore. Overall, consolidated EBITDA fell 56% to Rs 27 crore YoY. EBITDA margins fell 570 bps YoY to 5.9% in Q4FY20 primarily due to 12.4% increase in employee expenses likely due to upfront set-up costs incurred in setting up base in international business. Accordingly, PAT was at Rs 1.1 crore, down 97% YoY. Profitability margins were impacted further by an increase in depreciation cost by 17.5% YoY, increase in interest cost and higher effective tax rate. Elgi faced a revenue loss of ~Rs 75 crore in Q4FY20 amid shutdowns.

Outlook

Going ahead, traction in international market, new products like oil free compressors (AB series) would aid growth while India continues to face challenges across verticals. However, its strategy on cost reduction, focus on cash business would help deal with stretched working capital, debt position and cash liquidity aid challenges. On the whole, we expect revenue, EBITDA growth of 0.5%, 18.1% CAGR, respectively, over FY20-22E. We revise our TP to Rs 160 (26x FY22 EPS of Rs 6.2) and maintain HOLD rating.

Elgi Equipments 01072020