ICICI Direct is bullish on Elgi Equipments has recommended buy rating on the stock with a target price of Rs 310 in its research report dated February 04, 2019.
ICICI Direct's research report on Elgi Equipments
Elgi Equipments (Elgi) reported Q3FY19 numbers that were below our estimates in terms of topline mainly due to comparatively lower growth of 10.4% in standalone entity (i.e. India, direct export & products sold to foreign subsidiaries) compared to robust growth of ~19% YoY in the international market • The overall topline was at Rs 470.2 crore, up 13.2% YoY. We had estimated 17% revenue growth at Rs 486 crore. On a segmental basis, air compressor segment grew 15.5% YoY to Rs 423 crore while automotive equipment de-grew 4.3% YoY to Rs 47.3 crore • Absolute EBITDA was flat at Rs 47.5 crore. EBITDA margins came in at 10.1% vs. 11.4% YoY. EBITDA margins were primarily lower due to higher operational expenses, investments in newer geographies. Gross margins improved ~140 bps YoY. Employee expenses rose 22.0% YoY. We expected EBITDA margins of 10.7% for the quarter • Profit for the quarter de-grew 16.6% YoY at Rs 23.4 crore (vs. I-direct estimate: Rs 31.6 crore) impacted by contraction in profitability margin.
Elgi Equipments has continued to strengthen its domestic & international operations for air compressor. It also dominates automotive equipment segment through ATS Elgi. We believe Elgi is an excellent combination of market leader, robust balance sheet, efficient working capital management, consistent dividends and able management. Consequently, we expect Elgi to deliver revenue, EBITDA and PAT growth of 17.5%, 20.3% and 22.7% CAGR, respectively, in FY18-20E. Accordingly, we ascribe a P/E multiple of 34x on FY20E EPS of Rs 9.1 to arrive at a fair value of Rs 310/ share. We have a BUY recommendation on the stock.
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