Hold Elgi Equipments; target of Rs 230: ICICI Direct

ICICI Direct's research report on Elgi Equipments

Elgi Equipments (Elgi) reported a muted Q1FY21 performance with consolidated revenue down 38.7% YoY to Rs 286.1 crore vs. I-direct estimate of Rs 306.0 crore. Standalone revenue (domestic, direct exports compressor) de-grew 57.1% YoY to Rs 119.3 crore (~42% of consolidated topline). The international compressor business grew 2.6% YoY (contributing ~51% to consolidated topline). Automotive segment revenue declined 56.9% YoY (~7% of topline). Consequently, absolute EBITDA declined 78.9% YoY to Rs 8.7 crore vs. our estimate of Rs 15.6 crore primarily due to lower revenue booking and relatively higher operating expenses amid economic disruptions due to Covid-19. It received ~Rs 14 crore in Q1FY21 towards subsidy programmes for employee retention. Loss after tax was at Rs 8.7 crore (vs. PAT of Rs 17 crore in Q1FY20). Profitability margins were impacted further by increase in depreciation by 15.2% YoY to Rs 17.5 crore, increase in interest cost and taxes. Elgi’s board has considered and recommended issue of bonus shares in proportion of 1:1 subject to necessary approvals.

Outlook

Going ahead, traction in international market, new products like oil free compressors (AB series) would aid growth while revival is expected in India business, which continues to face challenges across verticals. However, its strategy on cost reduction, focus on cash business would help deal with working capital, debt and liquidity situation. We expect revenue, EBITDA growth of 5.7%, 27.2% CAGR, respectively, over FY20-22E. We revise our target price to Rs 230 (30x FY22 EPS of Rs 7.6) and maintain HOLD rating.