News & Updates » Axis Direct recommends HOLD rating on Elgi Equipments with a target price of Rs 230


Axis Direct recommends HOLD rating on Elgi Equipments with a target price of Rs 230

25 March 2017

Research report on Elgi Equipments by Axis Direct

With best-in-class product suite (both in terms of width and quality), Elgi Equipments Ltd has drawn up a plan in conjunction with Boston Consulting Group (BCG) to revitalize its marketing operations both in India and overseas. Losses in international operations have been eliminated and marketing/distribution issues are improving, that was the first phase of BCG strategy.



As the earnings growth would be back-ended, we believe the stock is likely to remain at elevated multiples. Using a 2-stage DCF, we arrive at TP of Rs 230 (7% upside) implying FY18 PE of 28x; downgrade to HOLD.

Important takeaways from below report:-

  • The growth plan laid down in conjunction with BCG entails revenue growth of 20%+ over next 3-4 years taking the top line to USD 480-500mn (currently USD 200mn) and enable margin expansion of 300-400 bps. While this revenue growth would require little to no capex, the management indicated some portion of the growth would come through inorganic route.
  • Elgi is one of the three companies globally to have the entire product range of compressors; other being Atlas Copco (global leader) and Ingersoll Rand – IR (#2). Elgi is #8 globally in terms of revenue; it targets to surpass IR to become # 2.
  • Oil free compressors cost2-3 times the lubricated compressors and are only 80-90% as efficient. Elgi is currently testing its oil free range of compressors which will be as efficient and cost as much as lubricated compressors. This ‘discontinuous’ innovation will make traditional lubricated compressors redundant. No other competitor has yet developed this technology, giving Elgi the first mover advantage. The management believes it would be able to commercially launch the product in 2 years.


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