AMSEC

Elgi Equipments

(Accumulate)

CMP: Rs 86.55

Target: Rs 100

Elgi Equipments Ltd (EEL) posted subdued 3Q performance dragged by sluggish demand scenario in domestic compressor and automotive business and acquisition related costs. Exports continued to grow at healthy pace. The management maintained cautious stance for 4Q but guided for positive outlook for the next year. While demand outlook for compressors remains benign, EEL is doing well in the domestic markets led by new launches, and gaining market share in oil free compressors.

The three-pronged strategy of cross selling products of Elgi, Patton and Rotair across geographies; new product launches to expand its product portfolio; and laying emphasis on aftermarket will gain traction in revenue. Though losses at overseas subsidiaries subsided aided by the two newly acquired companies Rotair and Patton, they will, however, take 2 years to log to profits. The company has deployed substantial part of its surplus cash to set up the new plant and raised debt of about Rs 220 crore to fund the recent acquisitions which will pressurise the profitability over the medium-term. Nevertheless, over FY12-15 we expect the revenue and PAT to grow at 20.4 per cent CAGR each.

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