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Hidden Gem Elgi Equipment (CMP: ₹502, MCap: ₹15860 crore, Target: ₹610, Upside:22%)

ICICIdirect Research 14 Nov 2025 DISCLAIMER

Elgi Equipment manufactures a wide range of air compressors (91% revenue mix) and automotive equipment(9%). Elgi generates 51% of revenue from exports to North America, Europe, Australia and Southeast Asia and Brazil. 
Elgi has set out an aggressive plan to make a strong foothold in the global compressors market mainly in the US and Europe and invest in the distribution and manpower capacity building. The US markets are already profitable for the company while European markets are at a break-even levels. Domestic markets have been buoyant on the back of pick in capex cycle. Going ahead we expect growth to come from volume gains as we model in revenue CAGR at 11.2% over FY25-FY27E
Elgi has undertaken various internal initiatives over the past 2-3 years including development ability to produce it's own motors. As these benefits begin to accrue, Along with a 5-10% price increase, Elgi was confident that they would be able to maintain their margins at the initial tariff of 25%.
It also worked on to negate the effects of incremental 25% tariff. The company expects no negative impact on consolidated profitability for 27E (had no measures been taken by the company, the total impact of tariff would have been $9 million on FY27 financials). Additionally, if tariffs are reduced to 25% as being discussed, the company expects a gain of $3 million in EBITDA, providing meaningful upside to margins. We expect PAT CAGR of 17.4% over FY25-27E
With continued penetration in global markets and recording profits in its key US and European markets, the company is expected to deliver 11% and 17.4% sales and PAT CAGR over FY25-27E. This will be backed by improvement of margins to 16.8% in FY27E.
We value the company 40x FY27E to arrive at a fair value of ₹610 per share

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