Elgi Equipments Limited — Q1 FY26 earnings call

Call held 13 Aug 2025

Management summary

Elgi Equipments delivered a resilient Q1 FY26 with 8% revenue growth and 18% PBT growth, though EBITDA was pressured by strategic investments in digital transformation and headcount. The company is navigating significant US tariff challenges (up to 50% on some lines) by accelerating motor in-sourcing and evaluating structural changes. While the Indian market shows some hesitation in tariff-sensitive sectors like textiles, management remains confident in its $450 million annual target and long-term technology initiatives.

Highlights

  • Consolidated revenue grew by 8% YoY, primarily driven by volume growth.

  • EBITDA reported at ₹1,200 million, lower than the expected ₹1,500+ million due to increased costs.

  • PBT grew 18% YoY, supported by strong treasury management and financial income.

  • Employee costs increased by 10%, with 5-6% being normal increments and the rest due to strategic headcount expansion.

  • US operations turned profitable this quarter, despite facing significant tariff headwinds.

  • Motor in-sourcing reached 40-45%, with a target to hit 70-75% by the end of FY26.

  • Management maintained its annual revenue guidance of $450 million for FY26.

Concerns

  • US Import Tariffs (up to 50%)

Key financials

  1. Revenue Growth 8% +8%YoY
  2. EBITDA 1,200 Mn
  3. PBT Growth 18% +18%YoY
  4. Employee Cost Increase 10% +10%YoY
  5. Motor In-house Production 42.5%

What they filed

Q1 FY27: revenue up 28.2%, net profit up 9.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue531 498 580 503 568 +7%606 +22%666 +15%645 +28%
EBITDA114 102 125 97 108 −5%127 +25%101 −19%115 +19%
Net profit98 80 99 82 91 −7%90 +13%83 −16%90 +10%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • USA
    Profitable status Profitability50% Tariff Impact (Industrial)15% Tariff Impact (Portable)
  • Europe
    Break-even Euro terms PerformanceLoss Rupee terms Performance
  • India
    Wait and watch qualitative Market Sentiment

Guidance & targets

Revenue

  • Annual Revenue Revenue · FY26 · High confidence $450 million
    As far as the guidance of 450 million, we are on track towards achieving it.

    — Mr. Jairam Varadaraj, Managing Director

Capex

  • Total Capex Capex · next 2 years · High confidence ₹250 Crore
    we did talk about 250 Crore in first two years... that investment is continuing. It's on track.

    — Mr. Jairam Varadaraj, Managing Director

Capacity

  • In-house Motor Production Capacity · by end of FY26 · High confidence 70-75%

    From 40-45% today

    Percentage wise, right now we are at around 40 to 45%. By the end of this financial year, we'll be close to about 70-75%.

    — Mr. Jairam Varadaraj, Managing Director

  • In-house Motor Production Capacity · next 2 years · Medium confidence 90%
    I think in another two years we'll be close to 90%.

    — Mr. Jairam Varadaraj, Managing Director

Market context

  • Stabilizer Global Launch Other · 2026 · High confidence April
    In the month of September, we will be launching the product or the technology across India and I think by April is the time timeline for launching it globally.

    — Mr. Jairam Varadaraj, Managing Director

Risks & concerns

  • US Import Tariffs (up to 50%)

    high

    Current initiatives are inadequate for a 50% duty; structural changes taking ~1 year may be required if tariffs persist.

    Both acknowledged

  • European Economic Stagnation

    medium

    Energy price dislocation and refugee costs are causing economic constraints; recovery is viewed as a medium-to-long term play.

    Management acknowledged

  • Currency Depreciation (Rupee vs Euro)

    medium

    European operations are break-even in Euro terms but show a loss when restated in Rupees due to significant Euro appreciation.

    Management acknowledged

Areas of evasion (2)

  • Specific revenue splits between industrial and portable products in the US.
  • Specific market share gain percentages in India.

Q&A highlights

3 direct
Impact of 50% US Tariffs Direct
The next 25%, the solution is not going to look like the solution that we have had for the first 25%... it will involve certain structural changes in the way we are organized... It will take time to implement.

Reveals that while the first 25% tariff was manageable, the additional 25% requires a fundamental and time-consuming business model shift.

Asked by Salil Desai

Motor In-sourcing Economics Direct
Our motors are at the same cost structure as the Chinese motors that we were Imported... if the tariffs had not been there, that would have been a significant margin expansion for us.

Confirms that in-sourcing is a defensive hedge against China risk and tariffs rather than a pure margin expansion play in the current environment.

Asked by Naysar

India Market Demand Pause Direct
Across the board we are seeing a bit of a pause, but the pause and the reversal are a little bit more pronounced in segments that are more substantially dependent on the US, namely the textile industry.

Highlights the ripple effect of US trade policy on domestic Indian industrial demand.

Asked by Bhavin Vithlani

2 min read 5 chapters

Detailed narrative

Navigating the US Tariff Storm

Elgi is facing a dual-layered tariff challenge in the US, with an initial 25% duty already mitigated and a second 25% (total 50%) now under evaluation. Management stated that while the first 25% is 'in the bank' through price hikes and cost initiatives, the second 25% requires fundamental structural changes that could take a year to implement. The company has inventory to last a few months, providing a buffer to see if these tariffs settle at lower levels (20-25%) before triggering expensive structural shifts.

Strategic Motor In-sourcing as a Risk Hedge

A key pillar of Elgi's cost strategy is the in-sourcing of motors, which has reached 40-45% of requirements. This initiative, started 2-3 years ago to mitigate China dependency, is now a critical tool for maintaining competitiveness in the US market. Management expects to reach 70-75% in-house production by the end of FY26 and 90% within two years, effectively matching Chinese cost structures while improving supply chain reliability.

Domestic Market Dynamics and Sectoral Pauses

In India, while overall optimism remains, a 'wait and watch' sentiment has emerged across several sectors. This pause is most pronounced in the textile industry due to its heavy reliance on US exports and competition from countries with lower tariffs like Bangladesh and Vietnam. Despite this, Elgi believes its mid-teens growth in India indicates market share gains, driven by fundamental shifts in customer engagement rather than just new technology.

European Recovery and Defense Sector 'Rainbow'

Europe remains a challenging geography, with the business barely keeping its 'head above water' in Euro terms and reporting losses in Rupee terms due to currency depreciation. However, management identified a 'rainbow at a distance' in the form of massive EU investments in the defense sector. They expect this capital infusion to eventually trickle down into general industrial growth, providing a medium-to-long term boost to the European economy.

Product Innovation: Stabilizers and Vacuum Indigenization

Elgi is preparing for significant product launches, including a new 'Stabilizer' technology that is purely mechanical with no electronics, avoiding common quality issues with PCBAs. This product will launch in India in September 2025 and globally by April 2026. Additionally, the indigenization of the vacuum product business is complete, and while currently immaterial to total revenue, it is growing according to plan with positive customer repeat-buying trends.

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