Elgi Equipments Limited — Q2 FY26 earnings call

Call held 13 Nov 2025

Management summary

Elgi Equipments delivered steady top-line growth of 11% in Q2 FY26, though margins were slightly compressed due to strategic investments in foundational capabilities (IT, HR, Finance). While the US market remains a strong growth pillar, Europe continues to struggle, prompting a deep cost-restructuring exercise and a shift to a hybrid sales model. Management is proactively mitigating US tariff risks and remains committed to its long-term EBITDA margin target of 16%.

Highlights

  • Revenue grew by 11% YoY, driven by strong volume contributions across most regions.

  • EBITDA margin stood at 14.9% compared to 16.3% last year, impacted by a 1.2% spend on special initiatives.

  • PBT grew by 28% YoY, primarily aided by a one-off gain from the sale of property in the US.

  • PAT for the quarter was approximately ₹94.7 crores (INR 947 million).

  • North America showed strong growth across verticals, while Europe remained a 'disappointment' with negative EBITDA.

  • Management expects a $9 million EBITDA impact from US tariffs in FY27, which they claim is already fully mitigated through cost measures.

  • Capex plan of ₹600 crores over 5 years remains on track, though an immediate ₹250 crore portion faces a 12-month execution delay.

Concerns

  • US Import Tariffs

  • Europe Operational Losses

Key financials

  1. Revenue Growth 11% +11%YoY
  2. EBITDA Margin 14.9%
  3. PAT 947 Mn 0%YoY
  4. PBT Growth 28% +28%YoY

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

  • India (Standalone)
    7.5% Revenue Growth
  • Europe
    0 negative EBITDA
  • North America
    0 break-even EBITDA

Guidance & targets

Margin

  • EBITDA Margin (excl. special initiatives) Margin · FY26 · High confidence 16%
    if I remove the special initiatives that we are running... we are currently at around 16%, which is what we said we will achieve as a guidance that we gave five years ago right. So, we are on track.

    — Jairam Varadaraj, Managing Director

Capex

  • Total Capex Capex · next 5 years · High confidence ₹600 crores
    We said INR 600 crores over the next five years.

    — Jairam Varadaraj, Managing Director

  • Immediate Capex Execution Capex · next 12 months · Medium confidence ₹250 crores
    The INR 250 crores is firmed but it is going slower... timeline will increase for this 250, let's say by 6 to 12 months... yeah, so probably 12 months.

    — Jairam Varadaraj, Managing Director

Capacity

  • In-house Motor Production Capacity · FY27 · High confidence 75-80%
    close to 75 to 80% of the volume of motors, we will be making ourselves globally, right?

    — Jairam Varadaraj, Managing Director

Profitability

  • Europe Bottom Line Improvement Profitability · FY27 · Medium confidence €1 million
    approximately a reduction in people cost is going to improve the bottom line by almost 1 Million euro.

    — Jairam Varadaraj, Managing Director

Risks & concerns

  • US Import Tariffs

    high

    50% tariff on Indian exports and 15% on Italian exports to the US creates a $9M potential EBITDA headwind.

    Both acknowledged

  • Europe Operational Losses

    high

    Cumulative losses in Europe have reached €25 million (~₹250 crores); the region remains EBITDA negative.

    Management acknowledged

  • India Textile Sector Weakness

    medium

    The textile segment in India is described as being in 'bad shape' and 'very muted' in terms of investment.

    Management acknowledged

  • Slow Conversion of Inquiry Pipeline

    medium

    While the inquiry bank in India is strong, the time to convert leads into orders has extended compared to 18 months ago.

    Management acknowledged

Areas of evasion (1)

  • Specific P&L impact of in-house motor production was taken offline.

Q&A highlights

3 direct
Europe Strategy and Fixed Cost Recovery Direct
We have really gone back and cut deeply on some of our costs and resized the organization... next year we will be starting the organization at a much lower cost structure.

Reveals the extent of the underperformance in Europe and the drastic measures being taken to reach profitability.

Asked by Harshit Patel

US Tariff Impact and Mitigation Direct
The combined impact would be $ 9 million at an EBITDA level if we didn't do anything... we are quite confident that even at the current tariff rate, we will not have any impact on our profitability.

Quantifies a major geopolitical risk and confirms that management has already implemented offsetting cost and price measures.

Asked by Parag Thakkar

Capex Execution Delays Direct
It is going slower not because we have pulled back but we encountered some issues like hard rock in the property, which is taking us longer than planned for execution.

Explains the 12-month delay in the immediate ₹250 crore capex cycle, which could impact capacity ramp-up timelines.

Asked by Amit Anwani

2 min read 5 chapters

Detailed narrative

Strategic Restructuring in Europe

Europe has been a persistent challenge, leading management to 'reset' its strategy. The company is resizing the organization to match realistic revenue levels, which is expected to yield €1 million in annual savings from people costs alone. A new hybrid sales model is being introduced, splitting the organization into direct and channel teams to increase customer face-time and improve win ratios, which management notes are high when they are directly in front of clients.

US Market Resilience and Tariff Mitigation

Despite the threat of high tariffs (50% on Indian exports), the US market remains a primary growth engine. Management has already 'baked in' mitigation strategies including material cost reductions, overhead optimization, and selective price increases. They estimate that even if tariffs remain at current levels, the company will maintain profitability, and any reduction in tariffs (e.g., to 25%) would result in a direct $3 million EBITDA benefit.

India Market: Strong Pipeline, Slow Conversion

The Indian standalone business grew at 7-8%, which management views as slightly muted compared to post-COVID highs. While the industrial segment is performing better than construction and mining, the textile sector remains a significant laggard. Management highlighted that while the inquiry pipeline remains robust, the 'time to conclude' deals has lengthened, suggesting a cautious sentiment among private sector investors.

Innovation and New Product Vectors

Elgi has rebranded its 'stabilizer' product as 'Demand = Match' and made it a standard offering rather than an option, receiving positive early market feedback. Additionally, a new low-cost compressor range designed to compete with Chinese manufacturers is currently undergoing field validation. This range is targeted for a Q1 FY27 launch and aims to capture price-sensitive customers without cannibalizing Elgi's premium, energy-efficient core products.

Capex and Vertical Integration

The company is moving toward greater self-reliance by aiming to produce 75-80% of its global motor requirements in-house by FY27. While the broader ₹600 crore capex plan is intact, the immediate ₹250 crore phase has been delayed by approximately 12 months due to geological challenges ('hard rock') at the construction site. Management also expects ₹5-6 crores in annual savings from increased use of renewable energy.

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