Elgi Equipments Limited — Q4 FY25 earnings call

Call held 29 May 2025

Management summary

Elgi Equipments delivered strong top-line growth of 15% in Q4, but margins were temporarily suppressed by one-time accounting cleanups and increased employee costs. Despite global macro uncertainties regarding US tariffs and European fragility, management expressed high confidence in achieving its long-term FY26 financial targets. The company is leveraging vertical integration in motor manufacturing to insulate itself from potential trade barriers.

Highlights

  • Revenue grew 15% YoY in Q4 FY25, though EBITDA of ₹1,500 million fell short of the ₹1,724 million expected due to cost pressures.

  • One-time 'cleanup' costs of ₹8 crores related to inventory and receivables impacted quarterly profitability.

  • Management reiterated its 5-year guidance for FY26: $450 million revenue, 16% EBITDA margin, and 30% ROCE.

  • India business remains the primary growth driver, expected to grow at low to mid-double digits in FY26.

  • US operations have turned profitable on a steady-state basis, recovering from prior-year losses.

  • Internal motor manufacturing is expected to reach 85-90% of global requirements in FY26, providing a significant cost advantage.

  • Aftermarket revenue contribution stands at 27-28% in India, significantly higher than the 13-14% seen in international markets.

Concerns

  • US Import Tariffs

Key financials

  1. Revenue Growth 15% +15%YoY
  2. EBITDA 1,500 Mn
  3. Gross Margin 49% -2%YoY
  4. Cash Conversion 98%

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 Business
    28% Aftermarket Share8% Import Content
  • International Business
    14% Aftermarket Share0 break-even Europe Status

Guidance & targets

Revenue

  • Consolidated Revenue Revenue · FY26 · High confidence $450 million
    Five years ago, we gave a guidance about our top line 450 million... We will be able to achieve these numbers in 25-26.

    — Jairam Varadaraj, Managing Director

  • India Revenue Growth Revenue · FY26 · Medium confidence low to mid double digit
    I expect India to grow double digit, but I would probably say low to mid double digit.

    — Jairam Varadaraj, Managing Director

Margin

  • EBITDA Margin Margin · FY26 · High confidence 16%
    And the EBITDA of 16%... We will be able to achieve these numbers in 25-26.

    — Jairam Varadaraj, Managing Director

Other

  • Return on Cash Capital Employed Other · FY26 · High confidence 30%
    and the return on cash capital employed of 30%. We will be able to achieve these numbers in 25-26.

    — Jairam Varadaraj, Managing Director

Capacity

  • Internal Motor Manufacturing Capacity · FY26 · High confidence 85-90%
    This financial year close to 85 to 90% of our motors globally will be manufactured by us.

    — Jairam Varadaraj, Managing Director

Risks & concerns

  • US Import Tariffs

    high

    Potential for tariffs to rise from 10% to 26%; management believes they can absorb up to 16% through cost savings.

    Both acknowledged

  • Fragile European Recovery

    medium

    Europe was recovering post-Ukraine war but remains fragile; US tariffs against the EU could further impact growth.

    Management cautious

  • Portable Compressor Market Slump

    medium

    Market has seen a 30-40% drop over the last two years and is expected to remain subdued.

    Management acknowledged

Areas of evasion (1)

  • Refused to provide specific product-wise breakup (piston vs screw) due to competitive sensitivity.

Q&A highlights

2 direct
US Tariff Impact and Profitability Direct
We will be able to absorb that 10% without any impact on our profitability, because the savings that we have from our motor plant... is more than enough to absorb it.

Confirms the company's structural cost advantage through vertical integration, mitigating a major geopolitical risk.

Asked by Harshit Patel

Gross Margin Compression Direct
Some of the expenses that we have taken hit is inventory. And when you take it on inventory, it affects your material consumption... otherwise business as usual, margins are quite constant.

Clarifies that the 11-quarter low gross margin was due to a one-time accounting cleanup rather than a fundamental deterioration in pricing or costs.

Asked by Samyak Jain

International Profitability and Operating Leverage Partial
In India, which isn't reflected in the standalone business on the sale from India to the subsidiaries... that's one level of profit which is not readily visible.

Explains that consolidated international margins appear lower because a portion of the profit is captured at the Indian manufacturing entity level.

Asked by Ravi Swaminathan

2 min read 5 chapters

Detailed narrative

Margin Suppression via Prudent Accounting

Q4 FY25 EBITDA was ₹1,500 million, lower than the structurally expected ₹1,724 million. This was primarily due to a ₹8 crore voluntary cleanup of inventory and receivables, which management described as a 'prudent accounting thing' to avoid year-end shocks. Additionally, employee costs rose significantly, and CSR spending was increased to 4% of PBT to fund a project for educating underprivileged children.

Vertical Integration as a Tariff Shield

Management highlighted their motor plant as a critical strategic asset. By FY26, 85-90% of motors used globally will be manufactured in-house. This vertical integration is expected to generate enough cost savings to absorb a US tariff of up to 16% without impacting profitability or requiring price hikes, positioning Elgi better than competitors who rely on global component imports.

The Aftermarket Growth Engine

A significant disparity exists between Elgi's aftermarket revenue in India (27-28%) and international markets (13-14%). Management views this as a long-term growth opportunity, as the international 'installed base' matures. The strategy remains focused on selling machines today to secure high-margin recurring revenue streams for the next decade.

Strategic Breakthroughs in Railways and New Products

Elgi successfully supplied compressors for the first Siemens locomotive inaugurated by the Prime Minister. While currently a small contributor, management sees this as a 5-year journey toward global homologation. Furthermore, new products designed to compete with low-cost Chinese imports are expected to be fully launched by Q3 FY26, targeting a 25-30% market segment currently dominated by imports.

FY26 Guidance Reiteration

Despite macro headwinds, the company remains committed to its 'Project Everest' goals. For FY26, they target $450 million in revenue with a 16% EBITDA margin and 30% ROCE. Management noted that they were already hitting near-16% EBITDA levels this year prior to the one-time cleanup costs, providing high confidence in the sustainability of these margins.

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