Elgi Equipments

Elgi Equipments reported a strong Q4 FY26, with revenue growing by 12% and Profit Before Tax (PBT) increasing by 17%. For the full fiscal year 2025-26, the company achieved consolidated revenues close to ₹4000 crores. Despite facing impacts from product mix and tariffs, the company maintained a solid net cash position and successfully generated 100% of its EBITDA as cash, even after accounting for extraordinary cash inflows.

The company saw a 16% increase in employee costs, primarily driven by reorganization efforts in the US and Europe, the establishment of a shared service organization in India, and one-time^📎 settlement costs. Additionally, other expenses rose by 8% due to strategic investments in various IT initiatives, including PLM. Management views these expenditures as crucial long-term investments for future growth and operational efficiency.

While inquiry levels in India remain robust, the conversion timing for orders is becoming elongated due to geopolitical uncertainties, particularly the West Asia situation. The US market continues to perform well, supported by industrial growth and a national manufacturing strategy. In contrast, Europe's market growth is muted by factors such as the Ukraine war, energy crisis, inflation, and unemployment, although the company's European operations achieved breakeven in Q4 FY26.

Elgi experienced marginal impacts from varying tariffs (10% to 50%) on inventory levels during the year. US tariffs on exports from Italy and India are currently at 25%, a reduction from the previous 50%, with ongoing discussions for potential refunds. To mitigate the impact of volatile metal commodity prices, the company has already introduced price corrections of 2.5-3% and plans further adjustments in June.

In response to competition from low-cost Chinese players in the bottom segment of the market, Elgi has developed a new range of validated products. These products are slated for launch in India in September 2026, followed by a global rollout next year. The company is also strategically entering the vacuum business through a license agreement, viewing it as a 10-12 year program to build a competitive advantage in this growing segment.

Significant progress has been made in inventory rationalization, particularly in regions selling Elgi products and at Rotair, which has positively contributed to the company's cash position. Management aims to improve inventory forecasting accuracy from the current 60-70% to 90%. Investments in Go-to-Market (GTM) strategies and IT systems are ongoing, with the return on investment expected to materialize from FY27 onwards.

For the upcoming fiscal year 2027, Elgi Equipments has planned a total capital expenditure of approximately ₹200 crores. This includes an allocation of ₹120-130 crores for the progressive relocation of its factory from the city to a new plant, alongside an additional ₹70 crores designated for normal balancing CapEx requirements.