Elgi Equipments : BUY

Elgi equipment’s Q4FY11 performance

Elgi Equipments reported net revenue of Rs. 243 cr. (20% YoY, 2% QoQ), EBITDA of Rs. 29 cr. (3% YoY, 20% QoQ) and adj. PAT of Rs. 18 cr. (2% YoY, 30% QoQ). EBITDA margin stood at 12% (195 bps YoY, 330 bps QoQ). 

Key Highlights 

• Revenue growth and margin under pressure in compressors: The compressor segment revenue stood at Rs. 202 crores, growing by 14% YoY and was flat QoQ. EBIT margin dropped by 225 bps YoY and 335 bps QoQ to 11.5% due to product mix issues and higher other costs. Slowdown in demand in the water well business has hampered the growth in the compressor segment.
• Steady growth in automotive equipment segment: Automotive equipment segment’s revenue grew by impressive 30% YoY to Rs. 31 crores. The margin declined by 65 bps YoY to 9.9%.
• EBITDA margin squeezed: EBITDA margin deteriorated by 195 bps YoY and 330 bps QoQ to 12% largely on account of increase in employee cost, product mix issues and debtor write off. Also, certain capital expenditure has been expensed under revenue expenditure in Q4.

Valuation

We are reducing our revenue estimate by 10% on account of lower guidance by the company vis-à-vis our estimates. We have also reduced our EPS est. by 15.5% to Rs. 6.3 for FY12E. We maintain BUY on the stock with target price of Rs. 100 (based on 16x FY12E EPS), implying 16% upside.