Elgi Equipments Ltd. share price target

Top line to growth to continue: We assess the Q3FY18 as positive. YTD EPS grew by 28% owing to both revenue growth of 11% and EBITDA margin expansion of 107 bps. We expect the EBITDA margin to further expand and reach 16% levels due to easing material costs aided by an anticipated 25% growth in international business in near future.

Consolidated revenue growth of 25% YoY, revival of international subsidiaries, margin expansion of 300 bps YoY and positive management commentary (15%+ growth) were the hallmark of Q3FY18 results.

Q2 consolidated revenue grew 15% YoY at Rs 3.7 bn with domestic business growing ~10% YoY and key subsidiaries growing 23% YoY. Higher input cost partially offset benefits from operating efficiencies, with EBITDA margin up ~150 bps YoY at 12%.

Consolidated revenue in Q1FY18 grew 5% YoY (after 2 quarters of de-growth) to Rs 3.7 bn, in line with our estimate. This was led by domestic revenue (Rs 2.3 bn; up 7% YoY) and cessation of revenue decline in the international operations.

Mediocre results; but on a growth path: Elgi has recorded a mediocreperformance for Q1FY18 performance with revenue de-growth of 5.0% sequentially, however, has grown at 4.6% compared to Q1FY17. The numbers were hit to the extent of muted demand from key customers both domestically &internationally, exclusion of Belairs numbers and sluggish performance in China atthe consolidated level.

Mediocre results, however on a growth path: Elgi's Q4FY17 performance was impressive on QoQ basis, however, has not grown compared to Q4FY16. The numbers were hit to the extent of muted demand from key customers bothdomestically & internationally, exclusion of Belair's numbers and sluggish performance in China at the consolidated level.

Consolidated and standalone revenue degrew 8% and 5%. Domestic revenue growth was impacted by lumpy revenue (from water-well segment) in the base quarter. This was flagged by the management in Q3.

With best-in-class product suite (both in terms of width and quality), Elgihas drawn up a plan in conjunction with Boston Consulting Group (BCG) to revitalize its marketing operations both domestic and overseas.

Strategic Measures to Aid Growth:Flattish numbers for Q3FY17, affected by muted demand - Elgi's Q3FY17 performance is quite flattish on account of muted demand from key customers both domestically & internationally and the numbers were affected to the extent of Belair's exclusion & sluggish performance in China at the consolidated level. Revenue for Q3FY17 has recorded a 2.4% growth sequentially, however a decline of 4.7% YoY.

Flattish numbers for Q2FY17, affected by muted demand: Elgi's Q2FY17 performance was quite flattish on account of muted demand from key customers both domestically & internationally and the numbers were affected to the extent of Belair's exclusion & sluggish performance in China at the consolidated level. Revenue for Q2FY17 has recorded a -3.9% decline sequentially, however an improvement of 1.4% YoY. EBITDA, EBIT & PAT margins have contracted by 93 bps, 112 bps & 105 bps QoQ, however, the same have expanded by 297 bps, 293 bps & 277 bps YoY to reach 10.0%, 6.9% & 5.3% for Q2FY17 respectively.