Elgi Equipments Ltd. share price target

Pressure on Margins to continue: Elgi Equipments Q1FY19 results camebelow our estimates. Despite YoY revenue growth of 16.5%, EBITDA margin has improved marginally by 42 bps to reach 9.5% for Q1FY19.

Top line growth to continue: FY18 full year EPS grew by 29% aided by a revenue growth of 17% on the back of improved volumes & revival in international operations. EBITDA for the full year got affected to the tune of Rs. 30 cr due to higher manpower costs majorly in India & higher raw material costs. However, EBITDA margin for the full year expanded by 80 bps to reach 11% for FY18.

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.