Elgi Equipments Ltd. share price target

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.

Increased domestic industrial activity complemented by adequate capacity headroom: Growth in investment activities and increased investments in key sectors like power, steel, construction, infrastructure and cement are giving an optimistic outlook for future. We believe the GFCF to GDP to improve by over 33% by FY17E, also Elgi's current capacity utilization levels of ~ 70-75% leaves enough headroom to sustain the anticipated increase in demand. We expect the compressor segment to grow at 9.4% CAGR for FY15-18E.