Elgi Equipments: Target Price Revised to Rs 637 by Prabhudas Lilladher

Elgi Equipments Sees Healthy Q4FY26 Performance, Revised EPS Estimates Up

Elgi Equipments reported a strong fourth quarter (Q4) performance for the fiscal year 2026, with revenue growing approximately 12% year-over-year (YoY) driven by broad-based traction across key markets including India, North America, and Europe. The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) margins expanded by 56 basis points (bps) YoY due to higher employee costs, investments towards shared services, global trade management (GTM) initiatives, and ongoing digital transformation programs. Management views these investments as strategic moves to support future growth.

The company's demand indicators remain encouraging, with healthy enquiry levels across key industrial segments. However, order conversion timelines have elongated amid uncertainty arising from geopolitical developments in West Asia and commodity price volatility. Despite this, North America continues to witness improving momentum across industrial, medical, portable, and distribution businesses following organizational restructuring. Europe has largely completed its cost rationalization initiatives and is expected to return to profitability in fiscal year 2027.

Elgi Equipments continues to strengthen its competitive positioning through increasing backward integration, with over 95% of motor requirements now sourced in-house, supporting cost efficiency and product innovation. Additionally, ongoing investments in GTM capabilities, inventory optimization, digital infrastructure, and new product development are expected to support market-share gains and gradual margin improvement over the medium term. Commodity inflation and geopolitical developments remain key near-term monitorable.

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Financial Projections

We maintain our 'Accumulate' rating on the stock, valuing it at a price-to-earnings (PE) ratio of 35x for March 2028 estimates, which translates to a target price of Rs637. This valuation is based on our revised earnings estimates and reflects the company's strong performance and strategic investments.