Summary
Elgi Equipments Limited - Q3 FY 2025-26 Earnings Call Summary Thursday, February 12, 2026, 10:00 AM IST
Event Participants
Executives 1 Jairam Varadaraj (Managing Director)
Analysts 5 Amit Anwani, Bala Subramanian, Harshit Patel, Ravi Swaminathan, Salil Desai
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue | ₹1,000 crores | +18% YoY; robust growth across all geographies except Southeast Asia. |
| PBT | [Not Specified]* | +30% YoY; improved profitability despite exceptional income in the trailing quarter. |
| EBITDA | ~₹140 crores | -30% vs forecast (~₹200 cr); impacted by one-time reorganization costs and talent investments. |
| Employee Cost | +6% | Normal increments + restructuring costs in Europe (~3%) + digital/talent initiatives. |
| Inventory | 6 months | Current levels termed “excessive”; target reduction to 3-3.5 months by Q3 FY27. |
| Revenue Mix | 90% Compressors | Strategic split remains 90%+ compressors, 8% automotive; 50-50 India vs. International. |
*Note: Management noted the ₹1000cr milestone and 30% PBT growth but absolute PBT value was not explicitly stated.
Geographic & Segment Commentary
- India: Performance was primarily volume-driven with low double-digit growth expectations. Management sees green shoots in steel, automotive, and textiles, though cement remains muted.
- North America (US): Business remains profitable despite a 1% EBITDA margin dent from 50% tariffs. Management successfully mitigated the 50% tariff impact through cost reductions and 6-7% price hikes; impact will taper by Q2 FY27.
- Europe: Currently undergoing significant restructuring following a period of disappointing revenue. Reorganization costs hit Q3/Q4 FY26, but the segment is expected to be profitable in FY27 due to a moderated cost structure.
- Australia & Middle East: Australia showed signs of stabilization and recovery with new projects secured. Middle East and Africa continue to grow strongly, though they remain non-strategic regions.
Company-Specific & Strategic Commentary
- Low-Cost Screw Compressors: Launch planned for Q1/Q2 FY27 to counter Chinese imports (25-30% market volume). These will be priced 30-40% lower than standard ranges while maintaining ELGI reliability and service.
- Motor Technology: Shifted to insourcing motors to mitigate tariff risks and supply chain disruptions. Developing new motor technology that eliminates permanent magnets (reducing China dependency) while maintaining high efficiency.
- Digital & Process Transformation: Investing 1.5-2% of top-line into go-to-market initiatives, digital platforms, and finance transformation. These costs are expected to stay for 2 years before 50% (advisory/one-time software) tapers off.
- Demand=Match: New stabilizer technology launched in October; 150 units installed with 6-17% energy efficiency gains. It is now a standard fitment on Indian machines.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Revenue (India) | Low double-digit growth | Dependent on global macro-stability; investment-led Capex is starting to catch up to consumption. |
| Profitability (Europe) | Profitable in FY27 | Shift from “break-even” focus to a “cost-managed P&L” built for current revenue levels. |
| Inventory | 3 - 3.5 months | Target timeframe for normalization is Q3 of the next financial year (FY27). |
| Q4 FY26 Performance | Better than Q3 FY26 | Seasonal improvement expected, though management cautioned against a “hockey stick” recovery like last year. |
Risks & Constraints
| Risk | Context |
|---|---|
| Tariff & Inventory Lag | Management is carrying inventory costed at 50% tariff levels while the new tariff is 18%. This will cause a margin lag until Q2 FY27 as high-cost inventory “bleeds out.” |
| Commodity Inflation | Recent spikes in copper and steel are a concern. Management is currently absorbing costs but will pass them on if the market trend appears permanent. |
| Chinese Competition | Chinese imports hold 25-30% of the Indian market volume in low-utilization segments. ELGI’s response depends on the successful rollout of its own low-cost range. |
Q&A Highlights
Domestic Growth & Tariffs
- Question: What drove the 20% standalone growth and the impact of the US tariff cut? (Ravi Swaminathan)
- Answer: Growth was primarily volume-driven in India. Regarding the US, the team mitigated the 50% tariff through price increases and internal cost saves. The reduction to ~18% will become “pure margin” once existing high-cost inventory is cleared by Q2 FY27 (Jairam Varadaraj).
Cost Structures
- Question: When will the employee cost and margin impact from US tariffs subside? (Harshit Patel)
- Answer: US tariff impact (1% margin) will taper in Q1 FY27. European reorganization costs are one-time in FY26 and won’t carry over. Strategic investments (2% of top-line) will continue for 2 years (Jairam Varadaraj).
Market Competition
- Question: How are you addressing Chinese imports in India? (Moderator/Chat)
- Answer: Chinese imports cater to the “low upfront cost” segment (1500-2000 hours/year usage). ELGI’s new product range will be 30-40% cheaper than current models to compete directly while offering superior service (Jairam Varadaraj).
Technology Strategy
- Question: Can you elaborate on the new motor technology? (Moderator/Chat)
- Answer: ELGI is moving away from permanent magnets to eliminate dependency on China. A new “no-magnet” motor providing equivalent efficiency is in validation, with a proof of concept expected in 6-8 months (Jairam Varadaraj).
Key Takeaway
Elgi Equipments delivered a landmark quarter, surpassing ₹1,000 crores in revenue with an 18% YoY growth, driven largely by Indian volumes and export replenishment. While EBITDA was pressured by one-time European restructuring costs and strategic investments in digital/finance transformation (2% of top-line), the underlying gross margins remain strong. The company has successfully navigated the US tariff crisis, transforming a 50% tax burden into a potential margin expansion opportunity as tariffs drop to 18% while price hikes remain. Strategically, Elgi is pivoting to address low-cost Chinese competition with a dedicated product range launching in H1 FY27 and securing its supply chain by developing magnet-free motor technology. Management remains cautiously optimistic, focusing on inventory normalization by Q3 FY27 and returning the European business to sustainable profitability through a drastically reduced cost base.
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