ICICI Direct has recommended buying the stock of Elgi Equipments with a price target of Rs 190, which is 20 per cent higher than the current levels of Rs 158.
"Overall, Elgi's strategy to expand in new geographies in Europe, continued growth momentum in the US, Australia and expected rebound in South East Asia & Gulf markets are expected to contribute significantly to incremental growth in coming years. A rebound was visible in Q2FY21 performance with air compressor international sales (including exports from India) contributing 57% to total air compressor sales registering growth of ~39% to | 253 crore YoY. It performed well in key international markets led by Australia, US, Europe while South East Asia, and Gulf reported moderate performances. Margins are expected to improve due to ramp-up in international business, operating cost reduction initiatives to lead incremental revenue, future growth and positive operating leverage," ICICI Direct has said in a report.
According to the report, Visible green shoots in India business amid economic recovery ensure that Elgi is on track in its strategy to curtail employee cost and reduce fixed cost by 15-20% in FY21E primarily in the India business.
"Elgi has seen activities across all major industries and expects a further revival in capacity building with smaller incremental investments by industries. Its disrupted AB series oil free compressor is gaining good traction in India as well as abroad. Aftermarket (20-25% to India topline), continues to see strong traction across geographies. Debt has reduced to | 100 crore in Q2FY21 and is expected to further reduce by | 30 crore in H2FY21 while working capital has also reduced, QoQ and cash position remains strong. The operational run rate is expected to continue over the next couple of years," the ICICI Direct report has stated.
The stock of Elgi Equipments was trading at Rs 176 on the National Stock Exchange.