Elgi Equipments cautiously optimistic about achieving FY26 targets

19th September 2022

Europe, North America and Brazil markets have done well for the company

Elgi Equipments Ltd. has revised its revenue target upwards for FY26 under its strategic business plan as the leading air compressor manufacturer sees a positive growth outlook based on the current market conditions amid challenges associated with commodity inflation and the Ukraine war.

The Coimbatore-headquartered company has decided to review its revenue, EBITDA, and ROCE targets under SBP FY26 every year based on prior results and macroeconomic conditions.

“Every year we take stock of the reality in the context of 2020–21 and see whether the company’s performance is better. Based on the market conditions, we provide guidance every year. We provided the guidance last year and we will keep providing it every year. As it stands, things are looking more positive than earlier,” Jairam Varadaraj, Managing Director, Elgi Equipments, told BusinessLine.

The company has now revised the revenue target from ₹3,000- crore to ₹3,375 crore to be achieved by FY26, while it is sticking to the EBITDA margin of 16 per cent and ROCE of 30 per cent to be achieved by then.

Varadaraj said there is a real paradigm shift in the behaviour in the markets. “Maybe there is a need for a new economic theory,” he wondered.

“When you look at what happened during Covid, barring those initial 3 months in 2020, the whole world went back to living normally . Hence, companies including Elgi grew during the period. The world has decided to exist in parallel to the crisis. Everybody thought the Ukraine war would lead to a big global crisis, but the world has responded to it like it is ok, there will be some consequences, but life goes on. So, is there a new economic theory required to explain everything?” he said.

Have companies become more resilient after managing shocks such as pandemics? Varadaraj stated that resilience could be one factor. But consumption comes from sentiments. If sentiments are quite buoyant, people spend money because they are quite confident that there is no challenge to their income. But when there is negative news, recession, war, or energy problems, it creates sentiments in people throttle back. Surprisingly, throttling back has not happened. People continue to spend money amid inflation and the Ukraine war. People continue on the path of sustaining their standard of living, and nobody is cutting back, he explained.

The ₹2,525 crore Elgi continued to record growth in India amid some temporary blips during the Covid phase. Now, the primary growth drivers are some of its international markets. Europe, North America and Brazil have done well for the company, while some other markets are in recovery mode.

Varadaraj said it would continue to focus on key strategic markets to achieve a reasonable presence before expanding to newer markets. “Markets we have chosen represent close to 60–70 per cent of the global opportunity,” he added.

While the company stays optimistic, inflation and geopolitical unrest could soften demand in FY23. But, its primary focus will be to grow profitably amidst cost volatility.