ELGIEQUIP — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

MR. KAMLESH KOTAK – ASIAN MARKETS SECURITIES LIMITED

Good morning everyone, on behalf of Asian markets, we welcome you all to 2Q FY26 Earnings webinar of ELGi Equipments Limited.

We have with us today Mr. Jairam Varadaraj, Managing Director representing the company.

We'll start with Mr. Jairam giving a presentation on the quarterly and six-monthly performance of the company.

Followed by Q&A session.

I hand it over to Mr. Jai.

Thank you, Sir.

Over to you.

First question, we'll take it from the line of Harshit Patel.

Harshit, you may unmute yourself and go ahead with your question.

HARSHIT PATEL: · Understood. Just a bookkeeping follow-up on that one. How much EBITDA and PAT we have

I thank you very much for the opportunity, Sir, firstly you have mentioned that we have had a challenging first half in Europe and you have also talked about certain mitigation strategies.

So, are we confident about a recovery in the second-half and also in the case that the end markets don't improve over there, how do we plan to conduct our operations given that we have invested quite a lot towards fixed cost in that region over the last 6-7 years?

Understood.

Is this model would be more similar to what we are already doing in the North American market where we take the control of the distributorship?

Understood.

Just a bookkeeping follow-up on that one.

How much EBITDA and PAT we have generated from European and North American operations in the first half of this year?

So, so you are talking about at the EBITDA level or at the final bottom line level?

Understood.

Just lastly from my side, on the stabilizer front, since we have already launched the product commercially in the market, how has been the customer and the competition response to this innovation and how much incremental revenues we can garner in the second-half and the full year FY27, considering both the opportunities, the new product sales as well as the retrofit that you have mentioned before.

Understood.

Thank you very much, Sir, for taking my questions and all the very best.

Moderator · Conference Operator

The next question, we'll take it from the line of Mr. Ravi Swaminathan.

Ravi, you may unmute yourself and go ahead with your question.

property in the US. · Management

Hi, Sir.

Very good morning.

Yeah, doing great, Sir.

Sir, my first question is with respect to the standalone business, which is largely a representation of India.

If you see the past four quarters growth average, it's somewhere around 7 – 71/2% vis-a-vis the strong double digit, but that we used to see post just post COVID.

My question is at what rate is the industry growing?

Which are the sectors which are doing well as of now?

How is the inquiry pipeline and is there a reasonable visibility that this high single digit growth can move into the double-digit growth similar to what we had seen just after COVID.

OK.

And in India, among products like piston compressors, screw compressors, is there any big difference in terms of growth or all are growing?

Understood.

And after sales service as a proportion this year has it continued to increase because I mean I see the gross profitability has improved for us.

So, I would read like after sales would have contributed to that.

So, is that understanding right?

Understood.

And my last question is with respect to 1 clarification related to that US impact that you had mentioned at an EBITDA level, you had mentioned $9 million impact would have happened, but you're taking adjustive and corrective measures.

Is that understanding right?

Understood.

Understood.

Understood, Sir.

Thanks a lot.

Moderator · Conference Operator

Thank you, Ravi.

The next question we'll take is from the line of Mr. Sushil.

Sushil, you may unmute yourself and go ahead with your question.

SUSHIL

Thank you, Sir, for the opportunity.

Moderator · Conference Operator

Thank you, Sushil.

So, the next, the next question we'll take, it's from the line of Parag Thakkar.

Parag, you may unmute yourself and go ahead with your question.

PARAG THAKKAR

Yes, Sir.

Thanks a lot for the opportunity.

And I would say that in a very tough macro environment, you have delivered very well.

Yeah.

Moderator · Conference Operator

Thank you, Parag.

Sir, next question we'll take it is from the line of Bala.

Bala, you may unmute yourself and go ahead with your question.

Bala….!!

I think there is some problem.

We'll probably take him at a later stage.

So, the next question is from the line of Salil Desai.

Salil, you may unmute yourself and go ahead with your question.

SALIL DESAI

Thanks, Kamlesh.

Good morning, Dr Jairam.

Moderator · Conference Operator

Thank you, Salil.

Before I move on to the next person, I'll take one question from the chat.

Sir, there is a question which says that, can our stabilizer product be used with other compressor of other brands or is it just our compressor?

So, the next question I'll take it from the line of Mr. Bala.

Bala, I've unmuted given you an option to unmute yourself.

Please try again but.

Yeah, I think that's a problem.

I'll ask him to drop a question in the chat, Sir.

The next we take is from the line of Manish.

Manish, you may unmute yourself and go ahead with your question.

MANISH

Thank you, Kamlesh.

Very good morning, Sir.

Moderator · Conference Operator

Sir, I'll take a couple of questions from the chat first.

So, there is a question from Bala.

The launch of the low-cost compressor range is a key growth vector.

What is the strategy to prevent cannibalization of our core compressor product?

Is this range aimed at winning new price sensitive customers or competing more aggressively with specific low-cost competitors?

Uh, sure, Sir.

The next question from the chat again for FY26-27, what percentage of motor requirement will be produced in house and what impact it will have on our financials?

Yes.

So, the next question is what is the cumulative investment we have made in Europe till date?

So uh, the next question is what is the status of launch of a low-price compressor as an alternative to Chinese compressors?

Sir, sure, Sir.

The next question I'll take it is from the line of Mr. Amit Anwani.

Amit, you may unmute yourself and go ahead with your question.

AMIT ANWANI

Hi, Sir.

Thank you.

Thanks.

Good morning.

Thanks for taking my question.

So, my question pertains to US.

You did explain the tariff side and the cost implications there, but you did also highlight that going in front of customers is something which you would like to do, and the strike rates are high, and I think you have been highlighting this I think from quite some time.

So just wanted to understand what is the constraint which is stopping us to do that more often and US as a market, so the tariff we understood, but US as a market in terms of volumes, new products, distributors for you, what is the road map?

Are we anytime expecting double digit, high single digit growth in US market?

Yeah, that is my first question.

Moderator · Conference Operator

I think that is what we have.

Uh, Kamlesh, would you want to go ahead with your questions?

KAMLESH No, Sir, that's fine.

So just wanted to touch up on any specific industries you would want to highlight in terms of the business outlook in India, whether it is oil free or oil lubricated or any specific segments which are outlier or maybe laggard.

Sir, I know we don't directly supply to the government, but any colour in terms of the private side of demand and government-oriented projects or investment demand, do you see there any material difference between the two in terms of execution?

Yes.

Right.

OK.

OK, great.

OK, Sir.

So, thank you very much for all the insights, Sir.

With that, we conclude the call.

Any closing comments you want to make?

Thank you, everyone.

You may know log off now and have a good day.

Thank you.

Questions and answers

18:42:19 +05'30' · Research Analyst

Q2 2025-26 – INVESTOR MEET CALL

property in the US. · Management

So, if I eliminate that, PBT is roughly the same as the previous year.

Moving on to the sales mix, pretty stable in terms of split between compressors and automotive and India versus the rest of the world, structurally there is no change in the revenue and the revenue contributions.

So overall this is the consolidated P&L right down to PAT levels.

So, if I include the one-off gain on sale of property, PAT is about INR 947 million for the quarter, which is roughly similar to what it was the previous year, previous quarter.

Looking at the cash position, we have definitely improved this number.

These are all numbers stated in rupees and when I take the net cash position, I have to net off the loans in Europe and the US where with the depreciated rupee, the value of those loans go up.

So, the net cash position that we have presented is actually a little skewed.

So, you need to look at the cash position in September in the table below.

We have really improved our cash position, and we continue to improve it by better management of our receivables as well as inventory.

So, I'm very optimistic that going forward we will have continued to improve our cash position.

So, this is really the presentation on the numbers.

I would like to talk a little bit about revenue.

Australia grew and it's not up to our expectation, but definitely better than last year, last year was a weak year and therefore the growth has been good this year.

We continue to remain optimistic about Australia.

There are some good improvements in the economy, and we are hopeful, but in any case, it's a very small market in terms of our contribution; I mean contribution to our revenue.

Southeast Asia continues to be a challenge; the contribution again is very, very small to our overall level.

Coming to India, India has done well in pockets.

We had this go to market initiative that we kicked off a year and a half ago.

It is gaining traction, but we are yet to see the full-blown results of it.

There are some marginal improvements in performance in different segments and we remain hopeful.

I believe the third quarter we will see a lot more impact of that initiative than we have seen in the second quarter.

Middle East continues to remain strong.

We had some pricing challenges, which we have corrected, but otherwise the demand profile looks quite strong, and we are continuing to grow.

Europe has been a disappointment and a challenge for us.

We expect it to grow despite the Ukraine war and the energy problems there.

I think it's time for us to reset our strategy, which is what we are doing.

I will combine both that conversation after I discuss what we have done in the US.

North America has grown very well for us across all verticals of the business except our distribution operation.

But, there also we are beginning to see some green shoots.

We think the third quarter will be strong.

So by and large, the US market has been very strong for us.

But both in Europe and the US, we are going back to the drawing board in terms of rejigging our strategy.

The real problem definition earlier was how to gain entry and grow, which we have done successfully.

Now the problem statement is how do we increase the rate of our growth in these two markets and therefore the strategy that got us to where we are today is not going to take us to where we want to go.

So that's the conversation internally in the company and we are hoping in the next couple of quarters we'll be able to arrive at certain directions that will give us very clear growth path in both these large regions.

One point that I would like to spend some time on is this whole tariff impact.

In the second quarter, there was no impact.

Like I explained in the call for the first quarter, we are bleeding out our inventory and that's what we did in Q2. So, the impact was not much.

In Q3, we expect that there will be an impact, but at an overall consolidated P&L level.

So that could be an impact at the contribution margin in the US specific to industrial Product vertical, but at a consolidated level at the P&L, we don't see any impact.

We have already done enough of cost mitigation measures across both variable cost as well as our fixed cost and we are confident that we will not have an impact on our P&L and as we continue to grow our sales.

So just to summarize, if you look at a steady state one year, so let's take for example next financial year which is 2026-27, assuming a certain growth rate, the impact of tariff both from the exports from India to the US as well as from Italy to the US, the combined impact would be $ 9 million at an EBITDA level if we didn't do anything and what we have done in terms of cost reduction at the material cost level, cost reduction at certain overhead levels, price increases that we've been able to get in the market without affecting our competitiveness, all of it gives us actually a surplus.

So, we are quite confident that even at the current tariff rate, we will not have any impact on our profitability.

Now the way the tariff conversations are going, there is a realistic possibility that 50% will drop further down and if that were to happen, we will be on a good wicket from a profitability perspective.

So, this is really the summary of the performance of the company for the second quarter.

Now, I will open the floor for questions.

Thank you very much for your patience.

Moderator · Conference Operator

Thank you, Mr. Jairam.

Participants, if you have any questions, please use the raise hand option or drop your questions in the chat or the Q&A box.

We'll take it accordingly.

We'll wait for a couple of minutes for the queue to assemble Sir, before we take the first question.