ReportDate CompanyName Recommendation Targetprice Stoploss

28thMar2011 ElgiEquipmentLtd BuyatCMPRs90.20(MediumriskMediumreturn) `105 `79

Companyprofile
Elgi Equipments is engaged in manufacturing of air compressors and automobile service station equipments. It has a sizeable market share in the air compressor market in India. It has presence in Europe, North America, Latin America, Africa, Australia, Middle East, South East Asia, West Asia and the Far East. It has six wholly owned subsidiaries including SA Belair of France (acquired by Elgi during Mar2010).

Key Details (Rs) Share Capital (`Cr) Face Value (`) 52 Wk High/Low Market Cap (` Cr) EPS(` TTM) TTM PE(X) Price/BV(X) Industry PE(X) Share Holding pattern as on Dec'10 Promoter % FII% Others%

RecentDevelopments
Egi has reported healthy y-o-y growth in Q3FY11 although there is a decline in performance on q-o-q basis. In Q3FY11 Elgi has reported 38% y-o-y growth in net profit to 26cr while its top line grew up at 32% y-o-y. Its operating margins saw a decline of 110 bps y-o-y but PATM% improved by 40 bps during Q3FY11. Management has informed that compressor is the main business and accounts for 86% of revenue and 95% of the profits. Elgi is a debt free and cash rich company having `102cr cash in hand (As per FY10 Annual Report) which can be used for organic and inorganic business expansion. Elgi is now focusing on overseas for expansion through organic and inorganic route. It has set up a business facility in China through a wholly owned subsidiary to tap Chinese compressor market. It has established business unit in Brazil and Sharjah to enter S.America and Gulf region.

15.79 1.00 106.50/43.80 1435.05 5.45 16.50 4.18 15.34 33.33 3.12 63.55

Perticular (consl)

Dec-10

Dec-09

%Chg YoY

Sep-09

%Chg QoQ

` in Cr
Net Sales Othr.op. Inc Total Exp PBDIT Othr. Inc Depreciation Interest PBT Tax PAT PBDITM% PATM% EPS (Annul)

240 0.2 203 37 3 3 0 37 11 26 15.4% 10.8% 6.6

182 0.3 152 30 1 2 0 29 10 19 16.5% 10.4% 9.7

31.8% -22.6% 33.4% 23.0% 130.8% 4.1% 0.0% 29.2% 13.4% 37.6% -6.6% 4.4% -32.1%

249 0.6 204 46 3 3 0 46 16 30 18.3% 12.1% 15.3

-4.0% -59.3% -0.7% -19.4% 11.5% 0.0% 0.0% -18.7% -27.6% -14.1% -16.1% -10.5% -56.9%

In March 2010, Elgi has acquired SA Belair of France and looking for potential acquisition targets in other developed countries. Elgi has a strong product portfolio of various kinds of compressors which are used in wide range of application in different industries ranging from mining, transport, pharmaceuticals, power, oil, railways, chemicals, textiles, printing, ship building, paper, electronics, telecommunication etc. Diversified portfolio reduces the risk. Elgi has a JV with J P Sauer & Sohn of Germany to develop compressors and related services for specialized applications. In Dec10 Elgi had issued bonus share at 1:1 ratio

Concerns
Elgi is operating in number of countries. Adverse exchange rate would impact profitability of the company. The demand for capital goods is cyclical in nature. Getting share in the markets overseas is important for the growth of the company. Rising interest rates and inflation can also impact performance of the company.

TechnicalView&Recommendation
After witnessing a smart rally from the lows of ` 73 to current levels of ` 90, the stock is consolidating at current level with consistent volumes. Small resistance on weekly chart is placed at 93.50; a confirmatory breakout above this level will take the stock to its previous all time high of 105-106. Moreover the stock is trading well above the 20, 50 and 200 days SMA making the stock bullish from the medium to long term perspective. However RSI trading with upward bias at 59 leaving enough scope for upside before it enters into overbought zone. One can buy the stock with stop loss at 79 for the target of 105 .

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