The stock of ELGI Equipments has declined ~10% from our Buy price of ₹552, having recovered from a 25% drawdown to ₹415 last month. The volatility stemmed from legitimate concerns around US tariffs threatening the company’s global ambitions, but recent policy reversals have fundamentally altered the outlook.
The Tariff Story: From Crisis to Opportunity
Overseas markets contribute ~40% of Elgi’s revenues, with the US accounting for over half of international business (primarily maintenance services). India’s low-cost manufacturing base serving global markets has been central to Elgi’s strategy to become the world’s third-largest compressor player.
The escalation timeline:
- Pre-April 2025: Indian imports faced minimal tariffs (low single digits)
- April 2025: 25% reciprocal tariff imposed
- August 27, 2025: Tariffs surged to 50% (including penalties related to Russian oil purchases)
- February 2, 2026: Tariff rolled back to 18%
Management had estimated that even the earlier US and EU tariffs could impact EBITDA by $9 million in FY26-27. At 50%, the damage would have been severe. The reversal to 18% transforms this from an existential threat to a manageable headwind.
Margin Expansion Ahead
Elgi’s consolidated performance has been held back by lower overseas margins, while standalone EBITDA margins exceed 20%. The tariff normalization creates a clear path for margin expansion internationally—exactly the playbook management intended to execute.Q3FY26 results (due February 11) will be the first indicator of this trajectory. With the tariff reversal to 18%, Elgi’s ambition of becoming the third largest global player in compresses also gets a fresh lease of life.
Here’s a quick look into its consolidated numbers for the last two quarters of FY26.
Product Innovation Adds Momentum
The company recently launched “Stabilisor,” a globally patented product offering first-mover advantage in the compressor industry. This technology provides superior value versus existing alternatives like VFD (Variable Frequency Drives). Sales targets for this product should be unveiled during the Q3FY26 earnings call, adding another growth lever beyond tariff relief.
Investment View
The combination of tariff normalization, margin expansion potential, and breakthrough product innovation restores Elgi’s path to global player status. The recent correction offers an attractive entry point.
We reiterate our Buy recommendation on Elgi Equipments. Investors holding the stock can accumulate if their holding is 10% down or more.
Disclosures and Disclaimers
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I/we or my/our relative or PrimeInvestor Financial Research Pvt Ltd do not have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. I/we or my/our relative or PrimeInvestor Financial Research Pvt Ltd do not have any material conflict of interest. I/we have not served as director / officer, etc. in the subject company in the last 12-month period.
4. I, N V Chandrachoodamani, do not hold this stock as part of my investment portfolio. I/analysts in the Company have not traded in the subject stock thirty days preceding this research report and will not trade within five days of publication of the research report as required by regulations.
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