Elgi Equipments tackles tariffs with cost cuts despite flat EBITDA

Elgi Equipments Limited announced its Q2 FY26 earnings, revealing an 11% increase in sales but relatively flat EBITDA compared to the previous year. The company's EBITDA currently stands at 14.9% of revenue, down from 16.3% last year, primarily due to a 15% rise in employee costs, partly from a 3% headcount increase and currency exchange effects. Strategic initiatives in finance, IT, and HR contributed 1% to 1.5% of EBITDA. Despite flat EBITDA, Profit Before Tax grew by 28%, boosted by a one-off income from a property sale in the US.

The company is addressing a projected $9 million EBITDA impact from US tariffs on exports from India and Italy for FY27 through cost reduction at material and overhead levels, along with price increases. Management is confident that these measures will fully mitigate the tariff impact on profitability. Europe's operations were negative, and North America was near break-even at the EBITDA level for the first half of the year.

Elgi Equipments plans to refine its go-to-market strategy in Europe and the US to accelerate top-line growth, exploring a hybrid model combining direct engagement with distributors for service support. Total investment in Europe has resulted in losses of approximately €25 million. The company is on track with its capex plan, with ₹250 crores firmed up out of a total ₹600 crores over five years, though the timeline for the ₹250 crores portion is extended by about 12 months due to execution challenges.