Elgi Equipments Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Industry Outlook

The global air compressor industry grew steadily during the financial year ended March 31, 2026. In 2025, the market reached approximately USD 23 billion and is projected to grow to USD 27 billion by 2030 at a CAGR of around 3.5% from 2026 to 2030. Strong demand across major end-use sectors, such as manufacturing, oil & gas, healthcare, food & beverages, construction, and semiconductors, continues to drive this sustained expansion.

Three structural shifts are shaping the industrys outlook. First, stricter environmental regulations and the push for sustainable manufacturing practices are driving the adoption of energy efficient and oil-free compressors in purity-sensitive sectors. Second, LNG and hydrogen infrastructure development is increasing demand for compressed air solutions. Third, postpandemic manufacturing re-shoring efforts are boosting installations across North America and Europe. Alongside these shifts, predictive analytics, digital solutions and loT-enabled systems are becoming hygiene factors of compressed air systems.

Asia Pacific retained its position as the dominant regional market, accounting for over 42% of global market share, as rapid industrialization and expanding manufacturing activity in China, India, and Southeast Asia supported growth. The industry navigates two key headwinds: integrating legacy systems with emerging smart technologies and managing supply chain disruptions and input cost pressures arising from trade tariffs and geopolitical tensions. Against this backdrop, the Company is focused on delivering energy-efficient, technologically advanced compressor solutions to capture emerging opportunities across its served markets.

Strategic Business Plan

In FY26, we grew by 13% YoY, backed by strong growth in India despite challenges in Europe. We continued to invest in our strategic and operational enablers to help achieve our long-term financial goals. We will discuss our performance by regions and relevant functions. We will list our strategic priorities and review our FY26 performance.

The following guidance is based on the Companys Strategic Business Plan for the five-year period up to FY31, with FY26 revenue of 39,507 million as the base.

• Revenue target of 66,150 million by FY31, subject to global economic conditions.

• With an EBITDA margin of 18% and a Return on Capital Employed of 35%.

India

Our India business delivered strong growth and profitability. We grew market share across our segments.

We expect similar growth momentum in FY27.

Industrial Oil Lubricated

• Strategic Priorities

• Invest in brand awareness initiatives to generate inbound inquiries.

• Grow market share by winning new customers.

• Maintain profitability with value-based pricing and strong aftermarket capture.

• Focus on launching products for the cost sensitive segment.

• FY26 Review

• Launched our EG and EQ series range of lubricated screw compressors with Demand=Match technology with higher price and margin realisation.

• Launched EG 200-250 Super Premium and EG 55 PMSM range for improved energy efficiency.

• Completed the development of products for the cost sensitive segment and validation progressed well.

Oil Free

• Strategic Priorities

• Grow market share by building awareness, expanding product range, improving product performance, and offering best-in-class aftermarket service.

• FY26 Review

• Achieved annual goals with a strong order book for FY27.

• Launched OA 200-250 kW Air Cooled variant with improved efficiency and reduced footprint.

Construction and Mining

• Strategic Priorities

• Maintain market share and drive profitability.

• Be first to market with new products.

• FY26 Review

• Maintained our dominant market share.

• Continued momentum with the PG850S-290 portable compressor launch.

Water well

• Strategic Priorities

• Recover dominant market share position.

• Be first to market with new products.

• FY26 Review

• Improved performance in water well segment.

Railways

• Strategic Priorities

• Maintain core segment market share.

• Increase share in multiple unit segments and maximise private OEM opportunities.

• FY26 Review

• Expanded market share in core segment.

• Launched RS25100 oil-injected screw compressor for WAG10 locomotive application.

Aftermarket -Industrials

• Strategic Priorities

• Drive profit by maximizing aftermarket revenue from installed base.

• Raise the standards for customer responsiveness and support.

• FY26 Review

• Achieved aftermarket targets across installed base.

• Deployed Air~Alert IoT devices to improve uptime and response time for customers.

Africa and the Middle East

• Strategic Priorities

• Grow market share in the UAE and Saudi Arabia.

• Focus on African countries to maintain our growth momentum.

• FY26 Review

• Maintained market share in the UAE, Saudi Arabia, Oman, and Kuwait.

North America

Our North America business delivered against our financial targets in FY26. The Industrial and Medical divisions achieved record revenues. Operational consolidation across five business divisions improved efficiency and reduced fixed costs. We mitigated tariff headwinds through cost optimisation measures.

The Company has strengthened its sales and service infrastructure for continued growth in FY27.

Industrials

• Strategic Priorities

• Identify and onboard new distributors in priority states.

• Launch go-to-market strategy for the oil free segment.

• FY26 Review

• Achieved record revenue in the Industrial division.

• Continued onboarding of new distributors to address distribution gaps.

• Launched GTM Strategy for oil free segment.

Portables

• Strategic Priorities

• Gain access to national rental companies.

• Reduce fixed cost.

• FY26 Review

• Reduced profitability owing to US tariffs levied on Italy-manufactured Rotair products.

• Reduced employee and fixed costs.

Medical

• Strategic Priorities

• Increase market share on the West Coast and Northeast.

• FY26 Review

• Achieved record sales in FY26.

• Improved profitability of the business.

• Increased customer awareness and revenue from the West Coast and Northeast regions.

Distribution Operations (Pattons and Michigan Air Solutions)

• Strategic Priorities

• Rebuild the sales team to increase Elgis market share.

• Restore profitability in service operations.

• Focus on restoring profitability and improving cash generation.

• FY26 Review

• Revenue targets not fully achieved in distribution operations.

• Improved profitability and operating cash flow.

• Increased direct sales team capacity.

Europe

Despite continued macro-economic headwinds in key markets, we grew market share and achieved record revenue in Spain. USA tariffs softened demand for Rotair products. We expect constrained demand to continue into FY27, and we will focus on reducing costs and expanding direct sales.

Industrial

• Strategic Priorities

• Increase market share by increasing distribution and investing in direct sales in Spain, France, the UK, and Italy.

• Improve profitability by reducing costs.

• FY26 Review

• Restructured the European organisation to reduce costs and allocate resources to direct sales.

• Achieved record revenue in Spain.

• Soft demand across markets.

Rotair

• Strategic Priorities

• Increase sales in non-USA markets.

• Reduce cost.

• Release cash by optimising inventory.

• FY26 Review

• USA tariffs continued to dampen demand for Rotair products.

• Progressed cost reduction and inventory optimisation projects.

Australia and Southeast Asia

The Australian market remained soft. We grew market share by expanding our distributor network and reduced fixed costs in the channel vertical. We didnt achieve our sales and service targets in Victoria. Weve invested in leadership and talent in Southeast Asia to increase revenue.

• Strategic Priorities

• Identify and onboard new distributors.

• Grow equipment and service market share at Pulford.

• FY26 Review

• Onboarded new distributors to expand physical presence.

• Grew equipment revenue at Pulford.

• Renewed focus to recover service revenue at Pulford.

Brazil

• Strategic Priorities

• Maintain share in the portables segment.

• Identify and onboard new distributors for industrial compressors in priority states.

• FY26 Review

• Achieved record revenue, profit, and cash in the portables and industrial segments.

• Increased distributor network.

ATS

ATS grew revenue and profit with growth in strategic non-ice segments.

Elgi Sauer

ELGi Sauer grew revenue and profit with a strong order book for FY27.

Strategic Enablers

Our strategys success hinges on the health of our supporting activities and functions. In this section, we will highlight progress in our enablers, which will support our aspirations in FY27 and beyond.

Leadership

• Appointed Ramesh Ponnuswami, previous India and Australia business leader, to lead ELGis Operations function.

Talent Management

• Employee headcount as on March 31, 2026 is 2257.

• Launched a new global performance management system linking business metrics to differentiated rewards and continuous development feedback.

• Created a pool of certified internal coaches to strengthen leadership capability and enable coaching across the organization for talent development.

• Roll out of Talent Management framework (Project IOT- Integration of Talent) across the organization to build a cohesive, future-ready talent pipeline.

Operations and Supply Chain

• Reduced finished goods and raw material inventory globally.

• Institutionalised the COSMOS programme across manufacturing facilities globally and achieved significant cost savings in FY26.

• ELGi motor manufacturing now covers 88% of in house requirements, which helped mitigate ELGis USA tariff burden and reduced lead time to 3 days.

• Continued geopolitical tensions pose risks to supply chain continuity and input cost stability.

• Inaugurated the Vacuum Pump assembly line in January 2026 at Coimbatore.

• New Global Support Centre at Kinathukadavu is on track for completion in Q1 FY27.

Products and Technology

• Strategic Priorities

• During FY25-26, ELGi launched a range of products and features with focus on enhancing energy efficiency and widening portfolio coverage, while also driving backward integration.

• FY26 Review

• Vacuum Pump

o Established indigenous Rotary Vane Pump assembly & testing capability.

• Oil Lubricated Compressor

o Launched EG 200-250 Super Premium range with 2-stage airends and IE4 motors delivering up to 12% specific power savings.

o Launched EG 55 PMSM with indigenously designed IE5+ Permanent Magnet Synchronous Motor for variable speed applications.

o Launched EG30-45kW with Direct Drive design to offer improved performance & compact design.

o Commenced global assembly of EN Air Stations (compressor-tank-dryer) in the 2.2 to 15 kW range.

o Obtained required certification and completed product readiness for various global markets, such as Canada, Norway, Germany.

• Oil-Free Compressor

o OF90-160kW Air Cooled units with Integrated Heat Recovery System with dual cooling mode launched to support customers recover waste heat and reduce power bills.

o Launched OA 200-250 kW Air Cooled with IE4 motors, Neuron-IV controller, Air~Alert IoT, and reduced footprint.

o CRN certified products for Canadian market in the range of AB11-75kW.

• Portable Compressor

o Products in C&M range upgraded for Excavator mounting & DGMS compliance for mining sector.

• Demand=Match:

o Launched the patented Demand=Match system in India across all single stage Oil Lubricated product groups which will deliver up to 17% energy savings.

o Global launch planned in FY27

• Accessories

o Launched indigenised ARN Series refrigerated dryers (20 to 500 cfm) globally; USA supply is scheduled to commence in Q1 FY27.

o Launched Aluminium Compressed Air Piping (20 to 200 mm) for the Indian market.

• Railways:

o Launched RS25100 oil-injected screw compressor package for WAG10 locomotive application.

• Other initiatives:

o ELGi motor implementation on EG and AB in the range of 90-160kW to offer better value proposition to our customers.

o Air~Alert - an IoT enabled system to improve uptime, energy efficiency and 24x7 monitoring, was made standard for EG 18 and above oil lubricated models in India. Globally, Air~Alert system was made standard for models EG 90 and above, AB and OF Series.

Information Technology and Digital Transformation

• Strategic Priorities

• Develop technology and a digital roadmap to enable long-term goals.

• Drive the digitization of business processes.

• Enhance the overall Digital Quotient (DQ) of the organisation and create an effective digital ecosystem through partnerships.

• FY26 Review

• Established GCC-led operating model with approximately 90% centralised offshore delivery.

• Significant progress in establishing Global Sales Platform, Employee Platform, Demand Planning Platform, Warehouse Automation Platform and Product development platform.

• Deepened strategic partnerships with reputed IT service providers.

• ISO 27001 (2022) certification achieved.

• AI and Data COE operationalised to deliver advanced analytics capabilities.

Brand

• Strategic Priorities

• Drive awareness, consideration, and conversion in target markets.

• Manage stakeholders experience (customers, employees, investors, suppliers, and society) with our brand.

• FY26 Review

• Significant growth in awareness and leads generated from our digital and social media platforms.

• Continued growth in our public relations presence globally.

ESG

• Strategic Priorities

• Environment: Focus on energy efficiency, lower emissions, and resource-neutral operations.

• Social: Employee centricity and access to quality education.

• Governance: Inclusive ESG governance.

• FY26 Review

• The share of renewable energy is 57% for FY26 (39% in FY25).

• Reduced freshwater consumption using harvested rainwater by 21% for FY26 (2% in FY25).

• 13 of 15 ESG goals are on track or significantly better than plan; 2 are behind plan.

• Project Stellar at ELGi School commenced its first batch of 22 students in June 2025 for Academic Year 2025-26. A batch of 50 students is planned for 2026-27; free residential facility expected to be operational in 2 years.

• 4 students enrolled in the CATALYST Scholarship Programme at Amrita University, pursuing their BTech in Mechanical Engineering. The program will continue with a new intake in the coming Academic Year.

Summary of Consolidated Financial Performance

The following table highlights key components of Statement of Profit and Loss for the fiscal years ended March 31, 2026, and March 31, 2025:

			(Rs. in millions)
Particulars	FY26	FY25	YoY%
Revenue from operations	39,507	35,104	13%
Total expenditure	33,716	29,829
EBITDA	5,791	5,275	10%
Other income	1,102	577
Net gain/(loss) on foreign currency transaction and translation	76	(26)
Finance cost	254	305
Depreciation and amortisation	858	760
Share of profit of joint ventures (net)	67	55
Profit before tax and Exceptional items	5,924	4,816	23%
Exceptional items	(150)	-
Profit before tax	5,774	4,816	20%
Tax expense	1,472	1,314
Net Profit	4,302	3,502	23%
Net Profit %	11%	10%

Revenue from Operations: During the financial year under review, the Company recorded a consolidated revenue of 39,507 million as compared to 35,104 million in the previous financial year, reflecting a growth of 13%. The growth in revenue was driven by improved performance across key geographies, expansion of distribution network, increasing demand for energy- efficient compressed air solutions and continued focus on key markets. The Company also benefited from its diversified product portfolio, strong aftermarket business and continued customer engagement initiatives.

Total expenditure: Total expenditure for the current year increased to 33,716 million from 29,829 million in the previous year, primarily on account of higher material consumption, investment in talent, capability building and strengthening of global operations.

EBITDA: The Company reported an EBITDA of 5,791 million compared to 5,275 million in the previous year. The improvement in EBITDA was supported by higher revenues, operating leverage benefits and continued focus on cost management and operational efficiency initiatives across the business.

Other income: Other income increased to 1,102 million from 577 million in the previous year, primarily driven by gain on sale of a property of 389 million and higher interest on surplus funds.

Finance costs: Finance cost decreased to 254 million from 305 million in the previous year, on account of repayment of borrowings and lower interest outgo during the year.

Depreciation and amortisation: Depreciation and amortisation stood at 858 million as compared to 760 million in the previous year, reflecting impact of capital investments and asset additions.

Exceptional item: The Company recognized an exceptional item of 150 million during the year ended March 31, 2026, on account of the implementation of the Labour Codes notified by the Government of India on November 21, 2025.

Profit before tax: The Company reported a consolidated profit before tax of 5,774 million as against 4,816 million in the previous financial year. The profit after tax stood at 4,302 million, as compared to 3,502 million in the previous year. The improvement in profitability was supported by revenue growth, operational efficiencies and disciplined cost management initiatives, partially offset by macroeconomic challenges in certain markets.

Consolidated Balance Sheet Highlights

Below is a discussion of major items and variations in our consolidated balance sheet as at March 31, 2026, and March 31,2025:

			(Rs. in millions)
Particulars	FY26	FY25	Absolute change
Assets
Tangible assets	4,515	3,307	1,208
Right of use assets	1,228	807	421
Goodwill and Intangibles assets	2,604	2,331	273
Investments accounted for using the equity method	196	205	(9)
Inventories	7,107	6,085	1,022
Trade receivables	7,239	6,084	1,155
Cash and cash equivalents (incl. Current investments)	10,258	9,096	1,162
Other financial assets	707	758	(51)
Other assets	1,601	1,742	(141)
Total	35,455	30,415
Equity and Liabilities
Share capital and other equity	22,319	18,656	3,663
Borrowings	4,048	4,908	(860)
Lease liabilities	1,283	864	419
Other financial liabilities	5,935	4,361	1,574
Other liabilities	1,870	1,626	244
Total	35,455	30,415

The consolidated financial statements of the Company have been prepared in accordance with the applicable accounting standards and provide a comprehensive view of the financial position and operational performance of the Company along with its subsidiaries.

Tangible assets: Tangible assets increased to Rs.4,515 million as at March 31, 2026 from Rs.3,307 million as at March 31, 2025, primarily on account of capital expenditure incurred towards capacity expansion, infrastructure development and investments in manufacturing and operating assets to support future business growth.

Right-of-use assets: Right-of-use assets increased to Rs.1,228 million from Rs.807 million in the previous year, mainly due to addition of new lease arrangements in the India region during the year. The increase reflects expansion of leased facilities to support operational requirements and business growth across key locations.

Goodwill and Intangible assets: Goodwill and intangible assets stood at Rs.2,604 million as compared to Rs.2,331 million in the previous year, primarily due to foreign currency translation impact on goodwill pertaining to overseas subsidiaries.

Inventories: Inventories increased to Rs.7,107 million from Rs.6,085 million, in line with higher business volumes and inventory build-up to support future growth, also aided by foreign exchange translation impact.

Trade receivables: Trade receivables increased to Rs.7,239 million from Rs.6,084 million, primarily in line with growth in revenue. The increase is further supported by a stable debtor turnover ratio.

Cash and cash equivalents: Cash and cash equivalents including investments in financial instruments increased to Rs.10,258 million from Rs.9,096 million, reflecting healthy cash generation from operations and prudent liquidity management during the year. The Company partially utilised cash generated during the year to repay the loans.

Share capital and other equity: This has increased to 22,319 million from 18,656 million, primarily driven by the profit for the year, adjusted for dividend payout. This is also reflected in the improvement in return ratios such as ROCE and RONW.

Borrowings: Borrowings decreased to 4,048 million from 4,908 million in the previous year, mainly due to repayment during the year and partly offset by unfavourable exchange fluctuations.

Financial liabilities: Financial liabilities increased to 5,935 million from 4,361 million, mainly due to increase in trade payables and other operational liabilities in line with business growth and higher scale of operations.

Details of significant changes in key financial ratios:

The key financial ratios of the Company for the financial year under review, along with comparative figures for the previous year, are as follows:

Particulars	FY26	FY25	% Change
Inventory days	61	64	-5%
Debtor days	62	63	-2%
Current Ratio	2.1	2.1	-
Interest coverage ratio*	30.7	19.3	59%
Debt equity ratio*	0.2	0.3	-31%
Return on capital employed	38.4%	35.6%	8%

*Excluding interest on lease liabilities and lease liabilities, respectively.

The changes in key financial ratios are explained below:

• The improvement in Interest Cover times and Debt-Equity ratio is primarily driven by repayment of borrowings through internal cash generation during the current year.

Risks

During the year under review, the Company undertook an independent and comprehensive evaluation of enterprise- level risks, pursuant to its risk governance framework, and duly identified the key risks along with the corresponding mitigation measures. The details of the same is provided under the section Risk Management in Boards Report.

Internal Control Systems and Their Adequacy

The Company has adequate internal control systems to monitor business processes, financial reporting and compliance with applicable regulations. The systems are periodically reviewed for identification of control deficiencies and formulation of time-bound action plans to improve efficiency at all levels. The Audit Committee of the Board constantly reviews internal control systems and their adequacy, significant risk areas, observations made by the internal auditors on control mechanisms and the operations of the Company and recommendations made for corrective action through the internal audit reports. The Committee reviews the statutory auditors report, key issues, significant processes, and accounting policies. The Directors confirm that the Internal Financial Controls are adequate with respect to the operations of the Company.