Motilal Oswal has started coverage on Ellenbarrie Industrial Gases with a 'Buy' rating and a target price of INR 380. This outlook follows a strong first-quarter result where the company achieved a 23% rise in core earnings. Investors should monitor the timely commissioning of new plants and demand from heavy industries, which remain critical for future performance.
Motilal Oswal has initiated coverage on Ellenbarrie Industrial Gases, issuing a 'Buy' rating and setting a target price of INR 380. The brokerage’s optimistic outlook comes after the company reported a solid financial performance in the first quarter of the fiscal year 2027.
In the quarter ending June 2026, the company posted a 23% year-on-year increase in EBITDA (earnings before interest, tax, depreciation, and amortization), reaching INR 376 million. The company's profit margins also expanded to 38.1%, up from 36.7% in the same period last year. According to the brokerage, these gains were supported by improved operational efficiencies at its newer facilities and better control over operating costs. A minor tailwind from higher prices of Argon, one of the gases produced by the company, also contributed to the improved margins.
The brokerage has revised its earnings estimates for the company upwards by 10% for FY27 and 7% for FY28. This confidence is largely driven by the company's ongoing capacity expansion strategy. Ellenbarrie is currently ramping up its Uluberia-II plant, which has a capacity of 220 tonnes per day (TPD). Additionally, the company is preparing to commission a new on-site plant in East India with a capacity of 320 TPD in the second quarter of the current fiscal year. These projects are intended to increase production volume and support revenue growth.
While the brokerage remains positive, investors should consider several business risks inherent to this sector. The company's performance is closely tied to the demand from heavy industries like steel and manufacturing. Any slowdown in these sectors could lead to weaker demand for industrial gases. Additionally, there are operational risks, such as the potential for delays in the commissioning or full ramp-up of the new plants, which could impact projected earnings. The company also faces challenges related to raw material price volatility and the need to optimize power costs through renewable energy initiatives.
Looking ahead, the key monitorables for shareholders will be the successful commissioning of the new East India facility and the company’s ability to maintain its profit margins as it scales up operations. Future earnings will also depend on how effectively the management handles rising raw material costs and manages its debt levels relative to these new capital investments.