When the ground beneath gets shaky, time-tested solid companies often stand the best chance to bounce back strong. And Ingersoll-Rand India stands out as one such company. Incorporated and in business in India for more than a century, it is amongst the top three players in the air compressor industry. And being the multinational entity that it is, a strong parentage in Ingersoll-Rand Inc., based in the US, a global leader in mission-critical air, fluid, energy and medical technologies, helps the company stand competitive in terms of technological prowess and brand recall, amongst others.
The company is in the process of expanding its manufacturing capacity by 50 per cent, from the current 10,000 units per month to 15,000 units per month. This much-awaited capex is coming online by August 2025 and with continued cross-selling and operational efficiencies, Ingersoll-Rand India looks set to ride the industrial capex cycle.
The company looks priced to perfection despite the 30 per cent correction from its peak in May 2024, and is currently trading at around 41 times its trailing 12-month (TTM) earnings. Its closest listed competitors — Elgi Equipments and Kirloskar Pneumatic — are also trading in the same range, at 43 times and 35 times respectively.
Though trading in line with the competition and cheaper to its five-year average TTM PE of 47 times, it is still expensive in absolute terms. But Ingersoll-Rand India clicks in terms of zero debt, strong parentage and sustained revenue growth and margin expansion. However, considering the cyclicality of the industry and expected flattening of the government capex growth curve in the near term, investors can consider holding on to the stock while not making any fresh additions.
The business
Ingersoll-Rand is engaged in the business of manufacturing and selling industrial air compressors and providing adjacent services and solutions. It has products across various technologies and pressure specifications.
Air compressors use power to compress and store air, which is then released at required controlled pressure levels to power machines. The make-in-India initiative together with increasing automation drives demand for air compressors.
The company’s products find end-use primarily in industries in the automotive, metals, pharmaceutical and textile sectors. The recent buzz in electronics and semiconductor manufacturing are also pushing demand with most new facilities coming up emphasising the automation of most processes.
Domestic sales contributed to the bulk, around 82 per cent of the total sales in FY24, and this has been on an increasing trend from around 74 per cent in FY19, despite growth in exports on an actual basis due to faster growth in domestic sales.
Around 90-92 per cent of the revenue comes in from sales of goods, while around 6-8 per cent comes from allied services such as installation, commissioning and maintenance.
While the existing facility is at Naroda, Gujarat, the greenfield expansion, with a capex outlay of ₹170 crore, is underway in Sanand, also in Gujarat. Slated to come online by April 2025, the company recently pushed the commencement of commercial operations to August 2025. The ramping up of operations and its impact on the margins will be key monitorables.
Financial metrics
The company witnessed a strong CAGR growth of 15 per cent/ 39 per cent / 42 per cent in operating revenue, EBITDA and PAT during FY22-24. The faster growth in EBITDA and PAT could be attributed to the margin expansion, thanks to cooling input costs and optimisation of supply chain in recent years, as observed from materials and associated expenses dropping from 61.3 per cent of income in FY22 to 55.7 per cent in FY24. Employee costs also dropped from 11.2 per cent of income to 9.6 per cent during the same period.
The performance in 9M FY25 has also been strong with revenue jumping 13 per cent year on year, while EBITDA and PAT jumped 24 per cent and 26 per cent respectively, again with improving profit margins. Operating leverage has been playing out, but it will have to be seen if there is scope for further margin expansion.
What works
Recent merger (in 2020) of the industrial segment of Ingersoll Rand Group (at the parent level) with Gardner Denver Holdings, a leading player in industrial compressors, vacuum pumps and fluid transfer technology, brought a bigger basket of product portfolio to the table, while expanding the total addressable market (TAM) at the group level, which works in favour of Ingersoll-Rand India. The group is currently the second-largest player globally in the compressor market.
Around 50 new products launched in Indian markets since the merger along with the revival in capex in end-user industries post Covid-19 resulted in a rapid growth phase starting from FY22 to FY24, with revenue booked in FY24 being twice that of FY21. The focus on energy-efficient products within their offerings also shows strong promise, as energy costs add up to around 70-80 per cent of the total lifecycle cost of an air compressor.
The other recent acquisitions (also at the parent level), between March 2021 and June 2024 – Hydro Prokav, Everest Group, Airmax Group, Del Pumps and Seepex also added to backward integration, widening of product portfolio and cross-selling to existing and new customers.
The new plant, apart from enhancing the manufacturing capacity, will also house an R&D test facility for hydrogen compressors, also catering to the growing hydrogen economy targeting 5 million tonnes of green hydrogen production per year by 2030. And the new plant being funded entirely by internal accruals is evidence to the company’s strong cash flow generation.
Key monitorables
The US contributed 13 per cent and 18 per cent of the sales in FY24 and FY23 respectively. Though the percentage of exports has declined, a reasonable exposure to the US might get hampered by the potential tariff regime starting from April 2, 2025. The extent of impact can be ascertained only when the scenario plays out.
Competition from Atlas Copco India and Elgi Equipments is countered by Ingersoll-Rand’s strong parentage at the group level and ability to launch new products to meet customer needs. Sustained investments in R&D to match and beat the competition is a must and will be a key monitorable.
With government capex staying flat for FY26, per the Budget numbers, private capex has to pick up. And any seasonality in the end-user industries is bound to impact Ingersoll-Rand India. But this is an industry-wide concern and not specific to the company.