Elgi Equipments Limited (NSE: ELGIEQUIP) Q1 2026 Earnings Call dated Aug. 13, 2025
Corporate Participants:
Unidentified Speaker
Jairam Varadaraj — Managing Director, Executive Director
Analysts:
Unidentified Participant
Kamlesh Kotak — Analyst
Harshit Patel — Analyst
Bhavin Vithlani — Analyst
Bhavin Vithlani — Analyst
Presentation:
Kamlesh Kotak — Analyst
We welcome you all to the 1QFY26 earnings webinar of LG Equipments Limited. We have with us today Mr. J.R.A Madraj, Managing Director representing the company. I would request Mr. J.R.A.M to take us through the results presentation followed by Q and A session. Over to you, sir. Thank you.
Jairam Varadaraj — Managing Director, Executive Director
Thank you very much, Kamlesh. Thank you very much Asian Market securities for organizing this. Ladies and gentlemen, I apologize for being a little late. I had some difficulty.
Kamlesh Kotak — Analyst
Sir, you are not audible.
Jairam Varadaraj — Managing Director, Executive Director
Hear me now?
Kamlesh Kotak — Analyst
Sorry sir, we can’t hear you.
Jairam Varadaraj — Managing Director, Executive Director
You hear me now? No, no sir, your voice is sounding too. Is it better? Is it better now? Can you hear me?
Kamlesh Kotak — Analyst
Yeah. Can you be be a bit louder, sir? Then it will be okay.
Jairam Varadaraj — Managing Director, Executive Director
I, I. Yeah, yeah.
Kamlesh Kotak — Analyst
Now it’s better. Perfect. Go ahead. Sir, that we seem to have lost you again. Sir.
Jairam Varadaraj — Managing Director, Executive Director
I’m asking to get disconnected on this. Yeah, disconnecting. Can you hear me now?
Kamlesh Kotak — Analyst
Yes, yes, I think better.
Jairam Varadaraj — Managing Director, Executive Director
I don’t know what to do here. Just had difficulties right through this morning. Can I go ahead now?
Kamlesh Kotak — Analyst
Yes, sir. Yes, please go ahead.
Jairam Varadaraj — Managing Director, Executive Director
Okay, so ladies and gentlemen, I apologize for this. I had some difficulty connecting up and for technical issues, I’m really sorry about that. I hope you. Can you let me project this again? I hope you can see my screen now.
Kamlesh Kotak — Analyst
Yes, sir.
Jairam Varadaraj — Managing Director, Executive Director
Okay, thank you again. Apologies. I’m going to take you through the the earnings call and some highlights about our business. I’ll start with as usual, the EBITDA reconciliation compared to the previous year, previous year, same quarter, our revenue grew by about 8%. And for that 8% our EBITDA should have been 1500 and odd million whereas we came in at 1200. Our contribution and gross profits have been quite healthy. Continue to be strong. There were two expenses that have gone up. One is employee cost and other expenses. I had highlighted earlier that we are going through certain initiatives as part of our various programs including our digital IT finance transformation.
So the expenses that have come in are relating to that. Our employee cost. As you will notice, it’s a 10% increase but the actual increment is not 10%. The normal increases has been in the range of 5 to 6% in a global context. And the balance of the increase has been primarily headcount increases that we have planned and done as part of the initiatives. So the summary of this is profitability at an operating level continues to remain strong. Our expenses are pertaining to initiatives that we are very sure is going to give us solid results in the future.
Moving on on a sales highlights all of our regions and countries grew except Europe and Australia. Europe continues to remain challenging economically and there are things that we need to do as well, which we have initiated as part of shifting direction. Australia, the economy has been weak, but it’s coming back and we are quite confident that with some of the things that we are doing, we will get back to a good growth in these two regions. So this is a highlight at both. At a revenue level which we have already spoken about. At a PBT level, we have grown 18% and you will see it towards the end of this presentation when you look at the consolidated or the overall financials.
We have done very well in terms of our cash position and we have managed that cash very well through our treasury and that has contributed also to a healthy pbt. Besides the operations sales mix, both between the businesses, between the two businesses and geographically has roughly been the same. It kind of vacillates 2 or 3% up and down from quarter to quarter. So it continues to be at the same level and we expect that this will be the case going forward as well. This is a consolidated financials that I was referring to. When you look at our pat growth has been quite significant on the back of our other income, which includes financial income through our treasury and our cash.
So our net cash position in as as of the end, the end of the first quarter has been pretty healthy. In our. In my earlier call we were talking about managing our inventory, managing our receivables, managing overall working capital. All these are beginning to yield results. What you’re seeing now is not a big contribution, has not come from all the initiatives that we have kicked off for better working capital management. Therefore, I expect to see improving cash positions in the coming quarters. So this is an overall presentation from my side just as a quick thing on revenue, our revenue has.
In terms of our growth, we have had. Just give me a minute. Close to bulk. Quite a bit of it has been our volume growth. There has been a balance between volume growth, exchange rate as well as price increases. I wouldn’t say that any one has been a huge contributing factor, but a large piece, a big contribution has come from volume. So this is really what I wanted to say as far as the numbers are concerned. I will now give you a little bit of background on our various businesses. We’ll start with Australia. Australia, like I said, has had challenges in the economy.
We are working on different initiatives to expand our presence there. So it’s been slower than what we expected. But we think that in the third and fourth quarter we will start seeing some strong comeback in Australia. Southeast Asia continues to be a very small region. Growth has been there compared to the previous year, but it’s not a large number. We’ve got some initiatives that we are looking at in specific countries, but it’s too early to talk about. India has been a strong story for us, continues to remain strong, but we are beginning to see some hesitation in markets, some tentativeness brought about by all these conflicts in the different parts of the world.
But more importantly, the tariff situation in the US A lot of companies are. The inquiry levels continue to be strong, but finalizations are getting deferred because people are wanting to wait and see where this whole tariff situation is going to land. Everyone knows that 50 is not sustainable not only for India, but for the US and for the rest of the world. But where will it land? Will it be at 20%, 25%? This is something that people would like to understand before they go forward. In terms of investments. We are seeing that. But nevertheless, our various initiatives across various product categories are partially compensating for it.
And that’s where we are beginning to. I mean, we have seen the growth. We continue to remain optimistic about delivering on this trajectory in the next few quarters in India. So I don’t see any reason for us to be too concerned moving further west into Middle east and Africa. Both those regions have done well for us in the past and they continue to do well. Strong revenue and strong profitability. From a region point of view, they’re still small, but they are quite robust in their operations and profits. Europe has been a challenge. We are working towards various initiatives that will kick start for us Europe all over again.
We are keeping our head above the water as far as not dipping back into a loss situation. The loss that we are seeing is not. Is primarily because of the extremely strong euro with respect to the rupee. In rupee terms, there has been an increase in loss primarily because of the depreciation of the rupee. But in euro terms, we are still keeping our head above the water and we are working on various initiatives not only to protect the bottom line, but to grow the top line quite significantly. Our business is under challenge primarily because it’s a.
There’s a large dependence on the US market and with these tariffs and the general dip in the construction and mining segment in the US which goes through cycles and right now we are at the bottom of the cycle. There has been a challenge, but the, the business and the company is still making profits and we can, we hope that the next few Quarters There will be growth in that entity. Moving on to the Americas, North America specifically particularly it has done well for. Us in we have grown how will be.
Kamlesh Kotak — Analyst
Sir, we are losing you in between. Sir.
Jairam Varadaraj — Managing Director, Executive Director
Can you hear me now?
Kamlesh Kotak — Analyst
Yes, sir. It be audible. Could you please repeat the last statements and the one that you’re making?
Jairam Varadaraj — Managing Director, Executive Director
All growing.
Kamlesh Kotak — Analyst
So we are still losing you, sir, the words are dropping in between. Sir.
Jairam Varadaraj — Managing Director, Executive Director
Is it better now?
Kamlesh Kotak — Analyst
So, I mean, the volume of your voice has gone down.
Jairam Varadaraj — Managing Director, Executive Director
Can you hear me now?
Kamlesh Kotak — Analyst
Yes, sir, it’s getting better.
Jairam Varadaraj — Managing Director, Executive Director
Is it okay?
Kamlesh Kotak — Analyst
Yeah.
Jairam Varadaraj — Managing Director, Executive Director
Okay. So the thing is, I’ll repeat what I just said. As far as the US market is concerned, all our businesses are growing. Well, there. But to sustain our industrial business, which is. I’ll talk about the industrial business first and then come back and talk about the portables the industrial business at 25% tariff, we would have managed. We had created already multiple initiatives. We have inventory that will last us for a few more months by which time these initiatives would kick in. And we were reasonably confident that we will overcome the impact of 25% duty and still be competitive in the US market.
Now, with this additional 25% duty, the current initiatives that we are running and the current options that are available are not adequate. We need to make some fundamental structural changes which we are evaluating. It is too preliminary for me to talk about it for two reasons. One, the plan itself is at a certain altitude, which would be not prudent for me to talk. Second is we don’t even know whether this 25% is going to be sustained. So in the next month, month and a half, we will know whether we need to trigger some of these structural initiatives that will enable us to compete in that market with that additional 25 tariffs.
So that’s really where we are. So for the next few months, I think till the middle, middle to end of the third quarter, we should be fine. We hope that we will find a resolution between now and then, either in the form of lower tariffs that get settled, which we don’t influence. But if that were not to happen, at least we will have a plan in place. Now, if we have to make some structural changes in response to this additional 25%, it’ll take us at least a year for us to respond to those, to get back to that level of competitiveness.
So things are very fluid now. So I don’t want to make any firm statements except that we are really on top of things. We are working on multiple initiatives to, to resolve. It is a strategic market. This is not A market that we are going to walk away from. No amount of duty is going to, you know, distract us from our presence there. We will continue to work on solutions. This is on the industrial side. On the portable side, it is primarily exported out of Europe from Rotair. There is a 15% impact. We are working on various cost reduction initiatives and we are reasonably confident that we will be able to mitigate this 15%.
So I am not too concerned about the portable business as it is. It is at a low ebb, low point in the cycle. We expect in another six to eight months or a year it’ll come back and we’ll be in a good position to capitalize on it. So overall, except for the uncertainty in Europe, I mean in the US startup situation, everything is good. So now I will wait for your questions to clarify further. Thank you very much.
Questions and Answers:
operator
Thank you so much, sir, for your opening remarks. We’ll wait for the question queue to ascend. Give me a couple of minutes. Sir, the first question, we’ll take it from the line of Harshit Patel. Harshit, you may unmute yourself and go in with the question.
Harshit Patel
Hi sir, thank you very much for the opportunity. So my first question is on the composition of our US Business. We sell industrial compressors manufactured in India and then we export it to us. We also sell portables from Rotair to us. We also assemble those medical compressors branded in the name of patents over there. So what is the share of all these activities in our overall North American revenues? So I am just trying to gauge what portion of these revenues will be impacted by tariff and to what extent. That’s what my view is.
Jairam Varadaraj
So I understand your question. I don’t want to get into that minute details. If you can go to our, our annual report of March 25, you will see the sales of the various entities. Yeah. That is declared there. So you will be able to make out what percentage of the revenues delivered by which entity. That. Yeah. So there is Patterns Inc. There is Patterns Medical, that is Michigan Air and LG Industrial, which is a combination of both industrial and portable. I wouldn’t like to give you the split between those two products, but from an entity level those numbers are there.
Harshit Patel
Sir, just to clarify this, Michigan Air, all these products are manufactured in India only or do we have some other kind of sourcing arrangement over there?
Jairam Varadaraj
Most of our equipment sale and aftermarket sale comes from India.
Harshit Patel
Sure.
Kamlesh Kotak
There very little. Very little. You can, you can on average take about 15% as bought out there.
Harshit Patel
Understood? Sure. Sir. My second question is on the profitability in both US and Euro. I think we had achieved the breakeven level in the fourth quarter of FY25 in both these geographies. And, and correct me if I got it wrong, you mentioned that at 25% tariff levels, not the additional 25 but the initial 25 we should be able to sustain these breakeven levels in the.
Jairam Varadaraj
U.S. no, U.S. is actually profitable. Harshit. Right. It was not profitable in the last quarter of last year but this quarter it is profitable. We can sustain it and I’m saying US at a consolidated level of all the businesses it is profitable and we can sustain it if the tariff is at 25%. That’s my point. As far as Europe is concerned it had broken even last year. It continues to break even at a Euro level. But because the Euro has depreciated, I mean appreciated significantly, there is a loss in the in when you restate it in rupee terms.
Harshit Patel
Understood perfectly. Thank you. Thank you very much sir for answering my questions. I’ll come back.
operator
Thank you. Ashut. Next question. We’ll take it from the line of Mayank. Mayank, you may unmute yourself and go ahead with the question. Mayank, I think we facing some technical difficulty from Mayank’s end. We’ll take the next participant in line. Rahul. Rahul, you may unmute yourself and go ahead with your question.
Jairam Varadaraj
I’m wondering if everyone’s got technical issues today.
operator
Rahul, we’ll take Rahul a little later. Next question is from the line of Bhavin Vitlani. Bhavin, you may unmute yourself and go ahead with the question.
Bhavin Vithlani
Good morning Jay.
Jairam Varadaraj
Morning Bhavan, how are you?
Bhavin Vithlani
Very well thank you Jay. First my compliments. Really impressive performance and we saw your peer reporting yesterday. I mean really appreciated the performance. I have a couple of questions. So you have 18 key end user industries that you outlined in the annual presentation and out of that the critical ones that which are the larger salience. If you could give us a color where you are seeing an uptick in the inquiry level and where is it that you are actually seeing a slowdown or and I mean mid teens growth for us is really impressive and it looks like you have clearly gained shares.
So what’s the kind of share that you have gained?
Jairam Varadaraj
So I don’t want to talk too specific Bhavin, the point is as far as India is concerned before all this tariff conversation started there was high levels of optimism across all segments. There was no, I wouldn’t call out any one segment that was especially strong or A segment that was especially weak. Now across the board we are seeing a bit of a pause. But the pause and the reversal are a little bit more pronounced in segments that are more substantially dependent on the US Namely the textile industry. Right. Auto components is the second one. But auto components I think, I think they are a lot more confident that they can handle this tariffs better.
But textiles, considering that Bangladesh and the other countries that could become a competitive option, their degrees of freedom to respond are limited. Whereas auto components, you don’t see the switching costs are very high. I don’t think it’s going to happen that quickly.
Bhavin Vithlani
And on the market share it clearly looks like you have gained considerable share.
Jairam Varadaraj
We haven’t, we haven’t tallied our share yet. We are growing for no doubt we, you know this is. Market share is a very elusive number because it’s not really published in any meaningful manner. So we every once in a while we’ll go back and try and assemble together the market data and try and do it. But to your point. Yes. Have we gained. We probably have.
Bhavin Vithlani
And some of the initiatives that you had in terms of stabilizer, the depth of increase in the depth of products for the oil free screw and also if you could also talk about the water well piece given that monsoons are starting.
Jairam Varadaraj
The stabilizer has been put into the market for more extensive customer feedback and not so much customer feedback but to gain testimonial. And every customer that we have installed in the their experience has been outstanding. So we are very, very excited about it. In the month of September we will be launching the product or the technology across India and I think by April is the timeline for launching it globally. Right. So that’s a very exciting thing for us. Similar such technologies are being worked on at various stages of, of being ready to bring into the market.
As far as the water well is concerned, you know the like I said dtzetup not at the peak, not at the bottom. It’s kind of somewhere in between. We are continuing to hold and in some locations gain share. So it’s not a big market at this point in time. The total market is not so big. So we are doing better than what we had planned in water well. Sorry, I forgot your third question.
Bhavin Vithlani
Oil free screw.
Jairam Varadaraj
Oil free screw, yeah. We have the full range. There is nothing specific that we have done.
Bhavin Vithlani
So last question from my side. So when I look at last year’s performance for the US revenues were flattish and in the commentary you mentioned there was a significant drop in the portables. So is the Share of portables too tiny that even a sharp drop doesn’t impact the overall headline numbers for the U.S.
Jairam Varadaraj
It’S not true. I mean portables is not a small business and at peak levels and when it drops there is a substantial drop. But overall will it have huge double digit impact? No.
Bhavin Vithlani
Okay.
Jairam Varadaraj
Yeah.
Bhavin Vithlani
Thank you so much. Those are my questions.
operator
Thank you. Babin. Next question. We’ll take it from the line of Mayank. Mayank, could you please unmute yourself and go ahead with the question? I think the problem. Problem. Take the next person in the queue.
Jairam Varadaraj
Yeah.
Kamlesh Kotak
Vipul, can you please unmute yourself and go ahead with the question?
Jairam Varadaraj
I’m getting there’s a message which says from Mayank saying that not able to unmute. Is there an overall control that you have?
operator
No, sir, the lines are pretty much open. Mayank, can you unmute yourself?
Jairam Varadaraj
He sent a message saying that he’s unable.
operator
I read through it.
Jairam Varadaraj
Yeah. Maybe it’s the same problem with Vipul as well.
operator
Sure, we’ll take the next person in. Q. Sir, Salil, can you unmute yourself and go ahead with the question?
Unidentified Speaker
Yes. Thanks. Good morning, Dr. Jaira. So my question is, you know, on, on these cost saving initiatives that you are going to put in place if you know, tariffs remain at 50%. Right. Now you already done a 25 kind of, you know, bridging the gap between what you were earlier and with the new tariffs now another 25% seems like a very, you know, at least to us as outsiders that seem like a very tough one to achieve. So would love to understand, you know, maybe one or two examples of what you have managed to do to bring it down.
And related to that is, you know, how much time do you think you need to get from 25 to 50% tariff adjustments?
Jairam Varadaraj
So Salil, what I had said is we have a solution in place for the first 25. Right?
Unidentified Speaker
Right.
Jairam Varadaraj
We don’t have a immediate solution in place for the next 25%. Right? Yeah, the next 25%. The solution is not going to look like the solution that we have had for the first 24. Right. So that’s why I said the second 25 will involve certain structural changes. Right. In the way we are organized, the way we are, our geographical presence and all that. Yeah, it will, it will demand a much more fundamental change. Now those changes, those fundamental changes will be exposed, expensive to implement. It will take time to implement and therefore before we trigger them, we need to be 100% sure where this tariff is going to settle down.
Yeah.
Unidentified Speaker
Okay.
Jairam Varadaraj
Till then we will not trigger those, those kinds of solutions. The first 25% is in the bank. We don’t have an issue. We will deal with it. Part of it will be a price increase because everyone is looking at a price increase. Some of them have already implemented it. We will wait and watch at what levels the market settles down as far as prices are concerned. We think it will be anywhere between 5 to 10%. Right. It will be the price correction that will take place as a consequence of these tariffs. Now therefore, it leaves us a gap of anywhere between 15 to 20%.
We are. Well, we have, we have enough done to be able to mitigate them. So 25, we are very comfortable. Right.
Unidentified Speaker
And if it settles below 25, then obviously you maybe pass on some of the no prices to the customers.
Jairam Varadaraj
No, it’s profit for us.
Unidentified Speaker
Profit for us. All right, fantastic.
Jairam Varadaraj
Great.
Unidentified Speaker
So second question is, you know, this domestic market share, you know, what looks like could possibly be a market share gain? Would you hazard a guess as to, you know, is it your new variable frequency drive products that are driving this or would this be a longer term investments in business that you made which has helped you get very fast?
Jairam Varadaraj
This is not technology that, like I said, the technology of our new technology that we have launched is not, is not been launched yet. Right. So the impact that you’re seeing is not from that. Right. It’s just fundamental shifts in the way we are doing business, engaging with customers, our market strategy, our marketing strategy, all of it. So I can’t put a saying that this one thing has given us that. Right.
Unidentified Speaker
And so lastly, if you know, you were to look at, you mentioned that, you know, till the tariff increases happened in a domestic market. Look, all right. In the sense that your customers seem quite optimistic or of the outlook textiles and autocomp are now impacted, but broadly using X of tariffs, what is the general demand? Commentary. Because you know, the macro does not. The newspaper headlines always seem to be little pessimistic. But when you are on the ground meeting customers, how do you see broader industrial demand in India over the next 12 months or so?
Jairam Varadaraj
Ex tariff. I think everything is possible. Yeah. But you know, it’s very difficult to say, you know, we ignore the tariff. Right. And it’s a large market, it’s a large economy. So I get the market in the US It’s a large economy which any dislocations there could have a ripple effect globally. Right. So nobody can really ignore it. Right.
Unidentified Speaker
Okay. So. Got it, got it.
Jairam Varadaraj
Great.
Unidentified Speaker
That was all for me. Thank you so much.
operator
Thanks a little. Next question. We’ll take it from the line of Amit. Amit, you may unmute yourself and go ahead with your question.
Unidentified Speaker
Hi sir, I’m audible.
Jairam Varadaraj
Yeah.
Unidentified Speaker
Yes, Amit, Yeah, thanks for taking my question. So first question on the delay in finalization of orders which you highlighted, which many companies are highlighting amid tariff uncertainties and geopolitical situation which we saw so wanted to understand even if with the scenario of 25% tariff or 50% tariff, are we going to see the delays continue for the remaining nine to 12 months, are we going to see the projects getting shelved off because of the higher tariff even if it is 25%? Some understanding there. And any particular sectors where we are seeing the finalizations has been particularly delayed because of this scenarios.
That is my first question.
Jairam Varadaraj
So I can’t give you a coherent answer at an economy level. Amit, I can only say that certainly customer sentiment is wait and watch. Right. It is not about closing projects. Nobody’s closing projects. Everybody’s saying let’s wait and see. That’s the prevailing sentiment. The optimism with respect to the Indian market continues to remain. But everyone’s saying let’s wait and see. Yeah. As far as the segments are concerned, like I said in my, in my earlier thing, there are things like textiles who have a significant dependence on the U S market and who have a significant impact because of tariff.
And where there are alternate countries as solutions for the American customer, they are a lot more concerned and therefore a lot more cautious about investments. Textiles is an example. I mean when you look at textiles, you have Bangladesh, you have Vietnam, you have Indonesia, you have Thailand, all of them have got much lower tariffs than India. Right. So there is definitely. And the switching costs in these are not very high. Right. So when that happens there will automatically be an apprehension. The rest we just have to wait and see where it lands because it’s too much of turbulence and dust for us to see through this cloud.
Yeah.
Unidentified Speaker
Sure. The second question is on the Europe and Australia market. So I recollect for Europe we did also highlighted that we’ll be expanding into Nordic countries where the opportunities exist and also setting up expanding the distribution network there. So have we done any progress there? And yeah, and despite Europe is slow down. Are we thinking of any other strategy apart from what we highlighted in last call that you’ll want to expand to Nordic countries. So any further strategic change we are doing in Europe to become better there?
Jairam Varadaraj
So Nordics was nothing new. We’ve always been present in the Nordics and it continues to do. Well for us the problem is not a specific location in, in Europe generally there is a, you know the first, the Ukraine war really dislocated energy prices and there were issues there. Then all the major economies in the, in Europe had that took an impact on the cost of many refugees coming into Europe from various countries, Syrian from many countries. So they had to pay for it. So there was, so there was economic constraints because of that. And then the general, now the general US tariff thing.
So it’s a combination of multiple things that there is a certain economic stagnation. But one vector that everyone is looking at as a bright spot is the huge investment that the whole EU is making on defense.
Unidentified Speaker
I can’t hear you, I’m audible.
operator
Yeah, Yeah, I think Mr. Jairam has just frozen. Give us a minute. I think I’ll reconnect. Hello?
Jairam Varadaraj
Hello.
Unidentified Speaker
Yeah, you are audible.
Jairam Varadaraj
Hear me now?
operator
Yes sir, we can see you. The voice is a little lower again.
Jairam Varadaraj
I don’t know, really don’t know. Better now.
Unidentified Speaker
Yes sir, go ahead.
Jairam Varadaraj
I apologize for all these constraints. I was telling about the investment that’s being made by the EU in the defense sector. There’s significant amount of capital that is being put in. There will be a trickle down impact on the demand for general industrial growth. So we expect that’s a bit of a rainbow at a distance and we are hoping that the economy, the whole European economy will get a boost by virtue of this. But that’s not a short term play, that’s more a medium to long term play.
Unidentified Speaker
Right? Sir. Sir, lastly on our capex plan we did talked about 250 crore in first two years. Just wanted to understand amid all the challenges is this on track? And second, our guidance of $450 million this year, is this on track? That’s my last question. Thanks.
Jairam Varadaraj
So yes, the investments that. We are not here for the short term, Amit, we are here for the long term. There are certain expenses that we may cut back which we can defer, we will defer. But whatever is required for sustaining the business in the longer term, as per the longer term plan, we will definitely continue to do so. That investment is continuing, it’s on track. A few delays here and there by virtue of rain and stuff like that but otherwise we are okay. As far as the guidance of 450 million, we are on track towards achieving it.
But the question really is if the rupee becomes 90 or 87. Now it’s already 87. You shouldn’t hold us accountable for that division. Right. So you Know if you divide it by a larger number, obviously our India revenue is going to become smaller. But general direction structurally. Yes, we are there.
Unidentified Speaker
Thank you sir.
Jairam Varadaraj
So there were some questions in the Q and A. You want me to.
operator
Yes, yes sir, we’ll take those questions. These are from participants who couldn’t unmute yourself. So first question we’ll take from Mr. Vipul Kumar. He said, sir, what is the progress in introducing economical range of consumers which can compete with low priced Chinese products?
Jairam Varadaraj
So the products are ready. We are now. They are all undergoing field validation. We are very confident that they will work because the fundamental architecture is based on our own products. So we have not developed any new parts. So to that extent the reliability is very, very high. Nevertheless, we wanted to to get customer feedback. So that’s where we are at. What we are really focused on is our strategy for the low end market. It’s not product is only one part of it. Price is the second part of it, which we are already clear. The product and price is clear.
But the whole strategy does not work with just product and price. There is a whole idea of how do you brand it, how do you take the brand to the market, what is the distribution network, how do you get to the customers? So these are all pieces that we are now building up. Right. So we are confident that the whole launch strategy of entry into that market we will do sometimes this year this financially.
Kamlesh Kotak
Sure sir. The second question from Vipul is so what percentage of our motor requirement is manufactured in house and where do we see ourselves in next three years and what impact will it have on our margins?
Jairam Varadaraj
So I don’t want to talk specifically about the profit margin that we are going to make. I will give you general direction there later on. Percentage wise. Right now we are at around 40 to 45%. By the end of this financial year we’ll be close to about 70, 75%. I think by in another two years we’ll be close to 90%. So this is really the progression that we will have in terms of our motors supply in our in house production supplying to ourselves directionally, you know, our motors are at the same cost structure as the Chinese motors that we were importing.
Now having said that, half of our revenue, that is primarily India, Southeast Asia, a little bit of Australia were using Chinese motors. The rest of the world, whether it was Europe or America, we were using either European or American motors. Now if the difference in pricing between the Chinese motor and a European American motor is in the order of about 20, 25, so you need to do the math in terms of interpreting this roughly, that’s the general direction.
operator
Sure. Thank you sir. Next question. I’ll take again from line of Mayank who couldn’t unmute himself. Sir, Segmental gross margin in compressor has increased sharply, sequentially 53% in 1Q FY 26 versus 50 in 4QFY 25. Is this associated with some kind of price hike?
Jairam Varadaraj
So, so I see this question. I would like to understand what he means by gross margin because we, we have are in the way we look at it is we look at contribution margin which is after variable cost. Right. Now the contribution margin after variable cost is pretty much flat. Right. So there has been no sharp increase. So fees looking at a different definition of margin, I don’t know what that is. So that’s point number one. Now that contribution margin combined with on a higher revenue, a flat contribution, sustained contribution on a higher revenue is giving us an EBITDA flat percentage of ebitda.
And the primary reason for that is the, the investments that we have made on various initiatives in people and certain, you know, software and consultancy that we have done. Right. So what kind of margin we expect. I believe that the contribution margin will be sustained as an ebitda. Margins at the current level will also be sustained. So I don’t see that as a concern.
Unidentified Speaker
Sure.
operator
Sir, next question. I’ll take it from line of Nice Sir. Yeah, I hope I have pronounced the name right. Could you please unmute yourself and go ahead with the question?
Jairam Varadaraj
Yeah.
operator
Hi.
Unidentified Speaker
Hi. Thanks for taking the question. What I wanted to understand is sir, you mentioned about the tariff situation that you know, after maybe a 5, 10% price hike you have the 1520 to adjust which you know, you should be able to do. The quantum 1520 is not less. I just wanted to understand, you know, what levers are you using to ensure that even after that 15:20 the impact on profitability is not much.
Jairam Varadaraj
So this is not something that we as an initiative that we develop now. This is an initiative that we developed two, three years ago. The biggest part, biggest one of such initiative was the motor production. Now that insourcing of the motor is going to help us in the US market because last year we had supplied sufficient number of test motors into the US we have validated all the motors. They have run enough hours and they have stabilized. Now we are going, we have started selling compressors with our motors and that’s a significant cost compression for us.
Right. If the tariffs had not been there, that would have been a significant margin expansion for us. So that’s the last topic. Opportunity. Yeah. So like that there were initiatives as part of our overall cost compression program that we started two, three years ago. Those are all coming to roost now. And that’s why we are confident that we can take this much, this much we can bet.
Unidentified Speaker
Got it. Fair. But effectively, because you would have done, you know, we’ve done capex for motors and you know, like you said, lost opportunity. Just from a competitive perspective, you know, how do you see it because of the tariffs, will the price rise be limited to 5, 10% or how will it work, you know, in general, because eventually, you know, it’s a capex. So you also would at some point want to make money off it and things like that. And I’m sure even competition would think like that. So.
Jairam Varadaraj
No, I don’t understand your question. I’ll try to answer to the extent that I’ve understood, I don’t know. 5 to 10% is our estimate of what the competition or the overall market has to increase to sustain their profit at the current level. This is an assumption now it’s this dust will settle down in a maybe a month or two where everyone then realizes what is that real cost because of the tariffs and basis that they will set their pricing. Already we are seeing some of our competitors increasing prices in this range. And that’s why we are saying it could be anywhere between 5 to 10%.
So that’s point number one. Point number two is when we looked at our motor plan and our motor project five years ago, it was done to mitigate the risk of dependence on China, risk of dependence on China at a pricing that did not make any commercial sense. Those, those prices, that which we were buying motors or the rest of the whole world is buying had no relevance to the cost. Because the cost of a motor is easily ascertainable because it uses commodities like copper and steel and castings. There is no magic in terms of estimating those costs.
Now when your supplier is supplying to you at a price which has no relevance to cost, then it’s a huge risk in terms of when that’s going to, when that rug is going to get pulled out of your, pulled from under your legs. So that’s when we started looking at motors and saying we need to hit those cost points. But we do it not by employing cheap Indians, but by using technology. And we set aside a certain amount of money to first do a proof of concept to see whether that technology can be developed, which we did very successfully.
We built about 50, 60 motors, put it into the field to check their reliability, that passed the test. So when we made the investment into the motor plant and did the costing of the motors, it includes that investment. Right. So it’s not just at a material cost.
Unidentified Speaker
No, that, that’s very clear. That’s very helpful. Just one follow up if I can. From a US market perspective, right. Which geography would be like the lowest common denominator. So if you take the cost of production plus the tariff which according to you would as the things stand today would be at the lowest cost in terms of.
Jairam Varadaraj
I don’t, I don’t understand your question.
Unidentified Speaker
What I’m trying to ask is from a competition perspective from which competitor or which region will have the lowest cost. Now after we take into consideration the tariffs.
Jairam Varadaraj
Obviously a company that is manufacturing compressors in America will have the lowest impact because there’s no tariff directly on their compressor. But no compressor company in America buys everything in America. They import from all over the world now they will import from China, they will import from Europe, they are probably importing from India now all of them are going to come in with a certain percentage of cost, additional cost. Now what is their raw material component that is subjected to import and what percentage of that Import is at 15% tariff? What percentage is at 30%? That’s something that we would have.
But we know by and large there will be an increase and based on the behaviors it’s 5 to 10%. So that’s the worst case. I mean that’s the case that we need to match. Everything else will be even higher than that.
Unidentified Speaker
But the U. S manufacturer will also.
operator
Could you please, I mean could you please wait in the Q feature? Yeah. Sir, in the interest of time we’ll take a couple of more questions. One I’ll take it from the chat and one I’ll probably take it on the call. So the next question is from Bhavin Vitlani. Sir, he says for the stabilizer would LG have in house manufacturing of pcba? We have seen multiple electric companies face quality challenges for not having control on of the embedded software.
Jairam Varadaraj
So our, our new technology has no electronics. So there is no question of you know, electronics going into our new technology that we have launched. It’s a mechanical design and that’s really the beauty of the whole technology. So that’s not an issue for us.
operator
I’ll just take one last question from Rahul because we tried to unmute him but he couldn’t. Rahul, you may please unmute yourself and go ahead with the question. Your mic is on.
Jairam Varadaraj
Mic is not on.
operator
I mean the line is on. He has to unmute himself.
Jairam Varadaraj
I think he’s continuing to have challenges on.
operator
So with that I think we’ve already exhibited our dedicated time towards it. I would request everyone whoever has question to please reach out to the IR team or the management directly. Thank you once again, sir. I would leave it to Kamleshi to end the vote.
Kamlesh Kotak
Yeah, Jay, just one point. If you can just elaborate on the progress of vacuum product business. Any update you want to share. Thank you.
Jairam Varadaraj
Yeah, thank you Kamlish. Thank you for raising that. Indigenization of the vacuum products has been completed as per plan. So we have set up our sales organization month on month. We are growing our sales but the numbers are so small it’s not material for us to report it separately. But the business is growing as per our plan and we are quite pleased with the performance of the product. The customers response, customers repeat buying. So these are all positive directions. So I just want to considering that we had so many challenges in this call and I apologize for this, please reach out to us to our investorg.com please refer to the call and please send us your questions and we will respond to them and we will post those questions and the responses on our website.
Great sir, thank you investors, thanks for.
Kamlesh Kotak
Joining in with that. We conclude the call. Thank you, Jay. Any closing remarks you want to make, sir?
Jairam Varadaraj
No, that’s it. Again, I want to apologize for this. We’ll make sure that as we do a diagnosis of why things went south and we’ll ensure it doesn’t happen again. Thank you very much.
Kamlesh Kotak
Thank you. Thank you so much, sir.
Jairam Varadaraj
Thank you.