Elgi Equipments Limited (NSE: ELGIEQUIP) Q4 2025 Earnings Call dated May. 29, 2025
Corporate Participants:
Unidentified Speaker
Jairam Varadaraj — Managing Director
Analysts:
Unidentified Participant
Presentation:
operator
Are we going? Hello.
operator
Hello.
operator
Yeah.
operator
Yes sir, the meeting started. You may go ahead. Yeah, yeah.
operator
So good morning everyone. On behalf of Asian Markets, we welcome you all to the 4Q and FY25 earnings conference call of LG Equipment Limited. We have with us today Mr. Jayram, Managing Director of representing the company. I request Mr. Jayram to first take us through the overall finances for the quarter and for the year and the business updates to be followed by Q A session. Over to you, sir. Thank you.
Jairam Varadaraj — Managing Director
Thank you very much, Kamlish. Thank you Asian Market securities for hosting our Q4 call. It’s always a pleasure for me to be with all of you and thank you very much for taking the time to go through this presentation with me. As always, I will focus on the Q4 results and then give you a sense for how the business is and what the challenges are. Some sort of view of how we look at the next year. And then we will have a Q A session. Now if I let me go through the next. So this is a starting with a reconciliation of ebitda considering the current operating ratios and cost structures.
Considering that sales grew by almost 15%, Aribida should have been about 1724 million. Against that we did about 1500 million. And the primary reason is increase in employee cost. And there was a significant increase in other expenses. Some of it I will explain to you. Most of the increase in other expenses is one time in nature. So we took a one is the, you know, the increase in variable cost which is not captured in our contribution where contribution is only at a material cost level. So close to about 25% is the increase in the variable cost associated with the increase in volume.
We cleaned up some of our books in India. In other parts of the world we cleaned up some inventory and we cleaned up some receivables. Not so much as a loss but as a prudent accounting thing. So that is to the extent of about 8 crores. We did that. But this is not just for the quarters. For the whole year going forward we’ll try and first of all, I don’t expect it to continue this way. Second of all, we will do this on a quarterly basis so that there are no year end shocks that we can see.
So these are one time in nature that I don’t see anything happening significantly. We have a CSR which we do depending on a given year, normal as per loss, 2% of PAT. But actually we do 4% of PBT in a given year depending on our project. Our project for educating very poor children has moved forward and it is progressing well. So as a consequence we are increasing, increasing our contribution this year towards that. So this is really the reason why the fourth quarter is not as it should have been. But as far as the fundamental ratios of the business are concerned, they’re pretty sound moving forward.
If you look at the revenue profile except Southeast Asia, all the other regions have grown for us at varying, varying levels. India has done very well for us. North America is coming back. Our industrials is very strong, our medical business is very strong. Distribution operations which was most hit by the issue with our ERP has stabilized and we look forward to a positive number there. Portables is a more a market structural thing. You know, for three years there is a big growth and since the last couple of years there has been a significant, almost a 30, 40% drop in the market and we are feeling the effect of it and we expect this portable to remain subdued in the current year as well.
Europe has finished quite strongly in Q4, but I’ll come back and talk about Europe on Australia is also coming back from significant challenges post Covid and a few years after that Middle east has done well for us and Brazil has done well for us Moving forward. If you look at our revenue highlight, we have grown 15% over the previous year in Q4 of last year compared to Q4 of the this year. So overall I think it’s been good. And PBT growth has been also pretty strong considering the revenue growth. So our profitability ratios remain quite strong.
The split between automotive and compressors remains pretty much the same. Automotive had a very strong year, but the compressor business also had a strong year. So the balance between between the two remains. There’s been a slight shift between India versus the rest of the world as far as compressors are concerned for the quarter because India had a very strong fourth quarter and the corresponding increase was not there in the other parts of the world. So there is a 3 to 3% shift. But I don’t see this as a permanent thing. It will come back. So this is our consolidated financials for Q4 as well as for the full financial for the full year comparing it with the prior year.
So overall we have done well. Profitability could have been significantly higher but for the one time expenses that we have, we have voluntarily claimed certain expenses just as a prudent accounting. The reported numbers are little lower than what we would have otherwise liked it to be. So overall a good story. Our net cash position also has been quite strong. We’re generating close to 98, 97 to 98% of our profit we are generating every quarter quarter. We have put in very strong processes for receivables control that is beginning to show its impact. We are working on a very large project to bring in better controls over the inventory worldwide and I expect to see good results coming out of it in the second and third quarter of this year.
So the cash position will continue to, to improve in the company. So this is really what I wanted to say as far as the performance is concerned going forward. I think as a business, you know, obviously the tariff is something that everyone keeps talking about. You know, we started off with 26% which is a pretty challenging number to manage it from a cost point of view, it’s been reduced down temporarily to 10%. We don’t know where it will finally land. But we have done some scenario at 10%. We have done some cost calculations. Some of the cost reduction initiatives that we started almost two, three years ago are bearing fruit now and that’s going to help us.
One of the biggest aspects of that cost reduction initiative is our motor plant. This financial year close to 85 to 90% of our motors globally will be manufactured by us. And that’s going to give us a significant advantage to be able to absorb the impact of the tariff without any compromise on profitability in the US market. Obviously it’s going to help us with profitability in the other markets, but I’m not talking about that. So you know, when we analyze what could all be the possibilities where tariff could land, I think the best case scenario would be 10%.
I think the way we are reading it is the US government is not going to remove 10%, although for some countries they seem to have done. But assuming that’s our best case, 10% and if we look at import of compressors from the US into India and that is at currently about 16 and a half percent and assuming they are going to make it in the worst case reciprocal to that same percentage in this range, we are pretty much okay with, with all the cost reduction initiatives we can sustain our current pricing and our profitability. So that’s the good news.
So we are not too worried about the challenge on because of tariffs from our pricing point of view. Now the impact, the rolling global impact economic impact of tariffs and the impact on other economies are going to be significant depending upon where, where it finally settles down. So Europe was already fragile and it was recovering after the Ukraine war and all those issues and we were beginning to grow slowly. We’ve all broke, broken even last year now there is going to be a challenge in Europe and we don’t know how it is going to be.
So far the indications continue to be positive, but we need to anticipate if US takes a very strong position on tariffs against EU that could be a big impact. So we’ll have to wait and see. And we’ve got some thoughts and initiatives that we have kicked off. We are not going to be able to see the results of those initiatives this year, but in the medium term, in the next couple of years we should be able to moderate for that impact that we anticipate as a consequence of that. So overall I think we are in good shape.
We are hoping that India continues to maintain its story and the results. So we’ve got some exciting new products. The stabilizer has gone into the field in terms of pilot test machines. Multiple machines have been put there. Very good results are machines for competing with the Chinese. Imports are already working in the field and we are confident that by the third quarter both these products will be out in the market full fledged. And our earlier initiative called Project Everest for increasing our share of the market is going very well and we are beginning to see the result every quarter and we continue to expect that performance to continue.
So India will be, assuming the economic structure remains solid, we will have good growth in India and we are confident of that. US is going to come back because it really hit the bottom. So we’re confident that it’ll come back from the past. Europe is a question mark at the moment. It is still showing signs of positivity. Australia is coming back. So overall I think we should have a good 25, 26. So I will stop here and then I will wait for your questions to further clarify our performance and our future. Thank you very much.
Questions and Answers:
operator
Sure. Thank you, sir. Just as a mandatory announcement, participants, you may use your raise hand option to be part of the Q and A queue. Also, participants who are on unclear line may use the Q A or the chat option for to put your questions forward. I’ll wait for a minute, sir, before I, you know, take in the first couple of participants who have come in so that the queue can assemble. Yeah, so the first question I have is from the line of Harshit, Harshit. You may unmute yourself and go ahead with your question.
Unidentified Participant
Hi sir, thank you very much for the opportunity. So first question is on the US market. So could you explain how was FY25 for us in terms of profitability? Were we able to break even in this market? And given your 10% tariff as a base Case, how will our profitability look like for FY26?
Jairam Varadaraj
Okay, so barring the one time cleanup cost that we had did on inventory and receivables, even in the US besides other parts of the world, the operations was actually profitable. Right. So US has from a loss in the prior year has actually become profitable on a steady state basis. Now for 26. The the assuming 10% tariff we have, like I explained to you, we will be able to absorb that 10% without any impact on our profitability because the savings that we have from our motor plant and a few other initiatives that we kicked off almost a couple of years ago for cost reduction is more than enough to absorb it.
And like I explained to you, up to about 16% which is the reciprocal tariff. And assuming that US imposes the same reciprocal tariff and we’re not able to arrive at any understanding, we should still be able to do it. But if they move to 26% like they originally did, then that could be. We need to make a decision in terms of either increasing prices or finding other ways. As we speak, all our competitors in US have already brought in the condition that there is going to be a surcharge for the tariffs. Not only the foreign companies, but also the local companies.
So everyone is going to be impacted in some way or the other by the tariff.
Unidentified Participant
Understood. Out of US Overall industrial compressor consumption, what is the share that they manufacture? Manufacture in US itself and what they procure from countries like China, India, maybe some amount from Europe. So, so could you give some flavor on that? So I’m just trying to assess how much is their import dependence and whether they will be able to manufacture more compressors in house or not.
Jairam Varadaraj
So it shouldn’t be looked at at a compressor level hardship, it should be looked at at a component level. Right. So even if you take a company like Ingersoll Rand, which has a factory in America, quite a few of their components are imported from all over the world. Right. Whether it is India, whether it is China, whether it is the eu. Right. So in Ingersoll Rand, in one of their, in one of their calls has said that estimated annual impact on because of tariffs is $150 million. So it’s very difficult to make an estimate exactly how much of it by is going to impact which company.
Right. Almost every company has a significant import content in their manufacturing activity in the U.S.
Unidentified Participant
Understood.
Unidentified Participant
Sure.
Unidentified Participant
So just lastly on the vacuum products front. So could you share the update for the last quarter? I think you had elaborated previously on our localization plan. Our sales team was in build up stage. We had already started receiving the orders. So where are we right now and how do you foresee FY26 to pan out in this business?
Jairam Varadaraj
So the plan is progressing as per our schedule. We the full sales team and service team is in place. Our localization as is progressing well. We have almost all the products that we wanted to. The parts have been developed that we wanted to localize. The parts have been developed so we are progressing as per schedule. There sales is, you know, we can’t report give you specific number for sales but the growth has been good. And really speaking, you know and compared to the overall numbers of and the standalone basis they very, very significant. Insignificant. So but moving well.
Unidentified Participant
Perfect. Thank you very much for answering my questions and all the very best.
Jairam Varadaraj
Thank you.
operator
Thank you. Arshit. Moving on. Sir, we have the next question coming from the line of Ravi. Ravi, you may unmute yourself and go ahead.
Unidentified Participant
Hi sir. Very good morning. Congrats on a good set of numbers. My first question is with respect to the standalone or the India business in terms of outlook and demand across various subsegments, how it is panning out. Last couple of calls you had mentioned that there seems to have been some bit of dip in inquiry levels. Has there been a recovery in terms of inquiry? So your thoughts on how India business is likely to pan out?
Jairam Varadaraj
Yeah, so yes, I think I mentioned that inquiries are continuing but the finalizations are getting delayed. Yeah, that is continuing. Enquiries are still healthy. There is no problem. But people are. There is a wait and watch approach. Excuse me. There are certain industries that are progressing well, like textiles for instance. They’re coming out of a, out of a very, very bad couple of years. So there is overall positive impact with or without tariffs because there is an issue in Bangladesh, there is an issue in China. So there is a certain positivity there. So sectorally there is good stuff happening.
But overall I think there is no concern in India yet. But it’s early days to figure out what the tariff impact is going to be. Yeah, yeah.
Unidentified Participant
So is there a possibility or is there a very high likelihood that the revenues can grow in double digit or it’s like we would, you would expect the entire India business to grow by like a single, high single digit kind of growth.
Jairam Varadaraj
So assuming India remains whole economically and there is no impact of tariffs globally, I expect India to grow double digit but I would probably say low to mid double digit.
Unidentified Participant
Understood sir. And in terms of mix and profitability, how to think about it? So at a standalone level we are at a kind of a lifetime high of around 21 in terms of margins and the mix, if you see if you could give a broad contours of how, what is the mix in terms.
Unidentified Participant
Of.
Unidentified Participant
Say the piston compressors and the screw. Screw compressors and how is it likely to change after sales service?
Jairam Varadaraj
Yeah. So I don’t want to get into the specific breakup of products, Ravi. That would be too competitively sensitive. But you know, right now, if you look at the profile of our India business, the shift in profitability is going to come from the mix between products and aftermarket. Right. The profitability shifts within products is not going to materially alter. It may be a quarter on quarter kind of shift in variation. But if you shift in product mixed up, but if you annualize it, by and large it is at a stable structure. So the real shift in the profit structure will come when the aftermarket starts moving up.
And that’s one of our initiatives to really improve it. Right. And we will continue to work on it. And that’s really the logic of this business. You know, the logic of this business is to sell machines so that you are able to get a steady stream of aftermarket, which is more profitable than selling just equipment. And we are on track there. Right. So you’ve seen that shift happening in India over the last probably 10 years.
Unidentified Participant
Understood, sir. Yeah, thanks a lot. I’ll come back.
operator
Thank you, Ravi. Sir, the next question is from the line of Mr. Kush Kush, you may unmute and go ahead with your question.
Unidentified Participant
Yeah, I’m audible, sir. Thank you for the opportunity.
Jairam Varadaraj
Sure.
Unidentified Participant
So there’s a couple of questions. So one, it was more on the industry side. So I know that, you know, we are more on the air compressor side. So if you can elaborate something on the industry, for example, you know, what kind of imports are we facing today in terms of percentage or quantities and how are we placed for our India business and who our competitors are and do we see the shift of, you know, India sourcing more locally rather than imports, any BIS regulations, etc? So first question was on that. My second question was on a consolidated basis, what kind of revenue targets we are coming up with, what kind of revenue growth and sustainable EBITDA margins on a console level going ahead, say in the next three years?
Jairam Varadaraj
Yeah. So let me try and answer your first question. In terms of import content, that is, you know, we are the, we are probably the only significant player that has the highest local content. Right. So what we import to make our compressors is a, is less than 8% of our total manufacturing. I mean our buying content, right. So it’s a very, very small part as far as our competitors are concerned. They have a. They also manufacture the significant ones. They also manufacture in or at least assemble in India and their percentages are significantly higher than us.
Then there are the third category, which are fully finished machines that are coming in primarily from China. We think that the size of that market is anywhere between 25 to 30% of, in volume terms, they sell primarily on the low end of the low kilowatt machines, not in the high kilo. Now what we have done is basically, you know, our standard, of our standard machines, the performance and cost points are significantly higher and we can’t compete with these, the cheap machines coming in from China. So what we have done is developed a range of machines which are comparable in terms of performance with the Chinese machines.
But quality is to our standard. Right. So we have not compromised on our quality, but just looked at lower performance. So that’s a segment that seems to be evolving all over the world and we want to be, we want to use India as a, as a opportunity for us to respond to it. I think we have done a great job because initially when we looked at the prices, it looked almost impossible. But as we went deeper and more granular into understanding what exactly those machines were delivering, we were able to almost meet those price points.
So we are quite optimistic about taking on a big share of that 30% where none of the players are really playing because it’s. The prices are ridiculous. So that’s where we are. So in terms of giving you a guidance, I would not do that. I would wait for the next investor conference right now. Five years ago, we gave a guidance about our top line 450 million and the EBITDA of 16% and the return on cash capital employed of 30%. We will be able to achieve these numbers in 25, 26. So that is really what I can give as a guidance now.
Next investor call. I mean, investor meet in February, we will renew our forecast for the next, either three or five years.
Unidentified Participant
Right, sir, thank you for the detailed answer. Just one, the competitive landscape. Do we wish to enter other segments apart from air compressors? Because I think one of our comps is into other segments too, like refrigeration, gas, etc.
Jairam Varadaraj
Yeah, so we have consciously stayed away from refrigeration and gas. We explored that opportunity many years ago and it’s not that there is no opportunity there, but we found that the opportunity in air is significant enough for us to focus on that and that’s what we are doing. In terms of adjacencies, we have already launched our dryers which is a pretty significant market. It’s a great product that we have developed that’s into the market already. It’s not a in India but it’s global. And we are expanding the range of our adjacencies by either looking at acquisition opportunities for specific adjacencies or in house development of these adjacencies.
Which is really what our growth path is going to be.
Unidentified Participant
Right sir, thank you.
operator
So the next question we have is from the line of. Manish. Manish, you may please go ahead with your question and unmute a mic.
Unidentified Participant
Yeah.
Unidentified Participant
Thank you so much sir. Hope you’re doing well.
Jairam Varadaraj
Hi Manish. I’m well, thank you.
Unidentified Participant
Few questions first on the guidance. So what probably we looking at 10% growth on a consolidated basis. So does it imply that international would probably grow single digits in the FY26? And also related question sir is on the margins front that if India continues to do well and then we have guided for almost a percentage improvement in margins, we still don’t see a significant improvement in international margins. This was the first set of questions.
Jairam Varadaraj
Okay. So yes, if you look at our numbers in 24, 25 and the projected number that we had given five years ago, 450 million, that roughly converts to about 10% growth. You’re right now. So that’s general direction, Manish. In terms of the split between the two, I expect India to contribute a little bit more than the rest. But that’s on a very conservative basis considering the current situation with the tariffs and especially Europe. So as per our expectation, without all these concerns about tariffs, assuming the whole world, the world comes back to a normalcy, we expect all the regions to grow as much as India, you know, in terms of double digit growth.
But this is a conservative view as far as profitability is concerned. We will hit. We were already hitting close to 16 even this year. Manish. It is just that one time expenses and clients cleanup that we did that dropped out ebitda. So what is going to happen is that is not going to get repeated in in next year and therefore we are quite confident that we’ll be able to hit those numbers. Okay.
Unidentified Participant
No sir, I was probably looking more on the international side of the margin profitable profitability improvement. So like we already achieving 81 in Europe and in US as well. And hopefully US should do well.
Jairam Varadaraj
Yeah.
Unidentified Participant
So probably I am looking from a point of view that you guiding for a conservative 16 yeah, rather that we.
Jairam Varadaraj
Are conservative under certain conditions of uncertainty. Manish.
Unidentified Participant
Okay. And sir, on how is the progress on the compressor order for railways for Siemens and how is railways business picking up? And have we made any more breakthroughs in metro rail with probably references from supply to Siemens.
Jairam Varadaraj
So the railway business that Siemens order that we won, we have supplied and you know our Prime Minister inaugurated the first locomotive. And if you actually see the video of that locomotive running on the tracks, you will see in the undercarriage of the locomotive a device with a red band and that’s an LG machine. That red band is our better band that is there on all our machines. That’s really our LG machine. So we have these, have the machine machines have been validated, tested, gone through all kinds of high temperature, low temperature, vibration and everything.
And now they are going, going into the field. So this is the start of the Siemens business. Overall railways is a business, it’s not a big contributor but it is, it’s something that we have always been strong. We have not had any big breakthroughs cruise yet in the metro. But there are good, strong conversations that are going on with global OEs because if we don’t get homologated globally it is very difficult to supply in the Indian Metro market. So there are some strong conversations that are going on. And with our, with our experience developing the machine that we developed for Siemens is an outstanding experience in terms of customer expectations and our ability to fulfill it.
So we’ve learned a lot from that and with that capability we are quite confident that we can get into those relationship. But that’s a, that’s more a five year journey rather than a, you know, annual journey.
Unidentified Participant
And how do we see the ramp up for the Siemens business execution? I believe recently in their analyst they said that probably in couple of months they should be able to start commercial production. Even they are going through homologation of their locomotive.
Jairam Varadaraj
So I think we will see some movement of the business during the third and fourth quarter of this year. But I think next year we will see more of a significant, you know, improvement in the, in that model of compressors and locomotives. But still, you know, we are still going through some, you know, uncertainties as to, you know, there are budget allocations and that’s a function. So all that is there. Yeah.
Unidentified Participant
Yeah.
Jairam Varadaraj
Yeah.
Unidentified Participant
And on the, on the motor side you did mention that this year will be almost meeting internal requirements to the extent of 80 to 90%. So in terms of capacities, how are we positioned and is our plant fully in terms of desired Capacity, how is it positioned?
Jairam Varadaraj
Yeah, we, we started the investment in that a while ago but unfortunately we were let down by the first supplier of the machine and then we switched to another supplier. Unfortunately this supplier was from China and we got the equipment but they couldn’t come and install it because visas were not given for Chinese. So now that has opened up and the machines are getting installed. So we quite confident that we have the capacity. That’s not an issue.
Unidentified Participant
Thank you very much sir. I’ll get back. Thanks sir.
Jairam Varadaraj
Thank you.
operator
Thank you Manish. Next question I have is from the line of Vipul. Vipul, you may unmute yourself and go ahead Ripple. I think he has some technical issues sir. Probably what I’ll do is I’ll take a couple of questions from the chat window. First, first question was around Siemens which I think you’ve already answered. The second question is hi sir, if you could point out the reason of why the why there was a higher growth in revenue and profitability quarter and the second part of the question is also how is the stabilizer product doing? Have we received any revenues from it in Q4 or is it still in early stages?
Jairam Varadaraj
The see typically there is a hockey stick always in LG and in India in the last quarter. So that’s one of the contributors for the increase in the, in the revenue. The second is Europe did very strongly for us in the fourth quarter so that was a significant contribution. And us also by virtue of both the industrial and the medical business did very well in the fourth quarter. So it’s a combination. It’s not one particular thing, it’s a multiplicity of things, things that contributed to the last quarter thing. But that’s always been a hockey stick there stabilizer.
Like I just explained, multiple machines are out in the field. I expect to see a full launch during the third quarter of and third quarter we’ll start to see some numbers.
operator
That is what we have in the chat sir. The next question I’ll take is from the line of one second. Samya, Jen, Samia, Q may unmute yourself and go ahead with your question.
Unidentified Participant
Good morning sir. So just one question from my side. We see that on a console basis the cross margins are at an 11 quarter low. So I understand that some part would be can be attributed to the one time cost that you had. But if you could throw some light like what was the reason for the lower gross margin that would be helpful.
Jairam Varadaraj
So when you meet when you are referring to gross margin, at which profit level are you looking at? Samuel?
Unidentified Participant
The material margins reduce after reducing the raw material cost.
Jairam Varadaraj
At material cost, our contribution is actually good compared to the previous one. So I’m not able to connect with exactly your question.
Unidentified Participant
It’s 49 in quarter four versus 51% in the previous. Previous year.
Jairam Varadaraj
Yeah.
Unidentified Participant
And I’m taking all the raw material cost, purchase of finished goods etc to compute this gross margins.
Jairam Varadaraj
Yeah. So some of the expenses that we have taken a hit is inventory. And when you take it on inventory it affects your material consumption. Right. So it’s. It’s only that other. Otherwise business as usual margins are quite constant and healthy.
Unidentified Participant
Okay. It’s just the one time impact that has.
Jairam Varadaraj
Yeah, yeah, got it. Thank you.
operator
Thank you sir. We’ll try the line of Vipul again. Vipul, can you unmute yourself and go ahead with your question? Hi Vipul.
Jairam Varadaraj
I think it seems to have continuing. Yeah.
operator
So. So we’ll move ahead with one tick in turn not being able to see the queue give you. Yeah. Next question. We’ll take it from the line of Prem Doshi. Prem, can you unmute yourself and go ahead with your question? Hi Prem, seems to be a problem again. Yes sir. So what I do is I’ll take Ravi again. Hi Ravi, can you unmute yourself and go ahead with your question?
Unidentified Participant
Yeah. Hi sir. Thanks for taking up this follow up question. So I am looking at kind of the numbers console minus standalone and looking at the subs number and taking it as a proxy for our international business.
Jairam Varadaraj
Yeah.
Unidentified Participant
In terms of profitability.
operator
Ravi, Ravi, Ravi, you moved on mute again. Could you please unmute?
Unidentified Participant
Yes sir. Yeah, yeah. Now am I audible?
operator
Yeah, yeah you’re audible. Please go ahead.
Unidentified Participant
So with respect to that international profitability, I mean it has been in that range of 6 to 8% high single digit range and we have been I think employee investing on employees, fixed costs etc across geographies. In terms of that those investments which we have been doing across years, is it likely to taper off in the next few years which can start contributing to operating leverage for you from an international business angle both in terms of headcount and the associated infrastructure investments.
Jairam Varadaraj
Yeah. So if you look at the profitability of the international business outside of India, rest of the world business, you know what you’re saying? What? The arithmetic you’re doing is correct. I mean, I mean notionally correct, you’re taking the console profit and minusing the standalone profit and you’re saying pretty much there is very little left. But the fact is there is a profit in India which is in reflected in the standalone business on the Sale from India to these subsidiaries. Right. So that’s one level of profit which is not readily visible and it’s not something that we would like to, you know, make a big disclosure on.
Okay, okay. That’s one part of it, but that’s not a significant part. So if you look at, if you go back to the post Covid year and you look at before our LN implementation, ERP implementation in the U.S. if you look at that arithmetic, the U.S. contribution was pretty significant and there is no reason why it cannot come back to the same levels. Right. So we are working on two things. One is to grow the top line and towards that we are focusing on only investing in revenue producing roles and we are trying to through shared services and offshoring, some of the overhead processes.
We are, we are reducing the overheads in all these locations all over the world. So that’s a ongoing exercise. In the next couple of years we will see some significant reduction in overheads by virtue of this process. So through a combination of both investing, I mean growing the business, investing in revenue producing role, offshoring some of the overheads that are there, we are structurally correcting some of these businesses so that we are able to, you know, eliminate costs and improve profitability.
Unidentified Participant
Understood? Got it sir. Yeah, thanks.
Jairam Varadaraj
Yeah.
operator
Sir, I’ll take the next question from the chat. Prem, whose mic wasn’t working so he’s put up. So what is the guidance for the consolidated revenue growth we are eyeing for FY26 both conservatively and aggressively? This FY we had a revenue growth of around 9% and there is a better outlook going. Is there a better outlook going forward for the same?
Jairam Varadaraj
So prem, to answer your question, I think I answered it in the context of somebody else’s question. We have given a guidance for 2526 as part of our five year guidance that we did five years ago. We are quite confident that we will hit the, that, that you know, I don’t want to get into aggressive and, and conservative but that’s, that’s really our projection which is $450 million of top line revenue, 16% EBITDA and 30% return on capital employed. So we are confident that we will hit these numbers now we, yes, we have grown about 9 odd percent this year.
Will next year be better than this? Again, I don’t want to put anything on the ground because a lot of uncertainties at the moment with respect to the U. S tariff and its impact, rippling impact on the various economies of the world. Assuming it is, everything comes back To a steady state, nothing negative. And India continues to be a good story. We should be able to do this minimum do this same growth as last year.
operator
So the next follow up question from the chat is does LG have any role to play in Indian defense manufacturing moving forward, moving to India and are the products already there in offering or set to be introduced for the defense manufacturing industry?
Jairam Varadaraj
Now we don’t make anything that is directly relating to defense but we supply a lot of our compressors in for defense units in their maintenance. Plus the joint venture LG Sour is a big supplier of compressors for submarines, aircraft carriers and destroyers, frigates. We are one of the largest suppliers in through the joint venture company.
operator
Sir, I’ll take it from the line of Mayank. Now Mayank, you may unmute yourself and go ahead with your question. Mayank.
Jairam Varadaraj
People seem to be having difficulty unmuting and speaking. I don’t know why. Mayank spoke earlier, did he not?
operator
I think so sir. He did. It was a follow up question. Sir. I’ll take the next question again from the chat window. Sir, how much of the revenue is after sales and will that run rate continue going forward or there is a chance of improvement after sales in maintenance contracts.
Jairam Varadaraj
So there is a big difference in the after sales as a percentage in India versus the after sales percentage in the rest of the world. Primarily because the after sale is a function of the installed base and the installed base of machines is more in India and less less in the rest of the world. So this is a progressive increase that happens. And as and when you install machines your aftermarket keeps growing. Now having said that in India our aftermarket would be close to. I don’t have the number readily in front of me but I’m making an intelligent guess.
It’s about 27, 28% is on our revenue revenue in India. In the rest of the world we are probably around 13 to 14% right now. In both these percentages have to keep improving as we progress through the life cycle of life of the. Of the operation. I mean we get more and more machines installed. Then there is more and more aftermarket coming in.
operator
Yes. So I’ll try Vipul once one last time in case if he’s able to do it. Hi Vipul, can you unmute yourself and go ahead with your question? I don’t think so. He’s able to do that. So. So that was probably the last question on the line and in the chat.
Jairam Varadaraj
Yeah. Yeah.
operator
Just one question from my side, Jayram, about Europe. Can you elaborate in terms of the Strategy how it is, Are we on track to have a breakeven achievement in this year FY26 and the incremental cost that may come towards the ramp up that we had planned as per earlier strategic plan?
Jairam Varadaraj
Please. Thank you. Sure. Now to answer your question, except for some one off things like our tax consulting that we had to do, we have broken even in Europe this year as we anticipated. Like I said, the last quarter growth was quite strong in Europe. But the only caution here now is the tariff. Other than that we are on a pretty strong wicket. Right. But we are watching the situation very carefully. We are not going to invest anything more. Right. What we are going to do is in response to any, if there is any challenges, we will look at cost structure changes.
Not in terms of, you know, this willy nilly reduction in cost, but structurally change the the business to see how what is the appropriate structure for the new reality and then bring the cost down to the that reality. Right. So this is something that we are going to watch very carefully in the first quarter. Okay. Great. Okay.
operator
Thank you very much sir. Any closing remarks you would want to make?
Jairam Varadaraj
Nothing specific. I think overall we are in good exciting times, some uncertainties, but the company is on a stable platform and wicked. We can continue to grow from here and we expect as the growth happens, we are quite confident that there are, there will be no surprises in terms of achieving the profitability that we that can come from that growth. Yeah. So again I want to thank Kamlesh and his team and Asian Market securities for hosting and all of you for participating in this in this call. Thank you very much. Thank you sir. Thank you.
operator
Thank you. Thank you so much sir.
Jairam Varadaraj
Thank you. Sam.