Motilal Oswal bullish on Ellenbarrie; initiates with Buy, flags 31% upside

Financially, Ellenbarrie has delivered stellar growth in recent years. Between FY23 and FY25, revenue rose at a 23% CAGR, Ebitda expanded at an 81% CAGR, and PAT grew at a 71% CAGR.

Domestic brokerage Motilal Oswal Financial Services has initiated coverage on Ellenbarrie Industrial Gases stock with a ‘Buy’ rating and a target price of ₹680, valuing the stock at around 40x FY27E earnings. The target price reflects an upside potential of 30.76 per cent.

 

The brokerage’s bullish stance comes on the back of the company’s sharp capacity scale-up, sectorally diversified growth model, sticky customer relationships, and improving operating margins that are expected to sustain strong earnings momentum over the medium-term.

 

With a legacy of more than five decades, Ellenbarrie is one of India’s oldest and most established industrial gas companies. It manufactures and supplies a wide portfolio of gases such as oxygen, nitrogen, argon, hydrogen, carbon dioxide, acetylene and helium, catering to critical sectors including steel, pharmaceuticals, chemicals, healthcare, defense, engineering, energy, and food & beverages.

 

The essential nature of its products, coupled with long-term pipeline contracts and high entry barriers in the business, ensures recurring demand and strong customer retention.

 

Aggressive capacity ramp-up

 

The company has accelerated its growth trajectory by aggressively expanding capacity, analysts at Motilal Oswal noted. Between FY23 and FY25, Ellenbarrie scaled its capacity by 4.5 times to 3,870 tonnes per day, largely driven by an 18-fold jump in onsite capacity from 176tpd to 3,172tpd. It now targets 4,630tpd by FY27 through fresh projects in East and North India, supported by a planned capital expenditure of ₹410 crore. 

 

The ramp-up strengthens its ability to serve large customers in steel and pharmaceuticals while also enabling greater production of argon – a high-margin gas whose contribution is projected to rise to 15 per cent of revenue once new plants are operational.

 

Riding industry tailwinds

 

Ellenbarrie’s growth is well supported by industry tailwinds, analysts highlighted. The Indian industrial gas market, valued at around $1.3 billion in CY24, is expected to reach $1.75 billion by CY28, translating into a 7.5 per cent CAGR – faster than the global market’s projected 5.5 per cent CAGR. The demand surge is being fueled by rapid industrialisation, rising steel and chemical output, government focus on healthcare infrastructure, and emerging needs in the electronics sector for high-purity gases. Ellenbarrie’s onsite steel plants and strategically located air separation units give it a strong edge in capturing this expanding opportunity set.

 

Expanding footprint and customer base

 

Beyond gases, the company leverages its technical expertise to provide turnkey engineering services for air separation units and medical gas pipeline systems. It also supplies critical medical equipment such as ventilators, anesthesia workstations, and sterilizers. 

 

Ellenbarrie enjoys a leadership position in eastern and southern India, with the largest installed capacity in states like West Bengal, Andhra Pradesh, and Telangana. To strengthen its footprint in newer regions, it has pursued inorganic growth as well, acquiring TrueAir Industrial Gases in Bengaluru to expand its reach into South India’s commercial hub.

 

The company’s customer base includes marquee names such as Tata Steel, NMDC, Dr. Reddy’s Laboratories, Laurus Labs, Nueland, and Hindustan Shipyard. Supplier selection in industrial gases is highly cautious and typically bound by long evaluation processes, which underscores the durability of Ellenbarrie’s relationships. Long-term pipeline contracts with steelmakers, for instance, virtually lock in offtake, providing stability and visibility to revenues.

 

Financial momentum & valuation view

 

Financially, Ellenbarrie has delivered stellar growth in recent years. Between FY23 and FY25, revenue rose at a 23 per cent CAGR, Ebitda expanded at an 81 per cent CAGR, and PAT grew at a 71 per cent CAGR. Margins strengthened from 16.4 per cent in FY23 to 35.1 per cent in FY25, aided by higher contributions from argon, ramp-up of efficient new plants, and lower power consumption. 

 

Going ahead, Motilal Oswal analysts estimate revenue, Ebitda, and PAT to grow at 39 per cent, 49 per cent, and 52 per cent CAGR respectively over FY25-28. Return ratios are expected to remain healthy, with RoE at 20.7 per cent and RoCE at 19.6 per cent in FY27.

 

At the current market price, the Ellenbarrie stock trades at 49.8x FY26E, 30.6x FY27E, and 25x FY28E earnings. While valuation appears rich on near-term multiples, Motilal Oswal analysts believe the stock is attractively placed relative to long-term growth prospects and its diversified revenue base. The target price of ₹680 implies a 40x multiple on FY27E earnings – representing a 51 per cent discount to global leader Linde, thereby offering room for rerating as execution continues.

 

Risks flagged

 

The brokerage, however, flagged some risks to its investment thesis. These include the company’s dependence on key customer relationships, the possibility of prolonged disruptions at facilities, and slower-than-expected demand from steel or pharmaceutical industries. 

 

Despite these risks, Ellenbarrie’s rapid capacity addition, sectoral diversification, and rising contribution of high-margin gases put it in a strong position to capture India’s accelerating industrial gas demand.