Our aspiration is to build a global enterprise, says Dr. Jairam Varadaraj, Managing Director, Elgi Equipments
19th January 2023
In the September quarter, the company registered 40% profit despite inflation and other macro factors such as Russia and Ukraine war, supply chain disruption, and increased raw material prices. What were the factors that benefitted the company?
Compared to the June quarter (first quarter), the top line has grown significantly in the September 2022 quarter and has contributed to our profitability. There was also a significant growth in 'contribution margin' in the September quarter compared to the June quarter because we did some aggressive price corrections in the months of March and April. And it had a cascading effect, a deferred time base impact. In the second quarter, the impact of the price increase was far higher than in the first quarter.
Which are the new products you have launched in the market in the last two years?
We have launched multiple new products. Our EG series of compressors have become more energy efficient, which has a higher quality of consumables and lower life-cycle costs for the customer. We have also introduced water-injected series of oil-free screw air compressors . This particular design is introduced for the first time in the world. Stringent environmental regulations and increasing air pollution concerns have made oil-free air a top priority. But companies have historically suffered the constraints of high cost, poor reliability, and low efficiency to have oil-free air. At ELGi, we developed a technology specifically applied to solving an existing need in a new way. The ELGi AB ‘Always Better’ series is a disruption in oil-free compressed air technology, offering customers a no-compromise, oil-free solution at approximately 8–10 % reduced lifecycle costs when compared with prevailing oil-free technology. With significantly lower maintenance and ease of use, customers benefit from reliable, high air purity for sensitive industrial applications with payback in months compared to other products with alternative technologies.
How are you integrating sustainability with your products?
On the sustainability front, we are looking at designs where the oil life is much longer. We have doubled the oil life in the last 5-6 years. Now, one benefit of it is that the disposal of oil is not a challenge. Consumables life has increased. Consumables have non-woven, synthetic materials, which are derivatives of petrochemical products. We have significantly increased the life of the consumables. While earlier, we used to buy castings externally; today, all our castings are manufactured at the ELGi Foundry. The process used in our foundry is environmentally friendly. We don't dump foundry sand. We are integrating sustainability at multiple levels, from design to final production, and have introduced many features that make the product more environmentally friendly.
How is the market for air compressors shaping up in India, especially for the construction and mining sectors?
With the government making a lot of investment in the infrastructure sector, we expect that there will be a continued demand for compressors. But sometimes, these are very cyclical; compressors are not directly linked to government investment, unlike sectors like cement, steel, and mining, though compressors are capital goods. Capital goods don't necessarily follow the same trajectory as government investment, but the general trend is positive.
How much market share do you hold, and what are your plans to increase your market?
We estimate our market share to be around 30 to 32 percent. The compressor market is huge, with plenty of opportunities with specific segments, specific customers, and specific products. We identify major opportunities every year and keep developing new products and markets. We work on specific customer requirements for compressors. Every year it's an operational thing to keep improving.
During the Pandemic, there was a pragmatic shift to better utilization of technologies, such as IoT, Artificial intelligence, and industry 4.0. How have these technologies helped your organization to service your customer better?
We have been working on our own IoT platform . It is now available globally. Through this IoT platform, we are able to monitor the machines and alert the customers if there are any issues.
Please take us to your dealers' network and after-sales services?
In India, we have close to 100 dealers and distributors across the country catering to both industrial and, construction & mining sectors. As a company, our number one priority is service before sales. For us, sales are now the second priority, and service comes first. We have a very strong association of service with our brand. We can reach our customers within 24 hours in this country. That is how our dealers and distributor network work.
Which are the sectors that will drive maximum revenue for the next two quarters for your organization?
I would rather prefer to share which are the sectors that are struggling right now, the reason being compressed air is like a utility. It's like electricity. Every factory needs it. Unlike electricity which is centrally generated and distributed, compressed air cannot be centrally distributed, and therefore, every factory needs a compressor. And that's our business. The textile industry is in very bad shape for various reasons, and the textile sector contributes about 5% of the country's GDP, and right now, the textile industry is holding back on investments. The cement sector , too, is going through a bad phase. Infrastructure activities have slowed down, and proposed investments in the infrastructure sector have not materialized fully. Investments are tickling in. The steel industry, too, is facing various challenges – shrinkage in demand, duty on export, and a lot more. These are the three sectors (textile, cement, steel) that are now in a de-growth stage. The rest of the industries will continue to contribute to our growth.
What are your growth plans for your organization for the next three years? Is there any plan for Brownfield or Greenfield expansion, or new offices or product launch in the offing?
Our aspiration is to build a global enterprise. We have invested in certain strategic markets - Australia, Indonesia , and Thailand , besides India, Europe , and the US. We are continuing to put focus on growing our investments in these markets. The markets in Europe and the US, which are far bigger than the market in India, offer a larger opportunity for us.
As far as investment in new offices is concerned, we are not coming up with new offices. In fact, during the Pandemic, we decided to shut down all our branch offices. We have two main factories in Coimbatore , Tamil Nadu, of which one is our New Campus. The New Campus is on 100 acres. Now, we want to move the smaller campus, which is in the city, to the main campus, which is outside the city. The work will probably start next year. We are in the planning phase currently.
