"Elgi Equipments sees growth in vacuum technology market."

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"Elgi Equipments sees growth in vacuum technology market."

"Elgi Equipments sees growth in vacuum technology market."

Interviews
Nov 29,24

In this interview with Rakesh Rao, Dr Jairam Varadaraj, Managing Director, and Anvar Jay Varadaraj, Chief Operating Officer, of Elgi Equipments Ltd, elaborate on the company’s future plans and industry trends.

In the second quarter of 2024-25, Elgi Equipments Ltd, one of the leading global compressor manufacturers, posted a consolidated sales of Rs 8.69 billion (Q2 FY24: Rs 8.06 billion) and PAT of Rs 0.947 billion (Q2 FY24: Rs 0.913 billion). Against this backdrop, Rakesh Rao spoke to Dr Jairam Varadaraj, Managing Director, and Anvar Jay Varadaraj, Chief Operating Officer, of Elgi Equipments Ltd, to know more about the company’s future plans and industry trends.

How do you read the performance of Elgi Equipments in Q2 FY25?

Dr Jairam Varadaraj (JV): Our performance in the second quarter of FY25 was good as we have had growth in both top line as well as bottom line. India business has been firing for us with good domestic and exports demand. That is reflected in the result. Only in North America growth was not on expected lines, which we believe will witness a turnaround very soon. Our foundations are pretty strong and we are looking at long term growth.

Anvar Jay Varadaraj (AJV): Operationally, the core businesses - industrial and distribution businesses - have shown strong performance. The infrastructure portable compressor business is basically following the natural market cycle. Considering these factors, our performance in North America was good and we expect it to improve further in the coming months. Overall, I would say Q2 FY25 was a good quarter.

As one of the leading global players in the compressor technologies, what kinds of growth opportunities are you exploring?

AJV: We see a lot of opportunities in India for our core products as the country is witnessing strong domestic growth. In the US and Europe, because of our low market penetration at present, we see a big opportunity to grow. In terms of business expansion plans for the future, we are looking at allied compressor adjacency products for which we can use our current channel partners to tap existing customer segments. In line with this strategy, we recently announced our foray into vacuum systems – a technology that we know very well and also the end-user industries (that are similar to our existing customers). Our ability to come out with compelling value propositions to our customers is quite strong. In the compressed air space, there are areas like piping, dryers, air oil separators, etc, which require the same channels and are used by the same customers. In the near future (3-7 years), there are lots of opportunities for us to grow in these compressor adjacency product segments.

JV: Growth will come from geographical expansion of existing products and increasing our range of product offerings by getting into adjacent verticals like, vacuum. This in itself presents a potential market of $25 billion to explore business possibilities.

In February 2024, you joined hands with DVP Vacuum Technology S.p.A., Italy. What was the rationale behind foray into the vacuum pumps market?

JV: As per our estimate, the market opportunity for vacuum pumps is about $ 3 billion globally, while in India it would be roughly around $ 300 million. Our first goal is to learn the business. The vacuum technology is not rocket science; compressors are a lot more sophisticated than vacuum. But there are nuances in terms of applications of vacuum technology, customer use cases, etc. To understand these nuances on our own would have been a long learning curve. Our partnership with DVP Vacuum Technology is to compress this learning curve while focusing, initially, on India, where we have a strong distribution network to serve customer’s needs quickly.

Phase one is to learn the business through opportunities in India using existing technologies. Parallelly, we will invest in developing new technologies in the area of vacuum. We may also partner with DVP to explore other markets, in addition to India, in the future.

What is the status of your Conquer K-2 (CK2) goal - inspired from the world’s second tallest mountain (K2)?

JV: Our CK2 mission, which is our long-term growth strategy, is to be amongst the top three compressed air brands in the world by 2035-36. While we are on track towards it so far, heavy lifting will happen in the next 4-6 years, that is when the growth curve has to go up. Besides our core compressor business, we need to incubate a lot of new opportunities, like vacuums, to be able to hit those numbers. We are also building a new team of people to help us reach the goal.

What are the advantages of having an integrated manufacturing facility?

JV: In our industry, 80 per cent of the global market is in the premium segment, while the discount segment accounts for the remaining 20 per cent. If you have to really grow, then you have to be a part of the premium segment. You cannot design, develop and manufacture products for this premium segment without investing in a good manufacturing facility. Through right manufacturing practices and processes, we look at ways to reduce our manufacturing cost; thus offering high-quality products at a right price to our customers in the premium segment.

This (integrated manufacturing facility) provides us an edge over our competitors in terms of offering products that are not just cost-effective but also top-class in quality and performance.

What are key challenges business owners are facing at present?

JV: Business owners across the world have to be watchful about how multiple factors such as rising geopolitical tensions, trade wars, increasing protectionism in countries across the world, etc will impact global trade. Our goal is to be country-agnostic, which means to build capabilities – i.e. systems, people, processes, etc – that can help us overcome uncertainty and volatility in the global market and still be profitable. We are focussed on our long-term plan and we will continue to make investments to achieve our stated long-term goals.

What is the contribution of exports to your business? How do you see the US and Europe markets?

JV: The overseas business contributes about 50 per cent to ELGi’s turnover, which we expect to increase further as we grow our business in other countries. General sentiment on the business side is positive in the US. Europe has hit the bottom and it is only going to go up from here. If the Russia-Ukraine war ends, then Europe will be the biggest beneficiary propelling its growth further.

What are your growth plans for the company in the next few years?

AJV: Part of current manufacturing activity will move into a new production facility, which will also increase our manufacturing capability. Our capacity expansion will be in line with our growth plans for the next 5-7 years.

JV: We will remain focused on our core business that has the potential market of $ 25 billion to tap into. Within this core area, there are lots of adjacent opportunities that we will seriously pursue. So far, we have focused on the technology of compressors. But increasingly we are looking to expand our bandwidth. For example, we have launched our own designed and manufactured dryers, which took us about 2-3 years to develop. Similarly, there are many adjacencies in the entire compressor space that we will more aggressively pursue.

Then, we will foray into larger adjacencies, like vacuum, where currently we are not present.

The next three years would witness moderate growth (which is similar to the rate in the past), but after three years we expect to see high-growth as some of these new adjacency businesses increase their market share.