The Hindu Business Line : Elgi Equipments recommends 60 pc final dividend

Elgi Equipments has recommended a final dividend of 60 per cent, thereby taking the total dividend for the 2005-06 fiscal to 100 cent, same as in the earlier year.

The board, which met on Monday to take stock of the performance for the just-concluded fiscal, has also cleared a plan for hiving off the `automotive equipment' business to a wholly owned subsidiary. This is expected to happen in the first quarter of the current fiscal.

`Huge opportunities'

Justifying the move, the company has, in a release stated that the proposed decision was aimed at leveraging the huge opportunities in the automotive equipment space, both in the domestic and global markets. The board has conceded that the automotive equipment business was not getting the requisite attention because of the predominance of the compressor business and has expressed the need for creation of a separate company to leverage the opportunities advantageously.

"Further, the cost structure of the automotive equipment business needs a different orientation than the compressor business. By being a small part of a larger business entity, the cost decisions tend to be made for the larger businesses' requirements. In the long run, this could place the automotive equipment business in a disadvantageous position by being a division," the note said.

Net profit up 5 pc

Elgi registered a 9 per cent growth in sales and 5 per cent growth in the profit after tax.

According to Mr Jairam Varadaraj, Managing Director, the profits had grown at a lower pace because the material cost of the imported products to sales was much higher than the average material cost. He dismissed this as a temporary phenomenon as the company was well on its way to localising the imported parts. He, however, pointed out that the growth in its turnover was indicative of the opportunities in future.

(The company is at present importing the centrifugal compressors and oil-free screw compressors in the compressor division and collision repair systems in the automotive equipment division.)

The 11 per cent growth in international business is stated to be lower compared to the overall level. "With the exception of one major customer, the other segments of our international business grew by 25 per cent," Mr Varadaraj said. He added that the company expected to see higher growth segments this fiscal. It is expecting to grow by 20 per cent this year.

More Stories on : Restructuring | Engineering | Automobile Components

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