Coimbatore-based Elgi Equipments Ltd (EEL), which is into the manufacture of air compressors and automotive equipment, has incorporated a sales subsidiary in Indonesia as it seeks to replicate globally its success in Indian markets.

It also plans to spend about Rs 30 crore during the current fiscal as capital expenditure, much of it in India, subject to market conditions.

The EEL board of directors on May 9 approved the incorporation of a wholly owned subsidiary by name Elgi Equipments Indonesia, PT in Indonesia.

Responding to questions from Business Line , Jairam Varadaraj, Managing Director, Elgi Equipments, said that the Indonesian subsidiary would be “purely a sales and service subsidiary’’. Currently, its Indonesian distributors purchased their requirements directly from EEL in India.

He felt that opening of a warehouse of its own by EEL with sales and service support would enable its distributors reach “deeper into the market’’.

He said the subsidiary was purely for the Indonesian market. The ASEAN region played an important role in the business plans of EEL since the region contributed about 10 per cent of EEL’s revenue.

Global subsidiaries

Jairam Varadaraj, referring to the importance of international subsidiaries, said that the company has 12 international subsidiaries and their cumulative contribution to the company’s revenue was almost 50 per cent.

Explaining the company’s strategy, he said that the goal was to have a substantial presence in important global markets. For this to happen, EEL should have “local presence in the form of inventory of products, sales and service support’’.

This would also assist in developing a distributor network. He said that the company has cemented its place within India because of a strong sales and service support. The idea was to replicate this success in key global markets.

Overseas acquisitions

Elgi Equipments’ appetite for overseas acquisitions was evident from the fact that during last fiscal it acquired 100 per cent stake in two overseas companies — Rotair SpA Italy and Pattons Inc, USA.

On the capex plans for the current fiscal, Jairram Varadaraj said the company has planned an investment of Rs 30 crore as capital expenditure.

He, however, qualified the observation with the statement that “a lot will depend upon how the markets recover’’. Nearly the entire planned expenditure would be in India for capacity (expansion) purposes.

Jairam Varadaraj, reflecting on the economic outlook, said though the present state of the economy was “unpredictable’’, he was optimistic of the macro-economic conditions improving in the ensuing quarters. While sounding cautious, he noticed improvements in some segments that augured well for the future.

Q4 results

The company had, on a standalone basis, reported total income from operations of Rs 231.40 crore during Q4 of last year compared with Rs 220 crore in the same quarter in 2011-12. Net profit in the fourth quarter of last year was Rs 21.92 crore (Rs 22.14 crore).

For the full year, the total income (less of excise duty) grew by 3 per cent to Rs 816.53 crore (Rs 794.78 crore) and the net profit was Rs 71.26 crore (Rs 76.02 crore).

On a consolidated basis, the total income from operations in 2012-13 was Rs 1,144.51 crore (Rs 991.68 crore) and the net profit was Rs 60.18 crore (Rs 75.56 crore).

Compressor segment growth

Commenting on the company’s performance, he said that the 5 per cent growth the compressor segment had witnessed in Q4 was mostly contributed by industrial segments.

International business witnessed a 15 per cent growth with growth driven by West Asian and Asian markets.

He said the focus was on “strengthening distribution, improving sales productivity and getting prepared for the recovery’’.

Jairam Varadaraj said the foundry unit that was nearing completion was expected to go on stream by June this year. The investment, including land, building and machinery, was around Rs 55 crore and the capacity was about 10,000 tonnes.

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