De-risking Elgi from over-dependence on Indian market helped: Varadaraj, MD

L N Revathy Coimbatore | Updated on August 10, 2019

Jairam Varadaraj, Managing Director, Elgi Equipments   -  THE HINDU


Air compressor manufacturing major Elgi Equipments has reported a drop in its net income in the second quarter of 2019 at ₹17 crore (on consolidated basis), compared to ₹18.5 crore during the corresponding quarter of the earlier fiscal. Elgi’s compressor business in the domestic market (during Q1 of 2019) grew 5 per cent and the automotive business was up 12 per cent over the year-ago figure. In an interview with BusinessLine, Jairam Varadaraj, Managing Director, Elgi Equipments said: “The growth is in line with expectations in most segments. Our international business has grown steadily in our key focus markets such as Australia, Gulf, Europe and the US, and contributed to our revenues.” Excerpts:

How would you rate this 5 per cent growth in the first quarter?

While most companies struggled, we managed, but the growth was lower as compared to the previous year. About 50 per cent of our revenues were from outside the country. We inferred that those economies were not as challenged as the Indian market.

This indicated that our strategy to de-risk the company of over-dependence on Indian market was actually helping. Enquiries were very good, but conversions were slow.

Specific verticals such as construction, mining and railways, gained growth momentum because of budgetary allocation and support, but this was just a small part of our business.

Which of your focus markets abroad helped in revenue generation?

Australia has been good for Elgi during the first quarter of 2019 and so were the Middle East, Europe and the US, but the SE Asian market was flat.

I will attribute the positive growth in Australia to the acquisition we made last year, and in the Gulf — to the shift in sales strategy from distribution network to direct sales.

Europe has been good in terms of revenue but the US market was a little disappointing. For instance, we launched a strategic initiative similar to the one we initiated in India three years ago.

We observed that changes happen faster here than in overseas markets as we are an Indian brand. We expected the same velocity of change, but that did not happen in the US.

All fundamentals, the economy, our business and capabilities are still positive in the US. So, it should eventually take off.

How about profitability?

Profit before tax has dropped from ₹ 29.2 crore (Q1 of last year) to ₹ 25.7 crore at the end of the first quarter of the current fiscal. Both people cost and fixed cost have been huge.

This has risen by about ₹20 crore compared to the year ago cost, but half of this has been due to some of the long-term initiatives that we had taken.

We are planning to have a 70-member team in Europe. We have on-boarded only 6-7 people now. We have spent huge sums as consulting fees to acquire talent. In the US, we are working with a consultant for go-to-market process. We have changed the sales strategy in the Gulf. All of these are non-routine strategic cost.

People cost has been on the rise. It includes normal increase and certain budgeted increase, taking our planned growth into consideration. As there is a lull in the planned growth, we will take a look into the proposed additions.

What’s your vision going forward?

We aspire to take Elgi to the second place on the global map. Our debt-to-equity is very small at 0.3 per cent and cash generation has been comfortable. We are moving in the right direction.

There have been financial hiccups, but more on account of external factors. We are trying to go slow on capital investment and cutting down on fixed costs.

How do you plan to strengthen your position in the Indian market?

We are exploring deeper geographies. There are market segments that we need to tap.

We are analysing minutely on all fronts. Unfortunately, databases are not easy to compile in India. We have to do a lot of research.

Published on August 10, 2019

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