The tall and shady trees one sees all round through the large windows of the ground floor boardroom in the Elgi Equipments HQ at Singanallur in Coimbatore are pleasing to the eye. It is from this very boardroom, perhaps ruminating often on the tranquil scene outside, Jairam Varadaraj, Managing Director of Elgi, is looking to steer the air compressor maker to be among the top three in the world in the next decade.

We are here to converse with Varadaraj on his ambitious plans over a quick lunch in the office but find that he’s been called out for a compelling reason. We are led to a small and pretty courtyard at the rear of the office with a tiled-roof open verandah that serves as a dining hall for top management. A simple and tasty repast of ragi dosas, rice, sambar, rasam, kootu, curd, appalams later, we are back in the boardroom and joined soon by Varadaraj. He’s apologetic that the reason he couldn’t join us for lunch is that he had to go home to give his three-and-a-half-year-old grandson lunch and get him to sleep after. That, definitely, is an important enough reason, we aver.

Over coffee, we ask Varadaraj, who holds a PhD in International Business from the University of Michigan Ann Arbor, where he was a student of the renowned management guru, the late CK Prahalad, on what sparked his global ambitions — over 50 per cent of Elgi revenues today comes from overseas.

It’s been a long and arduous journey, Varadaraj explains. In the early 1990s when the country liberalised, the Elgi group was in 5-6 businesses — from braking systems, horns and wipers to pasteurisers and bottle washers for breweries — all of which it shut down and decided to focus on compressors and a smaller business of automotives. “We knew the world’s best in compressors were going to compete in India. The kind of investments needed in systems, hardware and people were not just defined by the size of the Indian market, but also by global benchmarks. If you didn’t do it, you were out of the Indian market anyways. So, we were between a rock and a hard place. We decided to take the long, hard path; make the investments and make it globally relevant,” he elaborates. Air compressors are used in a variety of industries — from food processing to railway locomotive braking systems — so it is in some ways insulated from the usual business cycles.

Global ambitions

Elgi, which expects revenues of ₹3,200 crore this FY, made investments at the back end in quality and systems all through the 1990s and the first decade of this century. “In 2013 there was an opportunity; the number 1 was huge (Atlas Copco), and the number two (Ingersoll Rand) was 30 per cent of number one. We said we have the right to be a credible number two. The upgrade was completely done internally till about 2016 when we brought in an outside agency (City University, London) to help us become more granular and deliberate,” says Varadaraj. 

A foray into China for about a decade was enough for Elgi and it pulled out when it found that the Chinese expected ridiculously low prices. “We had planned 25 per cent lower and they wanted it even 20 per cent lower. So, we decided to pick our markets where there will be a certain level of openness. We chose Australia, Indonesia, Thailand, India, Europe and the US as our strategic markets and started putting all our attention in terms of resources,” he elaborates.

It wasn’t easy, especially with an unknown brand with a Made-in-India label. “It’s a long road to acceptance and seeing results,” admits Varadaraj. The European and the US markets today contribute 45 per cent of its overseas revenues. Along the way, Elgi made acquisitions in the US, Italy and in Australia in the last decade to gain a local presence.

We ask Varadaraj if he sought out other companies on his journey to learn from their experiences. “We have not seen one,” he replies, “Indigenous technologies that are world class in capital goods and sold under one’s own brand through our own distribution.” A true global company is country-agnostic and can operate anywhere in the world and still be competitive. “We are not there yet, but that’s our journey,” he emphasises.

Varadaraj seamlessly segues to another topic that’s close to his heart — improving productivity of labour while paying them top dollar. “We don’t want to build our business on the back of cheap labour,” he asserts. “We want to make our labour expensive and not look for places where someone is giving incentives — we will be in Coimbatore. We have a factory in Italy where we pay ₹30 lakh a year to a shop floor worker there, because that’s the norm. Our goal is to make our shop floor as expensive as the Italian one and still be competitive.” Elgi went through several VRS rounds to reduce the workforce from 2,500 to the 500 it has on the shop floor now.

Egalitarian and equitable

Varadaraj says he has a strong egalitarian streak in him. “Everyone needs to have a shared goal and in that goal there has to be equitable participation,” he insists. In the last 25 years, Elgi has not increased its shop floor employees but business has gone up 20 times. In Elgi, he says, there’s an internal rule that lowest to highest salaries cannot be more than 32 times. In the US, it’s more than 360 times and in India, generally, it’s 350 while Japan is at 90 times. “For a company like us, we don’t need more than six levels,” he adds. Nobody needs to apply for leave or permission to travel — if needed, they just inform their team manager and proceed.

The conversation moves briefly to a block-buster product a group company launched: the famed Elgi Ultra wet grinders. It moved the grinder from the floor to the counter. The innovation was launched in 1992 and even though it had a patent, it was copied quickly. Now, the competition, he says, is not from other grinders, but from ready-made batter. “Can we provide homemade batter in 15 mins? The other pain point is cleaning the grinder. We designed a system to discharge the batter quickly but the final cleaning is a challenge; we may look at smaller grinders so that task is easier,” he explains.

We ask him how much of an influence was CK Prahalad on his international outlook. “CKP was my tutor when I did my PhD, and a significant part of my work has been influenced by him: on why can’t we build an Indian MNC. But his definition of an MNC was more on scope and scale, but I took it a little further, to be country-agnostic and competitive, which means I put on another layer of challenge,” he says, grinning.

With a PhD, Varadaraj wanted to be a teacher, but needed to be a tenured prof in a US university. “And, you had to publish papers which were all mathematical and statistical models. I realised that I can’t see myself doing this abstract stuff for the rest of my life. My thesis in 1987 was why aren’t Indian companies competitive worldwide,” He came to India and interviewed 23 CEOs and Varadaraj had a point of view on why they are not global. “I said, coming from a business family, let me put my money where my mouth is.” And, Varadaraj returned to India to turbo charge Elgi.

Solving unstated needs

How has Elgi been solving unstated needs of its consumers? Air compressors are lubricated with oil, or there are oil-free ones, less efficient, less messy but more expensive. Four years ago, it launched water compressors. “From a price point of view and efficiency, we are pushing the envelope to see if we can converge the two — can we make it as efficient and as low a price point as an oil lubricated one. Also, customers find it difficult to size a compressor, so they may end up paying more in electricity cost, so can we find a compressor that can deliver exactly what they want — that’s an innovation that customers will never be able to voice,” explains Varadaraj.

Varadaraj has seven patents to his name and the most interesting one he says is where he tried to make the idli cool. “Every youngster likes idlis, but it’s not cool, because of the delivery. How to make delivery of the idli cool? We made a hollow idli, like a tube and then you can inject chutney or vegetables inside and then can slice it like sushi and pierce it with a toothpick and dip in sambar and eat,” he elaborates. He got a patent on the whole process and gave it to a few friends to commercialise, but didn’t bother to push it.  

Where is Elgi on the journey to become number 2 by 2027, we ask. That goalpost shifted when four years ago, Ingersoll Rand, the number two, and the third player, Gardner Denver, merged and they are at $3.5 billion in revenues while Atlas has moved further up. “We can’t get to number two, which is double the size now, within the time frame that we had set ourselves as it has become a larger entity. So now, by 2035-36 we want to be in the top three players internationally.”

Elgi is at No. 2 in India in the air compressor sweepstakes. Internally, its aspiration is called CK2, of which we see a lot of mention in the plant. “Conquer K2 is our aspiration, our goal, we are moving in that direction. We are No. 6 globally and in India a close No. 2. K2 is the second tallest mountain in the world and more difficult to climb, and that’s our journey,” says Varadaraj, smiling. Being in the top three will definitely give him a lot of glee.