Elgi Equipments Limited is a leading global manufacturer of air compressors and related industrial equipment, with a strong presence across multiple markets, including India, North America, Europe, Australia, and Southeast Asia. With a legacy spanning decades, Elgi has built a reputation for delivering innovative, energy-efficient, and reliable compressed air solutions for industries such as automotive, manufacturing, construction, and infrastructure.
In this article we will dive into the summary of the Q3FY25 Earnings conference call of Elgi Equipments.
Let’s begin
Why Q3 is a bad quarter for Elgi Equipments
The management started the remarks by saying why this quarter is a bad quarter with respect to earnings.
There’s been a large increase in fixed cost to the extent of 15% and that’s primarily one-time expenses. There was an increase in transport costs because of the Red Sea problems and all that, but they are beginning to taper off. The management thinks this is not a continuing issue.
We had some issues with warranty provisioning. It is also one time. So, most of the increases that we are talking about are one time.
The management is confident that going forward the company will be reasonably good as far as the sales growth is concerned.
The company lost a bit of revenue because the GST portal went down in the last 4, 5 days of December. So, the company lost a bit of revenue and the cutoff, the company couldn’t. company had the invoices ready but they couldn’t ship. And as a consequence, the revenue fell over to January.
In addition to that, the company had some sluggish performance in portables across the world. Waterville in India as well as the portable business in Europe, Australia and the US Particularly in the US the company had a steep fall in the portable business in the third quarter compared to the third quarter of last year.
Sales Highlight
The growth in our fundamental businesses have been quite positive.
with sales increasing across all regions, including North America, despite challenges in the portable business due to infrastructure issues.
The industrial sector in North America has performed well, and the distribution business has recovered from ERP-related issues and is now growing.
However, Australia remains sluggish. Overall, revenue has grown by 3%, though profit before tax (PBT) is lower due to previously mentioned factors.
Key Developments
The management focusses on two key developments during the quarter.
first is a revolutionary new technology that the company have launched. They hope the products will start coming out to the market within the month India and within the next six months globally.
The second one is about the lower tier, low-cost compressors coming from China and company’s plan to develop it. They have developed a range of machines and in the next financial year they will launch them. They are far more reliable than the Chinese machines and extremely competitive from a cost point of view and far better in performance in terms of efficiency.
Future outlook
The management is very confident that they will have a very strong fourth quarter.
Company’s cash position has been extremely strong this quarter and it will continue to grow further the next quarter.
The company has put some very strong controls over their working capital, primarily their inventory which went a little out of control post the COVID and Post the Red Sea issues.
Question and Answer Session Highlights
despite the macroeconomic challenges in Europe, the company have still posted a very decent top line growth over there. So what is enabling this?
the economy in Europe has been challenging for a long time but things are slowly, company think it hit the bottom and it’s slowly coming back.
The second reason is company have created a lot more focus in the go to market. There is very deliberate actions being taken to identify very strong distributors. company have brought potential channel partners to its plant, showed them what it is capable of doing.
portables business in the North America, what percentage of company’s North American revenues it would be.
about 15 to 20% of companies revenue will be from North America but today it is probably less than 10.
US company will still make some profits this year?
No, company will probably just break even.
after-sales market share, 15% to 20% of the business is from the after sales business that the provide. So, any indication on when the company expecting to increase that, if at all?
The companies after market share in India is quite healthy. There is opportunity for maybe a couple of more percentage growth so that the company continue to do. its aftermarket percentage outside of India as a percentage is very low. And that’s normal because aftermarket as a percentage of revenue grows only when your installed base becomes a certain size. And company is beginning to build that size, and company is growing the aftermarket year on year. But you will not see that 30%, 35% till such time the install base has become quite large.
The company is targeting to be one of the top three players in the world by the next 10 years. So, what is strategy in that terms that any particular product focus as we all know that on the R&D front, ELGi is very high and very focused. But on that front also if any roadmap, sort of what are the thoughts in terms of the increasing that market share?
Company is focusing on lubricated pistons, lubricated screw and oil free screw as strategic focus for growing the business. And it is focusing on key geographies which is Australia, Indonesia, Thailand, India, Europe and the US or North America.
So, these are the markets where company is strategically focusing. What we mean by that is disproportionately allocating its time and resources in these markets for these three product categories. So, if you look at company’s investment in technology, both the products, both the technologies and both the technology as well as the product, it is pertaining to rotary screw compressors
The Current U. S. Administration. After coming up to Trump, there has been an increase in a tariff across the, multiple industries on. So, are we as an industry or company, do we fall in that particular category in any way as of now.
Even during the earlier regime, Trump regime, when there were duties imposed, compressors were not in that category. So, company don’t expect it. So even if it comes, those are business challenges. Those are not going to be game changers.
what is the capex till this quarter?
maybe about 60 odd Crore. The company have budgeted 250 Cr about So, the new buildings that will happen, part of it in the fourth quarter and then into the next year.