ELGI EQUIPMENTS LIMITED
ANNUAL REPORT 2008-2009
This year under review witnessed high volatility in business with the
global economic slowdown having a significant impact in the second half.
The compressor business grew in sales and profits whereas the automotive
business had a setback with recession in the industry. The compressor
business grew on the back of strong performance across all segments but the
performance was well below budgeted levels. During this year the company
had established two overseas subsidiaries in China and Sharjah.
The compressor business accounted for 85% of the total sales of the
company. This business accounts for 96% of the profits of the company and
86% of the capital employed by the company. This business presently employs
1002 people. It contributes to 89% of the international business of the
company. This year this business grew by 13%
In spite of sluggish market conditions rotary compressor segment managed to
record a healthy growth. This was possible due to focused initiatives in
select geographic and product segments.
The recip segment maintained its growth trend in select verticals. The
Construction and Mining segment sustained its performance during this year.
Investments into capacity in water well segment extended this year as well
though the peak capacity has not yet been reached.
The international business grew by 10%. Growth was mainly in the first half
of the year with the recession world wide significantly impacting the
business during the second half. As part of our long term plans to be
present in key high potential markets, we have established a wholly owned
sales and manufacturing company in China and a sales and service company in
the Middle East.
The after market segment which continues to be a key focus for the company
has grown by 19%. The company is moving towards achieving global levels in
after sales service revenue.
Taking into account the global slowdown, the company is exploring various
organic growth opportunities by developing new products to meet market
Our factory in China has commenced production towards the end of this year
and expected to start billing locally manufactured units. Our sales and
service company in the Middle East commenced warehousing and billing to
customers since November 08. As per our plans we are in the process of
incorporating our company in Brazil to serve the growing market there.
The year has seen continued influx of compressor companies leading to
technology and pricing pressure. Through appropriate global sourcing and
focused product development efforts the company is combating the situation.
With commodity prices and foreign currencies being volatile under the
recessionary circumstances, pricing and margins will continue to be a
International market is going through turbulent times leading to growth
challenges in export of our products and our global plans.
ATS - Elgi
The automotive equipment business accounted for 13% of the total sales of
the company. This business accounts for 4% of the profits of the company
and 14% of the capital employed by the company. The business employs 280
people. It contributes to 5% of the international business of the company.
The automotive industry faced severe challenges during the year driven by
reduced demand. The sales of all segments of vehicles witnessed dramatic
reduction. As a consequence almost all verticals of business witnessed
tough conditions. Considering the above challenges we increased our
emphasis on products such as wheel service equipment, AC recovery units,
simulators and mobile service units. In addition we tapped new
opportunities in equipments such as Nitrogen tyre inflator, high end lifts
from MAHA Germany, hydraulic lifts and positioned them in the right market
to fetch substantial success. Our efforts helped us in offsetting the
demand reduction in other segments.
During the year we gave special emphasis on training of our channel
partners to improve the customer service. This helped us to reduce the time
taken to restore any product in case there is a failure. Our toll free
service helped our customers book their calls. At the same time our liaison
and networking with the OEM`s increased manifold, this helped a lot in our
business development activity.
The demand for vehicle servicing is bound to go up as the population of
cars rises. A certain amount of skepticism prevails among the garage
fraternity on investments into new garages, especially in this period of
economic slow down. This year few manufacturers who have plans for mega
launch of new car models are expected to expand their service
During the year we have set plans to increase our sales in the wheel
service equipment business through the tyre shops as well as mobile service
units in the construction and mining segment. Our plan is to increase our
market share substantially in these business areas. In addition we would be
giving special attention to lifting equipments.
We have a number of new products planned for launching during the current
year mainly for improving the productivity and saving the running cost of
garages. Many of these products are presently under field validation and
would be progressively launched in the market. The company is also
exploring opportunities to increase service revenue.
While entry of global players into India continues to hamper the growth
opportunities, the focused regional players are gaining foothold in the
market by being closer to the customer and cost competitive.
Introduction of low cost cars such as Nano is creating new challenges to
meet customer needs at lower price points.
The business involves providing engineering services and manufacturing of
parts to customer's world wide. This business generated revenue of 108
million. The business employs 109 people. The capital invested in the
business is 25million which represents 1% of the total capital employed by
the company. International business of this division contributes 10% of the
total exports. The business grew by 56%.
The global companies continue to be under severe pressures to bring down
costs due to shrinking demand and volatile commodity prices. The cost
reduction initiative by these companies to combat the situation continues
to provide interesting opportunities for this business. The challenge is to
tap the right product at right that meets our capability and
infrastructure. Our focus continues to be on low volume high variety parts
which provide better margins than high volume manufacturing.
The complexities involved in manufacturing of low volume high variety
products pose many challenges in scaling and growing this business. The
global demand softening, volatile oil and commodity prices and pressure
from other cost competitive countries clearly are the threats the business
is faced with.
We would not be helping ourselves if we call the economic situation as
recession. This should be considered more of a structural correction of
demand after too many years of leveraged consumption. There is enormous
uncertainty about the depth and duration of the current situation. Managing
the business for cash combined with cost control measures will be the focus
in the coming year considering the existing uncertainties.
Our initiatives to develop the competencies of our blue collar employees
has started paying dividends. The objective is to be able to find first
line leaders from this pool of talent.
The time being ripe for acquisition we are seriously exploring
opportunities through acquisition of compressors or compressor related
businesses. We are in the process of exploring opportunities to test our
model that we have established. Based on the success we would scale up this
method of growth.
Our plan of finalizing the land for building new premises for our factory
is under final stages and we hope to initiate the steps during the ensuing
year. The capital budget for the next year has been finalized at 367
million. Out of this 351 million is for the compressor business, 12 million
is for ATS-Elgi and 4 million is for the manufacturing engineering
business. The bulk of the budget planned is highly tentative in nature and
would be activated only if demand conditions pick up.
We will be focusing on three critical aspects that this slow down is
presenting as opportunities for improvement. They are cost, quality and
cash. Strong product range combined with our customer engagement model and
Elgi's business systems would enable us to leverage our facilities and
people to much higher levels.
Coimbatore L.G. VARADARAJULU
Date : 30.04.2009 Chairman