Elgi Equipments hosted a conference call on May 29, 2018. In the conference call the company was represented by Jairam Varadaraj, MD.

Key takeaways of the call

In Indian market the company performed well across all verticals in FY18 compared to FY17. However the aftermarket sales are bit of disappointment. Growth in Europe and Americas market was to the extent of 20% plus and 25% plus in FY18.

For FY18 the sales grew by 17%. The EBITDA should have been Rs 223 crore as against the actual Rs 183 crore. Of the Rs 41 crore gap in EBITDA between actual and should have is largely due to increase in material cost to the tune of Rs 30 crore, of which 70% increase happened in India. The next big increase in manpower cost happened in Rotair.

Sale for the quarter grew by 24% and the EBITDA should have been Rs 68 crore but the EBITDA reported/actual was Rs 52 crore. Of the difference of Rs 16 crore about Rs 12 crore is due to increase in manpower cost with 60% of it happen in India.

The company invests in manpower and processes especially front end in India as well as key markets. Investment in both of these is not expected to bring in immediate benefits. Expect the margin to see continue pressure on account of manpower cost. However it is not worried.

Launch of new Oil free side compressor is on schedule as planned in July 2018. The company has already started booking orders for this new product.

Expect a consolidated revenue growth of 13-15% for FY19. The growth in EBITDA will not be commensurate with growth in sale in FY19.

The company is having one of highest installed base in India and considering that the growth registered by after market is not that great. Subdued after market sale is largely due to front end, which has to be lot more intense going forward. The company is working on specific programmes and is confident of overcoming this issue soon.

Increase in debtors as end of March 2018 is largely due to end of the year sale as well as sales to subsidiary. Sale to subsidiary is long cycle and that part of receivable is not going to come down even though the company is working on bringing down WC cycle. Rotair's sale to US distributors involves higher credit days. Working on some long term measures to reduce WC days.

Not see big impact on rupee depreciation. Have natural hedge.

Net debt as end of March 2018 was Rs 160 crore (Long term debt is Rs 70 crore) and this is a bit of disappointment as the company target to close fiscal with a net debt of Rs 120 crore. Inventory has gone up significantly in proportion to growth in Sale. The planning systems have to improve to have better control over inventory.

Currently only China subsidiary is making loss at PAT level.

Probably the company will have to look at fresh capex in 2021 and that is not going to be a game changing kind of investment.

Indian market continuing to grow, lot of companies are hitting capacity threshold and looking for capital investment. Looking FY2019 with optimistic outlook.