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Elgi Equipments hosted a conference call on Feb 14, 2017. In the conference call the company was represented by Jairam Varadaraj, MD of the company.
Key takeaways of the call
Compressor business of the company grew marginally in domestic market in certain segments despite uncertainties of demonetization. Growth in the rest of the world was also marginal.
Industrial activity is expected to gain pace gradually after absorbing the effects of demonetization. As a result compressor business may see muted growth in this quarter. There is no significant
The industrial segment registered a healthy mid double digit growth. The company though has not gained any market share, it is currently holding on to its market share. However the company has grown its market share in after market share.
Difficult to unravel the impact of demonetization on the business of the company. Really compared to Q217 the sales numbers are not different and the normal uptick in Q3 was missing and that seems due to impact of demonetization.
Today only China operation is making losses and that too it reduced to 1/10th of the losses it used to make.
Centrifugal compressors - The company has sold few but the product is still in validation and testing mode. Developing centrifugal compressor inhouse is a 2 year programme.
Oil free compressors – The project demand from power and steel is almost dead in India. But the company have gained traction in non project related market which is more sustainable. This non project demand will be of one off purchases.
Q4FY17 biz is not going to be Q4FY16 given some large order contribution in Q4FY16.
USA – USD 480 mln is the target in 2 years time. The company registers a revenue of about USD 230 mln. The company have enough capacity for this target turnover in US. The company has to build a manufacturing base for high resource cost centre at the cost at which the company manufacture in India. Airen cost is only 30% of the cost that going from India is not going to change the competitiveness of the company. Only assembly cost that matters. Large country large presence warehouse will not work, it work only in geography where the presence is small and market is small.
Expects 10-12% growth in India in FY17 and it that growth rate sustains in FY18 the company will be debt free by Sep-Oct 2018
At sales there was a drop of Rs 160 million and this is partly due to absence of contribution from Belair which hand contributed about Rs 150 million in Q3FY16. Q3FY16 also had the benefit execution of bulk order in water well segment and that is not available in Q3FY17.
EBITDA was hit by certain cost which are one off. Project ECG which is not in Q3FY16, INDAS lot of restatement in various over heads especially forex. This does not have cash impact but accounting impact. Profitability in Q3FY17 barring one off items remain in positive levels.
One off items for the quarter consists of forex of Rs 15 mln (vs. Rs 2 mln in Q3FY16) and R&D expense of Rs 20 mln(Vs nil in Q3FY16).
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