Key highlights

• Elgi Equipment reported 3% growth in net sales for FY'12. The compressor sale to water well segment, was down by 42% y.o.y, construction and mining segment was up by 17%, industrial was up by 15% and exports were up by 20%.

• The OPM was lower by bout 280 bps largely due to higher material costs, adverse product mix and increase in packaging and fuel costs. About Rs 1.90 crore was spent on legal and consultancy charges which was due to company's continuous hunt for global acquisition.

• For Q4 FY'12, the net sales was up by 12% largely helped by compressor sale to construction and mining segment which grew by 20%, industrial grew by 15% and exports by 20%. Water well segment continued to degrow and was down by 13% y.o.y.

• Water well segment is not expected to grow in FY'13 as well.

• The OPM remained under pressure for Q4, largely due to higher man power and material costs. However, as per the management, margins have bottomed out and will remain flat for FY'13.

• Management is confident on the export growth. The company has taken efforts in establishing braches, man power and has reached newer geographies. It has now subsidiaries in Brazil, France, China, and Australia.

• On domestic front, the path is very unclear. While the company is making all possible efforts to garner growth, somehow, the lack of policy action translates into lack of decision making and thus commitment from buyers. Nevertheless, the company has come out with new products and has also entered into high-end compressor market. These new products and new higher-end compressors are expected to contribute about 7-8% of sales in FY'13.

• On profit front, the international markets have lesser margins. But with company able to increase prices of some of its products together with rupee depreciation, the margins have become at par to domestic margins.

• The company has incurred a capex of about Rs 30 crore and similar is planned for FY'13 as well. This is apart from the green field expansion of Rs 130 crore capex planned by the company. About Rs 20 crore of the Rs 130 crore capex planned has so far been spent in span of 12-15 months. Going forward, the ramping up would purely depend upon the demand and domestic confidence.

• On Tax front, the company got registered with the Government as a Recognized R&D centre and thus is eligible for 200% depreciation. R&D expenditure during FY'12 stood at around Rs 18 crore and similar expenditure will be spent going forward. Overall, thus the tax rate for the company has come down in Q4 and thus will remain lower for coming years.

• Overall despite challenging times, management has indicated that they will be able to grow about 13-15% in FY'13.