Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Elgi Equipments Ltd (BOM:522074, Financial) reported an 11% revenue growth over the previous year for the same quarter.
- Profit Before Tax (PBT) improved by 17% compared to the previous quarter.
- Strong growth in the Indian market, with a notable 18% increase in the standalone business.
- The company is optimistic about breaking even in Europe this year.
- New product launches and a partnership with McKinsey for a go-to-market strategy in India are expected to drive future growth.
Negative Points
- Challenges in the North American market due to ERP implementation issues and a 30% market drop in the portable vertical.
- Inventory buildup due to increased transit times from India to Europe and America, affecting cash generation.
- Increased employee costs by 7%, with an 11% rise in India.
- Logistics issues in the Red Sea and congestion in China and Singapore have led to higher freight rates and longer lead times.
- Lower profitability in the North American market compared to expectations, although improvements are anticipated in the next quarters.
Q & A Highlights
Q: What has driven the strong growth in the stand-alone business in India, especially during the election quarter?
A: The growth in India has been across all verticals, with significant contributions from the water well sector. Other industrial verticals, aftermarket, construction, and mining have also grown. The company is optimistic about further growth opportunities in India, even if the economy does not grow as anticipated, due to new product launches and a go-to-market refresh project with McKinsey.
Q: What is the update on profitability in North America and Europe?
A: Europe is on track to breakeven this year, with first-quarter numbers indicating this goal will be met. North America is performing better than last year, despite some challenges. The company expects reasonable contributions to overall profitability from North America in the next three quarters.
Q: What is the progress on the production of higher kilowatt motors?
A: The design and pilot for higher kilowatt motors are planned for the third quarter, with regular production expected to stabilize in the next financial year. By FY26, the company aims to cover about 85% of its motor requirements.
Q: Are there any plans to enter the CNG compression market?
A: The company decided against entering the CNG compression market due to its volatility, government tender dependencies, and long working capital cycles. The focus remains on air compression opportunities globally.
Q: What are the current logistics challenges, and how are they impacting operations?
A: The Red Sea problem and congestion in China and Singapore have increased transit times and freight rates. The company is looking to cut costs to compensate for these increases and optimize inventory to maintain customer service levels.
Q: What are the ongoing consulting programs, and how much has been spent?
A: The company has a go-to-market project with McKinsey, with about INR6 crores spent and another INR13-14 crores to be spent. There is also a finance transformation project with Deloitte, costing about INR1 crore. Future projects in HR and supply chain are planned but are not expected to be significant in cost.
Q: What is the installed base mix and aftermarket penetration in India versus the rest of the world?
A: Approximately 80% of the installed base is in India, with 20% in the rest of the world. Aftermarket penetration is around 70-75% in India and 80% in the rest of the world. Margins are higher in the rest of the world due to higher gross margins but lower net margins due to higher people costs.
Q: Are there any inorganic growth opportunities being considered?
A: Inorganic growth is not the preferred option. The company focuses on organic growth through strong channel partners. Inorganic opportunities are considered only when necessary for customer access or adjacent products, but no such opportunities have been identified yet.
Q: Are there any plans to apply artificial intelligence to Elgi products?
A: Yes, the company is working on AI applications, particularly through its Air Alert project, which involves installing sensors on machines to collect data. This data will be used to develop algorithms for predicting failures and identifying savings opportunities for customers.
Q: What is the potential for air compressor demand in emerging sectors like electronics, green hydrogen, data centers, and renewables?
A: The demand for air compressors in electronics is significant, particularly for oil-free compressors. Green hydrogen compression is a different business with no direct application for Elgi. The renewable sector, particularly solar module manufacturing, presents opportunities. The company is already supplying to customers in these segments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
