The air compressor and compressed air solutions manufacturer, based in Coimbatore, has already reached breakeven in Europe and is currently profitable in the US. The expected growth in these markets is projected to lead to increased earnings before interest, taxes, depreciation, and amortisation (EBITDA) in the future.
The company has also outlined a comprehensive five-year plan aimed at boosting EBITDA margins to approximately 18%, primarily driven by its aftermarket business and localisation strategies.
Currently, Elgi generates about 16-18% of its total revenue from aftermarket services, a segment that delivers significantly higher profit margins compared to equipment sales, making it a crucial focus in the company’s long-term plans.
“The aftermarket yields two to three times more profit than equipment sales,” Varadaraj stated.
While the company does not foresee aftermarket revenue hitting 25% of total sales in five years, it does expect the contribution to rise to around 20-22% during this timeframe as part of its strategy for margin expansion.
Elgi perceives India’s growth rate as outpacing its global operations, driven by new product launches, an enhanced go-to-market strategy, and increasing industrial activity.
Elgi Equipments, boasting a market capitalization of ₹19,507.33 crore, has seen its stock price increase by over 15% in the past year.
According to Varadaraj, the company has established various growth drivers in India and continues to regard the local market as strategically significant.
He also highlighted signs of an improving capital expenditure cycle, although some investment decisions have been postponed due to geopolitical uncertainties.
“There is a positive sentiment, but a pause exists to determine where global conditions, particularly in West Asia, will stabilize,” he commented. “Inquiries are strong, but final decisions are taking longer.”
The company is also enhancing the localisation of its components and products to mitigate the impact of currency fluctuations and imports.
Varadaraj noted that Elgi is aiming to increase its sourcing and manufacturing activities within India as part of a broader programme for margin enhancement, preparing for a future scenario with a weaker rupee.
Elgi has recently appointed senior executive Indranil Sen to oversee its operations in the Americas and Europe, aimed at strengthening the integration between global subsidiaries and the headquarters.
The company is also on the lookout for a new Chief Financial Officer and anticipates that the selection process will take around six to seven months.
For the complete interview, please watch the accompanying video
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