ELGi plans new com­pres­sor mo­tor plant; to reach $500M by 2022-23

Auto components India - - COVER STORY - Story by: Sricha­ran R

Elgi Equip­ments Lim­ited, the Coim­bat­ore-based lead­ing air com­pres­sor man­u­fac­turer, is set­ting up a new plant to make mo­tors that in­te­grate with their own com­pres­sors to en­hance their ef­fi­ciency. Elgi of­fers a com­plete range of com­pressed air so­lu­tions from oil-lu­bri­cated and oil-free ro­tary screw com­pres­sors, oil­lu­bri­cated and oil-free re­cip­ro­cat­ing com­pres­sors and cen­trifu­gal com­pres­sors, to dry­ers, fil­ters and down­stream ac­ces­sories.

“So far we have been buy­ing mo­tors from China at high cost. We be­lieve that if we de­sign com­pres­sor-spe­cific mo­tors, we can get 1-2% more of ef­fi­ciency. The mo­tor we make will have an in-house de­sign, which took us 3 years to de­sign. The man­u­fac­tur­ing cost of the new mo­tor is go­ing to be same but we will have some marginal gains. Our pri­mary rea­son is the abil­ity to de­sign the mo­tor specif­i­cally for the com­pres­sor. To start with, we will be mak­ing it in a rented fa­cil­ity that will com­mence pro­duc­tion by next year. And we have al­ready started work­ing on shift­ing all assem­bly fa­cil­i­ties from Sin­ganal­lur plant to Air Cen­tre Plant (ACP) at Ki­nathuka­davu. The en­tire cam­pus will be an in­te­grated one there. This will hap­pen in 3-4 years.” Jairam Varadaraj, Manag­ing Di­rec­tor of Elgi Equip­ments Lim­ited told Au­toCom­po­nents In­dia.

“When we shift com­pletely to Ki­nathuka­davu, the cur­rent plant at Sin­ganal­lur will be used for au­to­mo­tive equip­ment. The sec­tor

has to grow, and we are in need of space. There­fore we have started to rent out space, but we need to in­te­grate it,” he fur­ther added.

ELGi, which has been in the man­u­fac­tur­ing process since 1960, is one of the 5 com­pa­nies in the world to de­sign and man­u­fac­ture pro­pri­etary oil-free air-ends. The com­pany of­fers over 400 com­pressed air sys­tems from the large cen­trifu­gal com­pres­sors to the world’s small­est screw com­pres­sor. It is also the pre­ferred sup­plier to the In­dian Rail­ways with a mar­ket share of 80% in com­pres­sors sales. ELGi pro­vides com­pres­sors for elec­tri­cal and diesel lo­co­mo­tives, aux­il­iary com­pres­sors, ex­hausters, wind­screen wipers and wa­ter-rais­ing ap­pa­ra­tus.

Last year be­ing a good year for ELGi, Varadaraj feels that, they could have done bet­ter. The au­to­mo­tive equip­ment sec­tor’s per­cent­age of growth was higher than com­pres­sors. The growth in com­pres­sor busi­ness was across all sec­tors like tex­tiles, food, pharma, engi­neer­ing etc. He stated that the au­to­mo­tive equip­ment busi­ness has grown and so has the other sec­tors.

Shar­ing on in­sights of how the com­pany did so last year, he said, “The In­dian mar­ket did well. We have gained a lit­tle mar­ket share. It is part of our ini­tia­tive not only to grow con­sis­tently with the econ­omy but also to grow our mar­ket share. I think that we have done that both in the com­pres­sor and au­to­mo­tive busi­ness. In our com­pres­sor busi­ness close to 50% of our rev­enue is from In­dia and the other 50% is from the rest of the world. 90% of our au­to­mo­tive equip­ment busi­ness is in In­dia and it con­sti­tutes only 10% of our to­tal busi­ness.”

The man­u­fac­tur­ing com­pany’s busi­ness out­side In­dia has also fared well. Varadaraj said that, it is go­ing in the right di­rec­tion and it is con­sis­tently in­creas­ing. Of the 50% rev­enue that comes from out­side In­dia, around 35% of the rev­enue comes from Europe and Amer­ica. This is sig­nif­i­cant be­cause th­ese mar­kets are so­phis­ti­cated and de­vel­oped. In the last 5 years, the com­pany has grown in the high dou­ble-digit per­cent in Europe and the US. In the long run, the Mang­ing Di­rec­tor feels that 50:50 mar­ket share might change but the core tech­nol­ogy will re­main in In­dia and the pro­duc­tion will in­crease. “The big part of it, is re­peated cus­tomers. It is all about the value that you sup­ply to the cus­tomers. It took us 2-3 years to build that. It was tough to get into th­ese so­phis­ti­cated mar­kets and to make them ac­cept an un­known brand and the Made in In­dia la­bel. I think I have con­quered that chal­lenge,” he said.

By sens­ing the mar­ket po­ten­tial and growth, ELGi plans to touch $500 mil­lion by 2022-23. Speak­ing about the fu­ture growth plans, Varadaraj said, “We need to grow. The past CAGR has been 14% and in our next phase, we are go­ing to dou­ble it. The cur­rent growth rate is around 15-16% and we are on track to achieve $500 mil­lion. After that, the growth rate es­ca­lates up to 30-32%. The prepara­tory phase is where all the ac­qui­si­tions and new mar­kets will come in and th­ese will give us the push. It was started in 2013-14. From there we got the right prod­ucts and val­i­da­tions were done in the key mar­ket. Now, we are go­ing through the launch-phase and driv­ing that hard. We will also im­ple­ment this process in the US and will in­vest there. The ac­qui­si­tion will also be made in the next 4 years. We will touch the $500 mil­lion mark quite com­fort­ably. The real chal­lenge comes to make that in­fla­tion point. So we are quite con­fi­dent that we will achieve that.”

On the ac­qui­si­tions, he said that they have iden­ti­fied 25 com­pa­nies and now it nar­rowed down to 5. The com­pa­nies will be in core ge­ogra­phies and the com­pany will soon make an an­nounce­ment re­gard­ing it. “Our en­tire ac­qui­si­tion is not for tech­nol­ogy, but for cus­tomer ac­cess which is pri­mar­ily a dis­tri­bu­tion and ser­vice com­pany. We don’t need man­u­fac­tur­ing at all. Coun­tries like In­dia, Europe, USA, Aus­tralia, In­done­sia, and Thai­land are the one that we are strate­gi­cally fo­cus­ing now,” he said.

The com­pany al­ready has a plant in Italy that man­u­fac­tures dieselpow­ered por­ta­ble com­pres­sor. The com­pres­sor that is pro­duced in In­dia are of In­dian emis­sion stan­dards and the one that is pro­duced in Italy will be of Euro­pean and USA stan­dards. He stated that pro­duc­ing there will give them more knowl­edge on that. In the US, the com­pany has a lit­tle assem­bly line and go­ing for­ward, they have plans to start pro­duc­tion there once the mar­ket reaches a sig­nif­i­cant size. This needs to be done to sup­ply the cus­tomer needs there. Pro­duc­tion will start in the US in the next 2 years. “For the com­pres­sor busi­ness across the world we see a cer­tain uni­for­mity in cus­tomer be­hav­iour and ex­pec­ta­tions. So, we go by cus­tomer seg­men­ta­tion. Ba­si­cally, there are cus­tomers who value life cy­cle costs, then there are cus­tomers who are more bud­get con­scious. Their util­i­sa­tion cost might be less as the life­time cost is not used for them. The pro­por­tion might be dif­fer­ent, but the seg­ments re­main the same. I don’t see that as a big chal­lenge for us,” the spokesper­son said.

On the new de­vel­op­ments, Varadaraj said, they want to be in the in­no­va­tion side and are in plans to merge the oil free and oil lu­bri­cated com­pres­sor to­gether. He said, the new oil-free com­pres­sor that they have been test­ing for al­most three and a half years, which will be launched this year. The com­pres­sors are al­ready in the hands of the cus­tomers, but a for­mal launch will hap­pen this year and the world­wide launch will hap­pen in April at Han­nover. On in­te­grated com­pres­sor, he stated, “You have 2 choices. One, the com­pa­nies that con­sciously say that they will not in­no­vate but will repli­cate very quickly of the prod­ucts in­no­vated. We do not want to be the fast fol­lower, but the leader. If you take that po­si­tion, there are risks and you have to make cer­tain bold moves. We ques­tioned 2 dif­fer­ent types of com­pres­sors and have got some­thing in be­tween. We have not merged it yet. Our long-term goal is to merge it and we will be in­tro­duc­ing it. We un­der­stand what are the prob­lems that we need to solve. We need to ad­dress one at a time pa­tiently.”

Speak­ing on the ca­pac­ity of their plants, the MD said, it is very dif­fi­cult to pre­dict ca­pac­ity util­i­sa­tion be­cause it is used for mul­ti­ple lines and each grows dif­fer­ently. What they do is that they in­vest a year ahead of planned growth. So be­fore one year, they put that ca­pac­ity and this com­pro­mises the rhythm of the com­pany. Varadaraj said that they might part­ner in the fu­ture

depend­ing on the in­te­gra­tion. “You do not have a choice that you have to part­ner. I can­not be an ex­pert in ev­ery­thing. But, you need a fun­da­men­tal ex­per­tise of knowl­edge of the do­main. Not nec­es­sar­ily to in­no­vate in the do­main but the knowl­edge. We need to cre­ate an in­tel­li­gent do­main to have an in­ter­ac­tion. It will be an in­ter­est­ing chal­lenge in the fu­ture, with­out con­verg­ing that ex­per­tise,” he quipped.

The R&D cen­tre at ELGi has around 160-170 em­ploy­ees and there is a con­stant ex­pan­sion hap­pen­ing. “We keep in­vest­ing. For ex­am­ple, the mo­tor test­ing fa­cil­ity we have is one of a kind. Only 2 such cen­tres are in the coun­try. If you put a mo­tor in it, the ma­chine will sense ev­ery­thing and sub­ject the mo­tor au­to­mat­i­cally to all duty cy­cles. This is how we are able to de­sign su­pe­rior mo­tors and it is the rea­son we have in­vested in it. That fa­cil­ity alone costs around Rs 2 crore. The test re­quired to de­tect fail­ures are in­te­grated into our assem­bly. This is the rea­son

that we bring out an ex­tended war­ranty,” he said.

He said that their air-ends have the high­est war­ranty in the mar­ket. “The rea­son is the qual­ity we build, check­points we have, the qual­ity of the peo­ple and the train­ing we give. Bet­ter qual­ity does not mean the life­cy­cle of the prod­uct has in­creased.

It just means that dur­ing the life­cy­cle the cus­tomers will have less de­fect. So, for in­stance, the life­cy­cle of a com­pres­sor is 10 years. If a cus­tomer does not change it after 10 years, he will lose out on the tech­nol­ogy change that has hap­pened in the pe­riod. So in the 10 years, our goal is to be the best in terms of re­li­a­bil­ity,” he signed off.

ELGi ex­panded its man­u­fac­tur­ing fa­cil­ity by open­ing up its Air Cen­ter Plant and Foundry in In­dia in 2014

Jairam Varadaraj, Manag­ing Di­rec­tor, Elgi Equip­ments Lim­ited

Assem­bly line at ACP

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