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