Air compressor maker Elgi’s steps to equip itself for its international forays
Elgi Equipments’ Managing Director Jairam Varadaraj speaks on how the Coimbatore-based company intends to be among the top three global players in the air-compressor market in the next decade and on the company’s journey to become the number two player wo
A foray into China about a decade ago was enough for Elgi and it pulled out when it found the Chinese expected ridiculously low prices
The tall and shady trees one sees all round through the large windows of the ground floor boardroom in the Elgi Equipments headquarters at Singanallur in Coimbatore are pleasing to the eye. It is from this very boardroom, perhaps ruminating often on the tranquil scene outside, Jairam Varadaraj, MD of Elgi, is looking to steer the air compressor maker to be among the top three in the world in the next decade.
We are here to converse with Mr. Varadaraj on his ambitious plans over quick lunch in the office but find he’s been called out for a compelling reason.
He’s apologetic the reason he couldn’t join us is he had to go home to give his threeandahalfyearold grandson lunch and get him to sleep after. That, definitely, is an important enough reason, we aver.
We ask Mr. Varadaraj, who holds a PhD in international business from the University of Michigan Ann Arbor, on what sparked his global ambitions — over 50% of Elgi’s revenue today comes from overseas.
Arduous journey
It’s been a long and arduous journey, Mr. Varadaraj explains. In the early 1990s when the country liberalised, the Elgi group was into 56 businesses — from braking systems and horns and wipers to pasteurisers and bottle washers for breweries — all of which it shut down and decided to focus on compressors and a smaller business of automotives.
“We knew the world’s best in compressors were going to compete in India. The kind of investments needed in systems, hardware, people was not just defined by the size of the Indian market, but global benchmarks. If you didn't do it, you were out of the Indian market anyways. So, we were between a rock and a hard place. We decided to take the long, hard path, make the investments and make it globally relevant,” he elaborates. Air compressors are used in a variety of industries – from food processing to railway locomotive braking systems – so it is in some ways insulated from the usual business cycles.
Elgi, which expects revenue of ₹3,200 crore this financial year, made investments at the back end in quality and systems all through the 1990s and the first decade of this century.
“In 2013 there was an opportunity; the number 1 was huge (Atlas Copco), and the number two (Ingersoll Rand) was 30% of number one. We said we have the right to be a credible number two. The upgrade was completely done internally till about 2016 when we brought in an outside agency (City University, London) to help us become more granular and deliberate,” he says.
China foray
A foray into China for about a decade was enough for Elgi and it pulled out when it found the Chinese expected ridiculously low prices. “We had planned 25% lower and they wanted even 20% lower. So, we decided to pick our markets where there will be a certain level of openness. We picked Australia, Indonesia, Thailand, India, Europe and the U.S. as our strategic markets and started putting all our attention in terms of resources.”
It wasn’t easy, especially with an unknown brand with a made in India label. “It’s a long road to acceptance and seeing results,” admits Mr. Varadaraj. The European and U.S. markets today contribute 45% of its overseas revenue. Along the way, Elgi made acquisitions in the U.S., Italy and in Australia in the last decade for local presence.
With a PhD, Mr. Varadaraj wanted to be a teacher, but needed to be a tenured professor in an U.S. university. “And, you had to publish papers which were all mathematical and statistical models. I realised I can’t see myself doing this abstract stuff for the rest of my life. My thesis in 1987 was why aren’t Indian companies competitive worldwide? Coming from a business family, I said let me put my money where my mouth is.”
And, he returned to India to turbo charge Elgi. He has seven patents to his name and the most interesting one, he says, was in trying to make the idli cool for youth with a patented process that made the idli as a roll with stuffing, instead of its round shape.
How has Elgi been solving unstated needs of its consumers? Air compressors are lubricated with oil or there are oilfree ones, less efficient, less messy but more expensive. Four years ago, it introduced water compressors. “From a price point of view and efficiency, we are pushing the envelope to see if we can converge the two – can we make it as efficient and as low a price point as an oil lubricated one?”
Where is Elgi on the journey to become number 2 by 2027, we ask? That goalpost shifted when four years ago, Ingersoll Rand, the number two and the third player, Gardner Denver, merged and they are at $3.5 billion in revenue while Atlas has moved further up. “We can’t get to number two, which is double the size now as it has become a larger entity. So, now by 203536 we want to be in the top three players internationally.”
Elgi is at number two in India in the aircompressor sweepstakes. Internally, its aspiration is called CK2, of which we see a lot of mention in the plant. “Conquer K2 is our aspiration, our goal, we are moving in that direction. We are number six globally and in India, a close number two. K2 is the second tallest mountain and more difficult to climb, and that’s our journey,” says Mr. Varadaraj.
(The writer is with The Hindu businessline)