Elgi Equipments Ltd - Mar 2025 Earnings Call Transcript Analysis

March 3, 2025 · 3 min read

Earnings Call Transcript Analysis Report #

Revenue: YTD December growth of 8%, projected to continue for the rest of the year. Five-year CAGR of 16%, consistent across business segments. FY24 revenue was $390 million, and FY25 is expected to be around $412 million.
80% of revenue growth comes from ISAAME, with Europe returning to growth and ATS delivering double-digit growth.
EBITDA: Projected to end the year at 15%, despite investments in go-to-market strategies and process transformation initiatives (1% impact).
Cash: Most cash profits converted to cash, with a 5% working capital investment. Capex of 78 crores and dividend of 63 crores. 70% of cash generated in India.
A Capex cycle of 250 crores has been announced.
Comparison: Core business growth is stronger than the reported 8%.

New Vacuum Business: Technology partnership with DVP. Focus on rotary vane vacuum pumps (70% of market by volume). Localization efforts underway, targeting 60-80% by April and most by August 2025.
Tier 4 Product (India): Response to low-cost Chinese imports. Conceptualized product with significantly lower footprint, weight, and material cost.
Super Premium 90-160: Expanded range of oil-lubricated screw compressors, offering class-leading energy efficiency.
EG-11 to 45 Permanent Magnets: In-house designed, developed, and manufactured motors.
Railways: Won the first locomotive tender from Siemens, supplying air generation and treatment units (AGT-US).
MK2: Invest in the creation of world-class manufacturing facilities. 38% of space will be used for green belt development. A total of 590 crores will be invested over the next 5 years.
Digital Roadmap: Priorities involve stabilizing the core systems, digitizing functional processes, and constructing capabilities for future advancements, such as AI integration and data analytics.

Industry Growth: Global air compressor industry grew at 3.5% CAGR over 11 years, reaching $21 billion. ELGI grew at 5.8% CAGR, reaching $390 million (FY24).
Market Positioning: ELGI is #6 in the global market. Top players have remained constant, with ELGI jumping three positions.
Market Challenges: “Significant influx of lower-priced Chinese products” in India. Australia faces challenges with declining manufacturing GDP and labor shortages. Europe has “concerning macro conditions.”
Market Opportunities: Energy efficiency is a key driver, with 80% of customers buying on efficiency. Opportunities in specific segments (e.g., laser cutting).

Chinese Competition: “Significant influx of lower-priced Chinese products in in the lower kilowatt price-driven sector” in India.
Cyclicality: Portables business is cyclical, impacting North American performance.
Geopolitical Risks: Supply chain risks due to geopolitical issues, impacting motor sourcing.
Macro Conditions: Europe faces macro challenges (energy costs, political uncertainty). Australia has declining manufacturing GDP.

FY-26 Target: On track for $450 million revenue target.
Growth Projections: India contributing most of growth, rest of the world at 7%.
EBITDA: Confident in maintaining a 15% EBITDA trajectory.
North America: “I feel very confident that the industrial business will continue to grow.”
Investments: Continued investments in process transformation, digital transformation, and go-to-market.
Shifting city campus progressively over the next six years to an integrated campus.

Vacuum Market: India-centric play for the next few years, targeting 10% share in 5-6 years. Global market is $3-5 billion, India is $400-450 million.
Stabilizer: Technology to address the 70% of customers who don’t buy variable frequency drives. Retrofitting is possible.
Pricing will be strategic. Cost is not a factor.
Chinese Dumping: Strategy is to use technology, not protectionism.
Industry Consolidation: Consolidation is good for the rest due to network rationalization.
US Market Growth: “Middle double-digit growth is possible” in the US.

Overall Tone: Cautiously optimistic. Confident about long-term strategy, but acknowledges short-term challenges.
Confidence: Strong confidence in new technologies, long-term growth potential, and strategic initiatives.
Concern: Acknowledges challenges in specific markets, ERP implementation issues, and the need to improve customer engagement.