Elgi Equipments Ltd:Annual Report 2023-24 Analysis

Elgi Equipments Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: Elgi Equipments Ltd. was established in 1960 by L.R.G. Naidu in Coimbatore, India. The company initially started as a service workshop for automobiles and gradually ventured into manufacturing air compressors.

Headquarters Location and Global Presence: The company’s headquarters is located in Coimbatore, Tamil Nadu, India. Elgi has a global presence with subsidiaries and offices in various countries, including the USA, Australia, Brazil, Italy, Thailand, Indonesia, and the UAE, serving customers in over 120 countries.

Company Vision and Mission:

• Vision: To be the most admired compressed air solutions provider globally.
• Mission: To provide innovative compressed air solutions that exceed customer expectations in performance, reliability, and total cost of ownership.

Key Milestones in Their Growth Journey:

• 1960: Establishment of Elgi Equipments Ltd.
• 1975: Introduction of the first indigenous screw air compressor.
• 1985: Expansion into international markets.
• 2007: Acquisition of Rotair, an Italian manufacturer of portable compressors.
• 2012: Introduction of the energy-efficient, oil-free screw air compressor.

Stock Exchange Listing Details and Market Capitalization: Elgi Equipments is listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

Recent Financial Performance Highlights: (This data needs to be updated with the most recent financial reports.) Generally, Elgi aims for consistent growth in revenue and profitability, focusing on operational efficiency and market expansion. Refer to their official reports for the most current information.

Management Team and Leadership Structure: The company is led by a team of experienced professionals. Key figures include:

• Managing Director: Jairam Varadaraj
• Executive Director: Dr. Jaya Varadaraj

Notable Awards or Recognitions: Elgi Equipments has received various awards and recognitions for its performance, innovation, and sustainability initiatives, including awards related to energy efficiency, export performance, and corporate governance.

Their Products #

Complete Product Portfolio with Categories: Elgi’s product portfolio includes a comprehensive range of air compressors and related equipment:

• Screw Air Compressors: Oil-lubricated, Oil-free, Variable Frequency Drives (VFD)
• Reciprocating Air Compressors: Single-stage, Two-stage
• Portable Air Compressors: Diesel-powered, Electric-powered
• Centrifugal Air Compressors:
• Air Accessories: Air dryers, filters, receivers, and other downstream equipment.

Flagship or Signature Product Lines: Elgi’s signature product lines include its oil-free screw air compressors, known for their energy efficiency and reliability.

Key Technological Innovations or Patents: Elgi has invested heavily in R&D and holds several patents related to air compressor technology, particularly in the areas of energy efficiency, noise reduction, and oil-free compression.

Manufacturing Facilities and Production Capacity: Elgi has multiple state-of-the-art manufacturing facilities in India and abroad. The production capacity is designed to meet the demands of both domestic and international markets.

Quality Certifications and Standards: Elgi’s manufacturing facilities adhere to international quality standards such as ISO 9001, ISO 14001, and ISO 45001.

Unique Selling Propositions or Technological Advantages:

• Energy Efficiency: Focus on developing highly energy-efficient compressors.
• Reliability: Known for robust and reliable products with long service life.
• Total Cost of Ownership: Emphasis on minimizing the overall cost of owning and operating their equipment.

Recent Product Launches or R&D Initiatives: Elgi continues to launch new products and invest in R&D, focusing on areas like IoT-enabled compressors for remote monitoring and predictive maintenance, and more efficient compressor designs.

Primary Customers #

Target Industries and Sectors: Elgi caters to a wide range of industries, including:

• Manufacturing
• Textiles
• Automotive
• Pharmaceuticals
• Food and Beverage
• Construction
• Mining
• Oil and Gas

Geographic Markets (Domestic vs. International): Elgi has a strong presence in both the domestic Indian market and international markets.

Major Client Segments:

• Industrial: The largest segment, including manufacturing plants, workshops, and factories.
• Agricultural: Air compressors for irrigation and other agricultural applications.

Distribution Network and Sales Channels: Elgi uses a combination of direct sales, distributors, and channel partners to reach its customers. They have a widespread network of service centers to provide after-sales support.

Major Competitors #

Direct Competitors in India and Globally:

• India: Atlas Copco, Ingersoll Rand, Kirloskar Pneumatic
• Globally: Atlas Copco, Ingersoll Rand, Siemens, Gardner Denver

How They Differentiate from Competitors: Elgi differentiates itself through its focus on energy efficiency, reliability, and total cost of ownership. They also emphasize customer service and building long-term relationships.

Industry Challenges and Opportunities:

• Challenges: Intense competition, rising raw material costs, fluctuating currency rates.
• Opportunities: Growing demand for energy-efficient compressors, increasing industrialization in developing countries, adoption of Industry 4.0 technologies.

Market Positioning Strategy: Elgi positions itself as a leading provider of reliable, energy-efficient, and cost-effective compressed air solutions.

Future Outlook #

Expansion Plans or Growth Strategy: Elgi aims to expand its global presence, particularly in emerging markets. They also plan to continue investing in R&D to develop innovative products and solutions.

Sustainability Initiatives or ESG Commitments: Elgi is committed to sustainability and has implemented various initiatives to reduce its environmental impact. These include developing energy-efficient products, reducing waste, and promoting responsible manufacturing practices.

Industry Trends Affecting Their Business:

• Increasing adoption of Industry 4.0 and IoT: This is driving demand for smart, connected compressors that can be remotely monitored and controlled.
• Growing focus on energy efficiency: Regulations and customer preferences are driving demand for more energy-efficient compressors.
• Rising demand in emerging markets: Rapid industrialization in developing countries is creating new opportunities for air compressor manufacturers.

Long-Term Vision and Strategic Goals: Elgi’s long-term vision is to be the most admired compressed air solutions provider globally. Their strategic goals include:

• Expanding their global market share.
• Developing innovative products and solutions.
• Improving customer satisfaction.
• Promoting sustainability.

Elgi Equipments Limited: Financial and Strategic Analysis #

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue from operations showed consistent growth, increasing from ₹25,247 million (FY22) to ₹30,407 million (FY23) and reaching ₹32,178 million (FY24).
• Profit before tax increased from ₹2,617 million (FY22) to ₹4,025 million (FY23), and ₹4,350 million before exceptional items, in (FY24).
• Net Profit Margin increased, year over year.
• Basic Earnings per share rose from ₹5.63 (FY22) to ₹8.69 (FY23) and then slightly reduced to ₹9.76 (FY24) owing to the increase in the total number of shares in the denominator on account of treasury shares.
• ROCE was 30% (proposed) in FY'24.
• Debt-Equity Ratio improved year on year basis.

Business Segment Performance #

• Air Compressors Segment: This segment constitutes the core business, showing consistent revenue growth.
• Automotive Equipments Segment: Showed increase in revenue from FY'23 to FY'24.

Major Strategic Initiatives and Their Progress #

• Project Everest: Launched to gain market share in the industrial oil-lubricated compressor segment in India, with progress in increasing market share with large corporates.
• Oil-Free Compressors: Achieved best sales year in FY24, indicating progress in building awareness and expanding the product range.
• Construction and Mining: Maintained dominant market share and drove margins through strategic price positioning and new product launches.
• Water well: Recovering market position via product launches.
• Railways: Penetrated the private locomotive segment and retained share in the Electric Loco segment.
• North America Expansion: Faced operational challenges and market contraction, but restructuring and new leadership (Brian Pahl) are in place to strengthen foundations.
• Europe: Lowered employee and fixed costs to drive profitability and re-allocated resources to focus on growth.
• Project Cosmos: A continuous cost savings initiative, has enjoyed significant savings.
• MK2 Master Plan: Manufacturing consolidation at the Kinathukadavu Air Center Plant (ACP), to improve logistics efficiency and reduce cost via manufacturing automation.

Risk Landscape Changes #

• Compliance Risks: The Company had implemented a professional software and is revisiting the checklist for existing entities in rotation.
• Supply Chain Risks: Mitigation efforts include strategic stocking and plans for global assembly operations to address manufacturing concentration.
• Information Technology Risks: Cyber security risks are addressed through continuous monitoring, VAPT testing, and moving applications to the cloud.
• Environmental Risks: A major ESG initiative is underway, focusing on electric-powered and oil-free compressors.
• Single Geography Dependence Risk: India sales to total sales has gone down to 45%, compared to 56% in 2019.

ESG Initiatives and Metrics #

• Reduced carbon emissions from 795 Kg Co2/Mn of sale to 406 Kg Co2/Mn of sales by increasing renewable energy share from 12% to 44%.
• Initiated a 1 MW Windmill CGP to increase renewable energy share to 66% in FY25.
• Reduced freshwater consumption from 2.10 KL/Mn of sales to 1.94 KL/Mn of Sales.
• Reduced 350 KVA at the foundry by modifying heating cycles.

Management Outlook #

• The Management has commited to a positive outlook on the business for FY'25 and future years.
• The Management is focusing on strengthening the foundations for profitable growth.
• Key priorities include market share growth in India, recovery and expansion in North America, continued growth in Europe, and expansion in Southeast Asia and Brazil.

Detailed Analysis #

Financial Position Analysis #

3-Year Comparative Analysis (Consolidated) #

(₹ in Millions)

Segment-wise Assets #

(₹ in Millions)

Segment-wise Liabilities #

(₹ in Millions)

Significant Changes in Major Line Items (>10% YoY) #

• Goodwill: Decreased by 28.35% YoY.
• Non-Current Investments: Increased from ₹2.02M to ₹7.94M, a 293% increase.
• Cash and Cash Equivalents: Increased by 82.13%.
• Bank Balances (Other than Cash and Cash Equivalents): Increased from ₹2,262.86M to ₹5,450.42M, a 141% increase.
• Deposits with Financial Institutions: Decreased to ₹0 from ₹2,192M, indicating full utilization or reclassification.
• Other Non-Current Assets: Decreased significantly from ₹146.43M to ₹53.01M.
• Other Equity: Increased to ₹15,794M from ₹13,395M.
• Borrowings (Current): Increased significantly.
• Total Current Assets: Increased from ₹18,237 million to ₹21,192 million.

Working Capital Trends #

• Analysis: Net Working Capital has increased, demonstrating that the increase in Current Assets (16.20%) is higher than that in Current Liabilities (8.68%).

Asset Quality Metrics #

• Non-Current Assets to Total Assets: (Decreased YoY)
  • 2024: (7,953 / 28,209) = 28.19%
  • 2023: (6,753 / 25,016) = 27%
  • 2022: (5,716 / 19,649) = 29.1%

Debt Structure and Maturity Profile #

• Analysis: Most borrowings are classified as current. Long-term debt primarily consists of secured and unsecured borrowings, including those with maturities.

Off-Balance Sheet Items #

• Guarantees provided to subsidiaries decreased from ₹3,974.52M to ₹2,936.15M.
• Contingent liabilities: Includes claims against the company not acknowledged as debt, related to ongoing disputes.
  • FY 2023-2024: ₹49.08M
  • FY 2022-2023: ₹50.59M

Financial Performance Analysis #

Revenue Breakdown by Segment/Geography with Growth Rates #

• Air Compressors: FY24 revenue was INR 29,197.99 million. FY23 revenue was INR 28,099.93 million. Growth rate is 3.91%.
• Automotive Equipments: FY24 revenue was INR 2,980.46 million, FY23 revenue was INR 2,307.42 million. Growth rate is 29.17%.
• India: FY24 revenue was INR 16,165.12 million, and FY23 revenue was INR 14,631.12 million. Growth of 10.48%
• Americas: FY24 revenue was INR 7,972.20 million, and FY23 revenue was INR 8,580.24 million. Decline of 7.09%.
• Europe: FY24 revenue was INR 5,113.75 million, and FY23 revenue was INR 3,953.66 million. Growth of 29.34%.
• Australia: FY24 revenue was INR 1,832.58 million, and FY23 was 1,716.90 million. Growth of 6.74%.
• Others: FY24 revenue was INR 2,787.33 million, and FY23 was INR 2,361.84 million. Growth of 18.02%.
• Overall Consolidated group: Growth rate: 5.82%

Cost Structure Analysis #

• Cost of Materials Consumed: Represented 37.28% of total income in FY24 and 39.48% in FY23.
• Purchase of Stock-in-trade: Constituted 11.03% of total income in FY24, versus 12.33% in FY23.
• Employee Benefits Expense: Accounted for 20.01% of total income in FY24, compared to 18.40% in FY23.
• Other Expenses: Made up 15.52% of total income in FY24, versus 16.18% in FY23.

Margin Analysis #

• Operating Profit Margin (PBDIT Margin): 16.53% in FY24, up from 16.09% in FY23.
• Pre-Tax Profit Margin: 13.29% in FY24, down from 16.20% due to exceptional item impact in FY23, without the exceptional items, the PBT margin is up from 12.95%.
• Net Profit Margin: 9.53% in FY24, down from 11.93% in FY23, due to the aforementioned exceptional items.

Non-Recurring Items #

• FY23 included exceptional items totaling INR 1,053.87 million, representing a gain on the sale of property, plant and equipment.
• FY24 includes an amount in respect of exceptional items amounting to NIL.

EPS Analysis #

• Basic EPS: INR 9.84 for FY24, compared to INR 11.70 for FY23.
• Diluted EPS: INR 9.84 for FY24, compared to INR 11.70 for FY23.

Cash Management: Financial Analysis #

Cash Flow Analysis #

• OCF (Operating Cash Flow): FY24 saw an OCF of ₹2,877 million, a significant increase from FY23’s ₹1,659 million. Major factors that increased OCF, include the underlying operating profitablity.
• ICF (Investing Cash Flow): FY24 showed a net outflow of ₹(1,824) million, lower than FY23’s outflow of ₹(2,672) million. Main drivers were the increase in Capex.
• FCF (Financing Cash Flow) During FY24, FCF had an outflow of ₹(1011) Million, compared to FY'23’s inflow of ₹298 million. Major outflows were from the purchase of shares for ESOP scheme, and dividends paid.
• Net cash increased by 42 million in FY24

Working Capital Management Efficiency #

• Inventory: Inventory days increased from 147 in FY23 to 153 in FY24, indicating a potential reduction in inventory management efficiency.
• Trade Receivables: Receivable days decreased from 65 in FY23 to 63 in FY24, indicating a slight improvements in the collection of money owed by customers.
• Trade Payables: Payable days increased from 70 in FY23 to 75 in FY24, the company took longer to pay its suppliers.
• Net Working Capital to Total Assets: Has increased from 32% to 36%, the company is more reliant in working capital.

Dividend and Share Buyback Trends #

• Dividend: A dividend of ₹2.00 per share was proposed for FY24, same as FY23’s final dividend.
• Dividend Payout Ratio: The payout ratio was reported at 21% for FY23. The figure for FY'24 is not directly available, but dividends paid amount of 633.82 were same as FY23.
• Share Buyback The company spent 413.49 Millions to fund ESOP plan for employees.

Liquidity Position and Cash Conversion Cycle #

• Liquidity Position: The current ratio improved from 1.77 in FY23 to 1.92 in FY24, indicating a strengthened ability to meet short-term obligations. The liquidity ratio followed the same trend.
• Cash and cash equivalents: Increased significantly, with the increase in current assets.
• Cash Conversion Cycle: Data for a direct calculation is not present, but combining the trends in inventory days (increased) and receivable days (slightly decreased) suggests a likely increase.

Financial Analysis: Key Performance Indicators (KPIs) #

Profitability Ratios (3-Year Trends) #

• ROE decreased in FY'24 compared to FY'23, indicating lower profitability relative to shareholders’ equity, while there has been growth from FY'22.
• ROA shows a similar declining trend in FY'24, meaning lower efficiency in asset utilization to generate profits when compared to FY'23 and improving from FY'22.
• ROCE is showing a constant increase.
• Net profit margin reduced in FY'24 and is growing from FY'22.
• PBITDA and Pre-tax profit margin are showing an increase on a yearly basis.

Liquidity Metrics #

• The current ratio increased in FY'24, showing an improved ability to cover short-term liabilities with short-term assets.

Efficiency Ratios #

• Inventory Turnover ratio shows inventory is held for longer period during FY'24.
• Trade Receivables Turnover remains constant, indicating consistent efficiency in collecting receivables.

Leverage Metrics #

• Debt-to-Equity indicates very low reliance on debt financing, with total debt being negligible compared to equity in FY'24.

Working Capital Ratios #

• Net Working Capital to Total Assets ratio has increased, implying a higher proportion of assets tied up in working capital.