Elgi Equipments Limited (NSE: ELGIEQUIP) Q3 2026 Earnings Call dated Feb. 12, 2026
Corporate Participants:
Jairam Varadaraj — Managing Director
Analysts:
Unidentified Participant
Kamlesh Kotak — Analyst
Presentation:
Kamlesh Kotak — Analyst
Hello and good morning everyone. On behalf of Asian Markets, we welcome you all to the 3QFY26 earnings webinar of LG Equipments Limited. We have with us Mr. Jaira Madaraj, Managing Director representing company. I request Mr. Jairam to take us through the opening remarks and the presentation which will followed by the Q and A session. Sir, over to you, Jaya. Thank you.
Jairam Varadaraj — Managing Director
Thank you, Kamlish. Thank you Asian Markets for organizing this as always and good morning ladies and gentlemen. Thank you for sharing your time with me this morning. As usual, I will take take you through a reconciliation of the quarter performance with respect to the. The earlier quarter. Sorry, just give me a minute please. Yeah. So as you can see, the. We have improved our profitability. Our sales has grown by 18%. But the Prof. EBITDA should have been close to 2000 million, but it’s actually around 1400. And the primary reason is on two counts. The employee cost and other fixed costs are.
Gross profit margin continues to remain as strong as before. So if you look at employee cost further, the 6% is because of the increase in normal increments across the world. There was a. You know, we are continuing to restructure Europe to bring it back to profitability or increased profitability. We have broken even last year. There has been some reorganization cost of letting people go. And that’s been a one time cost that’s sitting in employee cost. And I have explained to you over the past year, we are investing close to one and a half to 2% of our top line in initiatives that pertain to go to market in terms of our digital initiatives as well as cost optimization and finance transformation.
So all these costs have contributed to a 3% increase in the employee cost. Because we have taken on new category of talent for these various initiatives as well as consulting and advisory expenses, software expenses, for instance in PLM and in some of the programs that we have started for reducing our inventory and reducing costs in relation to. In response to the tariff. So overall I would say there is nothing to be concerned about. We could should be growing sales even more. And that’s another thing that I’ll come back and talk about it. So moving on from the EBITDA reconciliation, look at sales, we have grown across all the geographies except Southeast Asia.
Southeast Asia is a significant market but our presence there has traditionally been weak. We are reorganizing there. We have brought in new leadership there and we are hoping that over the next two to three years there will be a change in our presence in Southeast Asia. So if you look at the revenue highlights and PBT, we have grown by 18% and PBT has grown by 30%. This is despite the fact that in last year, I mean last quarter, in fact, if you look at it in relation to the previous, the trailing quarter, it looks bad, but.
Sorry. So compared to the trailing quarter it looks like it has gone down. Sorry, I’m having some challenges with my. Can you see my screen?
Kamlesh Kotak — Analyst
Yes sir, it’s visible.
Jairam Varadaraj — Managing Director
Okay. Sorry. For some reason. So with respect to the trailing quarter, it looks like the current. The third quarter is bad, but in the trailing quarter we had some exceptional other income which pertains to, you know, the, the sale of property as well as we had some impact in this quarter due to tariff. I’ll come back and talk about it. So overall I think the performance is good. Could have been a lot better in terms of our top line, but we are watching that and we are working on various programs to make that happen. So if you look at the sales mix, we continue to have 90 plus percent as compressors and 8% as automotive.
And the split between India and the rest of the world continues to be roughly 50, 50 continues to be at the same levels. So if you look at the consolidated pl, various quarters, our main impact, if you look at the trailing, I mean Q2 against trailing, the Q2 trailing quarter, the impact on tariffs was almost 1%. Not we have mitigated it subsequently. But in the quarter we had in Q2, we had historical inventory on the ground which was based on earlier prices. And in Q3 we had the fresh inventory which was, which had the full impact of that 50%.
Now going forward we have brought the cost reductions in. But for the existing inventory to bleed out and for the new inventory at a lower cost to come in, we think it will be probably in the second quarter of the next find. I mean early part of the second quarter. So the first quarter we will still have the impact, but we are quite confident that we are, you know, we have mitigated it now with the reduction in the, in the tariffs from 50%. We don’t know whether it’s 18% or there’s going to be iron and steel surcharge which could increase it beyond 18%.
We don’t know. We’re working through the details but it’s significantly lower than 50%. So we expect that there will be a very positive impact in the next financial year as a consequence of our various initiatives that we have run. So our cash, cash position continues to be strong. Our receivables are in good control. Our challenges have been inventory. You know, all over the world there has been, you know, different. The challenges in the market is there’s been optimism but the actual result has been not as optimistic as one would expect. So that there is an inventory problem.
We are working through a program and a special project to reduce it. We believe that there is an opportunity to have a substantial reduction in inventory. You will see it happening as the year progresses and into the next year. And I’m hoping that by the third quarter of next year we will be in a lot better position from a inventory point of view. So these are roughly the financial metrics. I want to talk a little bit about the business. Overall, the economies all over the world have seemed, seem to be coming back except Europe. Europe continues to be a challenge.
India I think had a Good, well, the GDP growth is 2, 6 and a half percent which is a pretty good growth and considering the circumstances in other parts of the world. But I think the growth so far in the Indian economy has been consumption led and relatively less of investment. So we expect we are beginning to see some signs of investment to build capacity to catch up for this consumption in the future. We are still cautiously optimistic about India, so we will continue to. Our presence in the market is strong, that we are confident of.
So whatever the economic opportunities that show up in India, we are very confident that we will be at the edge of taking a large share of it. As far as Australia is concerned, it was a better year compared to the previous year. There seems to be some signs of stabilization and recovery in the economy. We’ve got some projects and programs running to improve our presence there. So I’m quite confident that we will grow in Australia not only in the balance here, but the next year as well. We’ll talk more about the guidance for the next five years during our analyst and investor meet that’s scheduled in the month of February.
So we’ll talk a little bit more and share more details in that moving forward. Middle east and Africa continue to be strong regions. They’re not strategic for us, but they continue to grow strongly. Europe has been a disappointment. Both rotated by virtue of the tariffs on the portable compressors that are shipped to the US as well as the European market itself has been down. We are going through a significant cost optimization program as a temporary kind of a transition before we take stock of the next round of growth in, in Europe. We are not assuming a growth based P and L.
We are looking at a cost managed P and L for Europe for not only the balance of the year, but for next year as well. US has done well for us. Our industrial business, our patents, medical business and the portable, despite all these problems, has been better than last year. Our challenge has been our distribution operations. We are working through multiple initiatives to bring it back on to the levels that it should be. We believe that it should be. We are working on multiple strategies. So I’m confident that Q4 will be better than Q3. I don’t want to make any commitments in terms of specific numbers, but definitely it’ll be better than Q3 as it always is.
But I think it, you can’t expect it to be that. You know, last, last year Q4 was a big hockey stick. I don’t think it’ll be that kind of a hockey stick, but definitely better than Q3. So we remain optimistic. We are working on multiple strategies both on technology side, on the market side, internal processes side to get to a far better, far more efficient and effective organization. So this is what I wanted to share with you today. And now we’ll talk about questions. Thank you.
Questions and Answers:
Kamlesh Kotak
Thank you, sir. We’ll probably wait for a couple of minutes for the question queue to assemble and then probably start taking questions. Participant, please use the raise hand option or you may drop your question in your Q A or the chat box option that is available to you. In. Case if there is any audio errors that we might face due to technical problems. And if you are not able to hear your voice, you may please drop your question again in the Q A box or the chat option that is available. Sir, we’ll take the first question from the line of Mr. Ravi Swaminathan. Ravi, you have been. Your mic is allowed. Please unmute yourself and go ahead with the question.
Unidentified Participant
Hi sir.
Jairam Varadaraj
Good morning, Ravi. How are you?
Unidentified Participant
I’m doing great, sir. How are you, sir?
Jairam Varadaraj
Good, thank you
Unidentified Participant
sir. Congrats on a good shot of numbers at A standalone level. If you see after four quarters of mid to high single digit growth we have registered more than 20% kind of growth. Was this growth contributed largely by India? Was there, was it purely volume driven growth? Was there a realization improvement also which was there in this and in within India? Was the growth holistic? Which sub segments are driving the growth faster on an above average level? And you had also mentioned that there seems to be some kind of recovery from the domestic investment or capex.
Which sectors are you seeing those green shoots from?
Jairam Varadaraj
So to answer your first question, the growth has been across multiple things. It is not just not only India but our export has also Contributed More in Q3. But I don’t think that’s a trend. You know export to our subsidiaries is a function of replenishment. So 1/4 there’ll be more, 1/4 there’ll be less. The third is also a function of our exchange impact. So I don’t think there is one specific thing. There’s been multiple contributions to this percentage of growth, Ravi. But I would say the contribution from India has been both on volume. Primarily volume has been very positive.
It’s the largest contributor. So that’s the broad diagnosis of the growth. The second question that you talked about in terms of, you know the, I think your question was in terms of the green shoots that we are seeing, is there specific segments? No, I think we are beginning to see inquiry levels going up across pretty much all segments. I think we expect, we expect that textiles will come back strongly as a consequence of the new tariff. So I think there is optimism as far as India is concerned. I hope I’ve answered all your questions.
Unidentified Participant
Got it sir. And apart from textiles like say infrastructure, industrial, I.e. steel, cement, etc, if you can give broad flavor how those sub sectors are growing, that will be great.
Jairam Varadaraj
So cement, you know, you know that cement has been muted there. Their profits have not been very good. But I think it will come around. But steel is looking optimistic, automotive is looking optimistic. So these, I think it’s across the board, Ravi. I, I won’t, I won’t pinpoint it to any one specter that sector that’s standing out today.
Unidentified Participant
Sure sir. And with respect to the US business, the tariff being cut from 15 to 18 or some much lower number, so we don’t know the exact number. A few quarters ago you had mentioned that for a 25 tariff we had to take a high single digit kind of price increase to offset that. But with 50 tariff it will be difficult to do business there. How is it now? So essentially have we taken price increases and how’s the dynamics working there now vis a vis the local supplier, how competitive we are? Post this card, will we be much more competitive?
Jairam Varadaraj
So you know, if you recollect in the last quarter’s thing, I had said that the team had done an outstanding job of actually compensating for the entire impact of the 50% time. Right.
Unidentified Participant
Okay.
Jairam Varadaraj
Okay. Now that’s even as we speak, many of those initiatives have already come into our books and some of them are going to happen in the next probably six to seven months. Yeah. So we will be. With that 6 to 7% increase in our prices, we have been able to more than recover the tariff impact. Now, depending on where the tariff is going to land, that difference is going to be pure margin for us in the future. Now when do we expect to see the margin coming in? Like I said, it will probably start from the second quarter of next year because we have got inventory that we need to bleed out.
Yeah.
Unidentified Participant
Okay.
Jairam Varadaraj
So we will see that impact. So we are, we are past that tariff in terms of local competition. You know, nothing is really fully manufactured in the U.S. even the local assemblers or manufacturers, so called manufacturers are importing quite a bit from all over the world. So the impact continues for them because quite a, quite a few of them import from China where the tariff is still at a high level. Yeah.
Unidentified Participant
Okay, so is that, I mean, in one ways this tariff has actually been a positive for us. I mean, so essentially we are gaining in terms of lot of realization driven gains which are there and now we are back to the old normal ways of growing in that particular country.
Jairam Varadaraj
Yeah. You know, there is that old adage, never waste the opportunity of a crisis. Yeah, yeah, yeah. So that’s basically what we have done. And like I said, the team has done a fantastic job of, of taking us, of navigating us to a position where we have come out very, very strong.
Unidentified Participant
Got it, sir. Thanks a lot, sir. Thanks a lot for it.
Kamlesh Kotak
Thank you, Ravi. Sir, the next question we’ll take is it’s from the line of Mr. Harshit. Harshit. You may unmute yourself and go ahead with your question.
Unidentified Participant
Hi, thank you very much for the opportunity. Hi, sir. Firstly, on the European operations, as you have mentioned, we are resizing, especially in terms of people cost reduction. Does third quarter reflect a full impact of this? Also when you would have completed all these measures? Maybe probably by the end of FY26. Do you expect FY27 to be at break even level or. We expect to register a Significant positive EBITDA in FY27.
Jairam Varadaraj
So the costs that we are currently have incurred and going to incur in the balance of the year will not carry over to the next year. So next year we are not talking about all this is not being done to break even because break even is something that we have already managed in the past. So this move is to get to a level of profitability right now. What will be the percentage? This is a little too early to tell but definitely it will not be break even. It will be a profitable set of books in Europe.
Unidentified Participant
Understood sir. Also on the US front as we have mentioned in this third quarter we had impact of almost 1 percentage point on our EBITDA margins because of the tariffs. Do you expect this 1% impact to continue in 4Q and 1QFY27 as well or this impact would be even higher because of the inventories that we are carrying.
Jairam Varadaraj
It won’t be higher harshit, but it will progressively taper down. I don’t expect it to reduce significantly in Q4 but Q1 of next year we see that there will be a reduction because there will be a blended inventory between the pre tariff costs and the post tariff cost.
Unidentified Participant
Just a small follow up to that. You had last time mentioned that US geography was at break even level for the first half of FY26. Will this situation continue in the whole second half as well? Or we might see some minor losses for the second half of the year.
Jairam Varadaraj
US is profitable so it’s not significantly profitable but definitely profitable. We expect to keep pushing that profitability level up going forward.
Unidentified Participant
Understood. Lastly on the low cost screw compressors, are we on track with our go to market strategy for this range and the launch that you had planned for first quarter of FY27?
Jairam Varadaraj
Yeah, so we are still trying to push for first quarter but looks like we will. It may slip to the second quarter but it’s not a significant movement from in the thing. The products are ready, they are going through various stages of validation. We have started looking at our distribution structures, the table internal team to make drive this business. You know our pricing strategies. All of it is in, you know in advanced stage of progress. So we are well on the way to make this happen.
Unidentified Participant
Understood. Perfect. Thank you very much sir for answering my questions. I’ll come back.
Jairam Varadaraj
Thanks Ashut.
Kamlesh Kotak
Thank you. Before we take more questions on the line Sir, I’ll take a couple of questions from the chat which were dropped earlier. Sir, can you comment on the emerging Chinese competition in the domestic market and which segment is it most impacted and which segment is most impacted by this competition?
Jairam Varadaraj
Yeah, so the Chinese imports, you know, there are, we don’t know that. We lose count of the number of Indian companies that are importing Chinese compressors and branding it in their names and selling every month there is a few that get enter and a few that exit. So overall they, they, they have close to. The Chinese imports have close to in our estimate, 25 to 30% of the market. Right in, in volume terms, not in value. Now we know who the major players are. We know the geographies in which they’re selling, we know the industrial sectors that they’re selling.
More than specific sectors. It is the segment, behavioral segment of customers. Now there are customers where their business and their factory operations have very low, you know, operating cycles. You know, typically if you look at a full operating cycle of a compressor is about 8,000 hours right now many of these customers in this segment operate their factory not, they may be operating the factory longer, but the air demand is about 1500-2000 hours a year. So these kinds of customers are not really driven by the efficiency, the energy efficiency of the country. So they’re looking for very low upfront capital cost.
So those are the segments that are switching to these lower cost missions. Now we have our products that we have designed. Our price wise will be as competitive but we will provide LG quality, LG reliability and LG level of service. So that will be the differentiating factor. All these customers are known to us, they want to buy LG but the price difference is so huge it’s, you know, you can’t blame them. So we are now giving, we’ll be giving them a value proposition that’s very.
Kamlesh Kotak
So the next question in the chat is can you comment on the raw material pricing? Because in past two months metal prices have rose significantly.
Jairam Varadaraj
So yes, this is, this is a matter of concern for us, but it’s, it’s not uniquely lg. We are waiting to see how the market is responding. First of all, we want to know whether this is permanent, kind of for the next few years at least, or is it just a temporary kind of a blip, especially copper. When you look at it, there are, you know, mine strikes in Chile and there are some disruptions in some mines in Indonesia. We are evaluating this carefully, but we are ready to absorb these to the extent that is required in the market.
We are willing to pass it on to the extent that the market is responding to it. So I don’t see it as a uniquely LG problem. We will get over it. I’m not concerned about it.
Kamlesh Kotak
Thank you sir. We’ll move back to the call questions again. The next question is from the line of Mr. Bala Subramaniam. Bala, your mic has been unmuted. You may unmute yourself and go ahead with your question.
Unidentified Participant
Good morning sir. Thank you so much for the opportunity. Our in house production is expected to cover 75 to 80 percentage of volume by next financial year. And I just want to understand like what is our next plan for in house to reach that level for air ends, drives and controllers. We could share more details and color on our in house initiatives.
Jairam Varadaraj
So Bala, I don’t know where you got that 70 to 80%. What we do is as a principal we project our business for three to five years. And basis that projection we invest one year in advance in our capacity. Right. So this is our policy of you know, capacity management. So we are well on track for that. So today we have capacity for. By the. By the end of this financial year we will have capacity for the. For 27, 28 in place. So we are quite comfortable there. Now as I had explained in the earlier thing we are in the process of shifting our facility from our city campus to our new campus that we’ve been building over the last 15 years.
Progressively we are moving each line there. Now that is a 500 to 600 crore investment that we hope to invest over the next five years. Now we’ve started the initial phases. Two plants are being in the middle of construction. One is almost ready. It will go into operations in March, April. The second one will go into operation during the next financial year. Now these are ongoing things that we do. In addition are on regular annual capex is roughly in the neighborhood of about 50 crores. That takes care of the what I talked about that investment in capacity one year in advance.
But large capex will come when we run out of building space. I mean that is something that we can’t manage. And what we are doing today over the next five to six years is to build that, you know, building capacity. And we are well on the way.
Unidentified Participant
Okay sir. So my next question after markets nearly contributes 30 percentage of revenue in India but only 12% in your markets. So like what is the current installed base size and growth rate in the US and Europe? And in Europe we are implementing hybrid strategy. So how it will benefit especially in the aftermarket side.
Jairam Varadaraj
So Bala, I don’t want to give details of our number of machines that we have installed in Europe and America. Aftermarket as a percentage of Revenue is a function of building your installed base. As every year you will be adding to the install base. As a consequence, your aftermarket as a percentage of revenue keeps increasing the year after that. So this is something that will happen. We are very confident. We have seen the trend in Europe and America as we have been increasing our installed base, our aftermarket percentages have also gone. So this is a matter of maturing out in the market.
So we are well on track for that now. Hybrid strategy is more on the sales of the machines rather than aftermarket. We will still get the benefit of aftermarket irrespective of how we get that installed basin in place.
Unidentified Participant
Thank you, sir.
Kamlesh Kotak
Thank you, brother. The next question. The next question we have is from line of Mr. Salil. Salil, you may unmute yourself and go ahead with your question.
Unidentified Participant
Thanks, Kamlesh. Good morning, Dr. Jayram. So I had some questions on, on the U.S. business. First of all, if you know, our current inventory, say, is, you know, bleeding out by Q2 of next year, so we have four to six months of inventory. Is this a normal level or, you know, did you kind of build up something? I mean, how does this work?
Jairam Varadaraj
So like I said, while I was talking about the cash position in the company, one of our defects that we have is excess inventory. Right. And the root cause of it is, you know, sales people always have a optimistic view of the future. When the future becomes present, then they become very pessimistic. So our planning system so far has been, you know, believing what the sales people want and we replenish basis. Yeah. Now we have started a new program of defined designing a system for inventory planning for the various subsidiaries, which is in the final stages of validation.
We implemented it in August, September last year in the final stages of implementation. So I’m hoping to see better control over finished goods. So to answer your question, six months is excessive inventory. Right. When you have a lead time of, you know, shipment lead time of about, you know, two and a half months, you’re really. Your inventory should be only about three, three and a half months. Right. So that’s really where we are headed.
Unidentified Participant
Continuing on the US Business. Now, the distribution part of it is where you mentioned that there are certain challenges. So when you’re trying to fix it, what would it be? And would you kind of revisit this partnership, you know, the JV kind of structure that you had with some distributors in some areas?
Jairam Varadaraj
No, this is nothing to do with our jv. This is what I mean by distribution operations is Patterns and Michigan Air, which is two distributors that we own. Yeah. Right now we, this is a, in effect, this is a direct sales. Right. Because we own the distributor and we are selling directly to the customer. Yeah. So can you hear me?
Unidentified Participant
Yes, yes, yes.
Jairam Varadaraj
Yeah. So that is where we are trying to reorganize ourselves to get that kind of a growth for the potential that exists in the markets that we are presenting. Yeah.
Unidentified Participant
Okay. Lastly sir, you know, given now that there is, you know, hopefully tariff advantage for India in general, what are the chances that you know, demand kind of, you know, grows exponentially for, for you or for India make compressors and if that happens then are you ready in the sense that whatever initiatives you’re doing, are they sufficient? Something else that you need to do Getter that.
Jairam Varadaraj
So you know, in a B2B kind of business, Salil especially capital goods, it doesn’t behave to price elasticity. You know, we lower the price, it doesn’t mean you will double your revenue. Right. So the idea is to you know, when you go, when you’re talking about capital goods in a B2B space, it’s about getting in front of the customer through various means, whether it’s through direct means or through channel or whether it is digital platforms. So those are the things that we have to get in. Now when we get in front of the customers, our win rates are very good.
Yeah. So the challenge for LG is to get in front of the customer more often. Now this pricing or the cost advantage that we have now got by virtue of whatever we have done internally is going to give us that degree, some degree of freedom in terms of running schemes. Wherever there is, you know, there is a dual multi brand distributor who’s carrying our brand as well as other brands. Maybe through this we will get a better share of the wallet. But I don’t see the, the cost becoming, you know, it’s behaving in a very elastic manner, sales behaving.
Unidentified Participant
So it’s more of market share gains possible rather than.
Jairam Varadaraj
Absolutely.
Unidentified Participant
Thank you very much sir and all the very best.
Jairam Varadaraj
Yeah, thank you.
Kamlesh Kotak
Sir. I’ll take one question from the chat now is. So there’s a question, is LG venturing into defense oem?
Jairam Varadaraj
And no, we are not getting into our defense business. We have a joint venture which is LG Sour that has a large defense component. These are high pressure compressors that are supplied for battleships, submarines, aircraft carriers. So that’s a segment of business but that’s sitting in our joint venture where our holding is about 26%. So other than that we are really not looking at getting into specifically defense but wherever there are compressor opportunities in the area of defense we are certainly exploring that. But that’s not something that’s being.
Kamlesh Kotak
So. Next question. I’ll take it from the line of. Mr. Vinod, you may unmute yourself and go ahead with your question.
Unidentified Participant
Good morning sir. Congratulations on achieving a thousand crore of revenue for the first time. Sir, I will have two questions for the last three to four quarters. In your opening remarks you have said that the EBITDA should have been much higher and it is Primarily because of 2, 3 reason it has come down and one reason that keeps popping up is the employee cost. So how long this is going to continue, whether it will consolidate in the near term or is this an ongoing process which will go on for some time?
Jairam Varadaraj
Yeah, so it’s a good question Vinod, I’m glad that you brought it up because I was, that was an area that I wanted to address as part of my overall opening remark. You know, a year and a half ago I talked about investing in initiatives to bring better process in finance, you know, control on financial processes across the world, bring certain standardization. We talked about investing into the IT and digital infrastructure that was required to make the organization not only efficient but also effective in terms of executing its strategies. So this cuts across all functions.
Now there are two types of costs that are involved in these initiatives. One is the new type of talent that we need to bring in to implement and execute these initiatives and the second is the kind of advisory and software costs that are going to come in. Now what we anticipate is for the next, at least a couple of years we will have this 2% of investment going into these. But I expect that in about a year and a half to two years you will start seeing 50% of the going away. Right. And what is that 50%? Obviously it’s not going to be people cost.
We will not be adding to the people cost but the other cost like the advisory costs and the one time software development cost that we are involved, those will go away. So I expect in a steady state basis we’ll be able to absorb this through our growth. But for the next couple of years you will see the effect of this.
Unidentified Participant
Okay sir, and a follow up question from the last participant. There has been an inventory of six months that is being told and that was due to the optimistic view of your sales team. And now we are sitting at an 18% and on a hindsight thinking that this 18% is going to continue going forward since we have an Inventory for six months of time already. Will there be any dent in the revenue where we will not be able to realize the entire reduction from the 50 to 18?
Jairam Varadaraj
No. I couldn’t understand the question. Are you. Is your suggestion will be run out of inventory to fund our sales? Is that your question?
Unidentified Participant
No sir. There is an inventory for the next six months and the tariff has already come down to 18. And assuming that we sit at this 18 percentage going forward for the next two quarters that is Q4 and Q1 of the next year. Will there be a dent in the revenue because of these, all these inventories?
Jairam Varadaraj
No. Why. Why would there be a dent in revenue at all?
Unidentified Participant
Because the cost should have been higher. So the. That is we have planned for.
Jairam Varadaraj
Sorry, go ahead.
Jairam Varadaraj
We. We have planned for a 50% of this tariff and we have done according to that and next two quarters assuming that we don’t have such a high kind of thing. So that is why this question has come up.
Jairam Varadaraj
So you know that the inventory that is sitting is based on a 50 tariff. It’s costed at that level. Right. And up selling prices have been fixed. We fixed. We increased our selling prices in the second quarter in response to this tariff. And the selling prices have not been reduced now in response to the reduction in the tariffs. Right. So we will not have any dislocation to the business just because we have more expensive inventory that is sitting there. We will bleed out that inventory. Then we will look at either retaining some the margin fully or passing it on to build our share of the market.
Those are all the specific tactical moves that we need to look at.
Unidentified Participant
Thank you sir. One final question would be will you be okay to share the market share of LG in the domestic insert?
Jairam Varadaraj
I don’t like to talk about it because this is something extreme extremely sensitive to competitive thing. But we are number two in the country, right? That much I can tell you with confidence. But I wouldn’t like to go into percentages. I hope you understand.
Unidentified Participant
Thank you. Thank you very much sir. And all the best.
Jairam Varadaraj
Thank you.
Kamlesh Kotak
Thank you. Vinod sir. Next question. We’ll take it from the line of Mr. Amit. Amit, you may unmute yourself and go ahead with your question.
Unidentified Participant
I say am I audible? Thank you. So my first question is on domestic business. So there’s been some announcement also in the budget about biopharma and assisting reduced. There should be some respite for the textile sector also. So wanted to understand your view and overall domestic market post also this the GST reduction. There’s been talks that there would be some revival with the new industries. Wanted to understand your sense in terms of domestic market steel state growth and which are the sectors which might have seen good growth for you and sectors will still grow this very regular.
Jairam Varadaraj
So the. Let me first give you a sense for what are the sectors that have grown. I think the sectors contributing to infrastructure like cement and steel have definitely had challenges. But textile obviously for the reason of tariff had some challenges. But otherwise the sectoral growth has been across all industrial sectors. Now in respect to the new budget where they’ve given concessions to, you know, I mean or strategic initiatives on bio, biopharma kind of a thing, we are present in that segment. We have some extremely compelling products for that segment and we are, we will continue to do that.
But do I see it exploding in terms of revenue? No, I don’t see that happening. No. Did I answer all your questions?
Unidentified Participant
Yes. So what’s the kind of overall steady state growth we should be.
Jairam Varadaraj
So India, I think India will be low double digit is something that we are reasonably confident of. Right. But you know, I don’t want to put a stake in the ground because there are so many uncertainties that are there that could affect India’s performance. India by itself, if it is, if the rest of the world doesn’t mess around with, you know, these kinds of tariff issues and you know, wars and, and conflicts. If those things don’t exist, I think exist, I think India will do for us low double digit. But if those things come in, they disrupt.
So it’s a little difficult to predict.
Unidentified Participant
Sure. So secondly on Europe, so I think last time also you did highlighted res the European business and there was a breakeven target and you did also highlight the getting exported to US from Europe. So now that situation is slightly better. What is. Yeah. So what is your thought on European breakeven and is it still kind of challenging for you to achieve what you’re thinking on Europe for now? Maybe one or two years.
Jairam Varadaraj
So you know, when I explained the P&L1 of the cost in employee cost increase is the reorganization of reorganization costs in Europe. We are taking cost out. You will see the impact of that in hitting our P and L. It has hit Q3. It’ll also some of it will hit in Q4 but it will not carry over into the next year. Next year our cost structures in Europe will be a lot lower than what they have been this year. So our goal is not break even. Our goal is to get to profitability. Right. We have crossed the milestone of break even now we are saying that for a current strategy, for the current level of market, the cost structure that we should have is lot lower than what we have today, which was built for a far higher level of revenue.
That revenue is not materializing for whatever reason. It’s not because our products are bad. It’s not because our presence are bad. It is just that the economic conditions and the problems in Europe are such that we are not able to move the needle to the level that is required for the cost that we have incurred. So we are now moderating our cost and once we moderate our cost to the level of revenue that we are confident that we will, we will make a profit. So that we are confident of next year.
Unidentified Participant
Thank you. Thank you so much.
Kamlesh Kotak
Thank you, Amit. So next question we’ll take is from the line of Mr. Prabhakar. Prabhakar, you may unmute yourself and go ahead with your question. Prabhakar, are you there? I think we’re facing some problem with this line.
Jairam Varadaraj
Yeah,
Kamlesh Kotak
probably. I’ll take a couple of questions from the chat and then I’ll move back to Ravi. Sir, the first question is what is the average price difference between our proposed low cost range versus our normal range of compressors?
Jairam Varadaraj
Oh, that’s a tough one to. To be very specific about. But I will give you a range. So if our current compressor is selling at A. At 100, these machines are sold at probably around 60 or 70. Right. So I would say somewhere between 30 to 40% low. Right. So that’s really the gap.
Kamlesh Kotak
The next question in the chart is, sir, is there any further investment in motor manufacturing?
Jairam Varadaraj
Absolutely. I mean, if you look at one of the largest contributors to our ability to withstand the. Withstand the tariff impact has been insourcing our own motors. Right. Which was a project that we started four years ago. We didn’t do it in response to the tariff, but it timing wise it became very opportunistic for us. I mean, very favorable for us. Now we are looking at pushing the motor technology to the next level. We are looking at various types of technologies. One is reducing the dependence on China or reducing the dependence on permanent magnets. So we have come up with the design of motors which don’t use permanent magnet but will be at the same level of efficiency of permanency.
We make permanent magnet motors today in our factory. And when China put the restriction on export of permanent magnets, it was a huge eye opener for us that we are sitting on a risky situation. And we did lose about two weeks of production because we had to scramble to do a redesign of the motors to be able to use different kinds of magnets which were not part of the restricted list of permanent magnets, so. Or restricted list of riders. So that was a stressful period that we went to and the learning from that has been we can’t have a dependency on permanent magnets.
So we have now designed a motor which will, which doesn’t use permanent magnets but gives you. Gives us the same efficiency. Now we are going to invest in expanding the production of that. Right. So similarly, I don’t want to talk too much about it, we have come up with a completely new motor technology which is going to give us a huge cost benefit. So that’s something that we will also, once we have done the proof of concept and validation which we hope in the next six to eight months, we will complete it. That would be another area that we will be.
So motor technology is a strategic pillar for us and therefore we will invest foreign.
Kamlesh Kotak
Take the next question from the line of Ravi. Ravi, you may unmute yourself and go ahead with your question.
Unidentified Participant
Hi sir, one follow up question. This is regarding the raw material price increase that has happened recently, especially copper. How much amount of price increase we might have taken in the past few months related to the raw material price increase, how much more we need to take. And I mean, given the fact that demand is quite robust, especially in India, I mean, is there any reluctance or hesitance in terms of passing on prices or. We are going to do it quite soon in the next 12 months.
Jairam Varadaraj
So we’ve already started this process, Ravi. I mean, you know, raw material, whether it’s copper or aluminum or hot and cold rolled steel, it’s affecting all, all companies, not just in compressors, but anybody doing mechanical machines, capital goods, if they use these materials. So this work is, is an ongoing thing. So I wouldn’t be, you know, I’m not seeing the kind of inflection in prices that happened post Covid where every week there was an increase of 5 to 10% in, in commodity, metal, commodity prices. We are not seeing that. So we are taking it. We are not escalating it to a crisis level.
It is increased prices, costs have gone up. We are responding to that. Right. Wherever it is possible, we are increasing. Wherever it’s not possible, we’re looking at reducing costs. So it’s not a percentage that, you know, it is not a percentage that is out of, you know, a stratosphere that we can’t handle as an operational response. Yeah, got it, sir.
Unidentified Participant
Yeah. Thanks a lot.
Kamlesh Kotak
So there’s one question in the chat. So do you. Do you see any use case emerging in the space you are operating which can become a mega opportunity for LG like green hydrogen, nuclear power data center, H Vac, EV, complex power grids, electrolyzers, etc.
Jairam Varadaraj
So we are not, you know, we, we don’t have. We are not getting into compression of hydrogen. It’s a completely. It’s. Do we have the knowledge? Of course we do. Do we want to get into it? No, not yet. Because we are not sure about the hydrogen efficacy of the hydrogen economy. We’d like to understand a little bit more in terms of how, how the efficacy is and then we will take the call. But are we going to get into the business of electrolyzers or. No, we’re not getting directly into it but wherever compressed air is required for there are opportunities in electrolyzers in the process of producing hydrogen.
If pressures are increased in the interchange there are some efficiencies. So those kinds of things we will explore. But directly not. So this is from Rahul. I’m understanding. Correct.
Kamlesh Kotak
Yeah. Yes.
Jairam Varadaraj
So Rahul, thank you for your compliment on using our compressors in your family business since 90s. Thank you very much. Good to hear that.
Unidentified Participant
Yes sir. So that is what I see. Sir. I will hand over the mic to Kamleji for his questions.
Kamlesh Kotak
Yeah. So. So I have just two last points. If you want to touch upon the stabilizer technology or the vacuum products.
Jairam Varadaraj
Yeah.
Kamlesh Kotak
Launch.
Jairam Varadaraj
Correct. Thanks. Thanks Kamila for bringing it up. The stabilizer, as you. As you know, it’s called Demand Match. That’s a brand for stabilizer. We don’t call it stabilizer anymore. We launched it in the market in last October. We have close to 150 machines in the field. The response from customers has been just outstanding. Right. So the efficiency, energy efficiency has been anywhere from 6 to 17%. That’s been the gain besides the gain in the efficiency, the reliability of the product that the customers are so happy about. Because the machine doesn’t cycle between cutting in and cutting out pressures.
So it’s been a huge thing. But still early days because the message still hasn’t gone. Our competitors know about it but they are sitting and watching what’s going on. We are taking the message to our customers today in India all our machines have standard fitment of Demand Match. Customers are, we are talking to them. So it’s very positive. Four, five months, Kamlesh. And we are very optimistic about it. So that’s. And we are Able to get realized better prices. So that’s another positive thing with, with the demand match. So that’s on demand. Much vacuum is ahead of our budget.
So I don’t want to give numbers in terms we are growing more than what we plan to grow. We are in the middle of re constructing our plans for the next nine to ten years on vacuum. Where do we want to play, how are we going to play and what is it that we need to do to win in this segment? So overall I think we are in the right track as far as.
Kamlesh Kotak
So just you can elaborate which segments and markets you find more application of vacuum products. Any specific sectors you want to highlight?
Jairam Varadaraj
You know, there are multiple medical hospital sectors is one area where there is a vacuum requirement. Furniture manufacturing is another area. Chemical process is another area. So the overlap between compressor and vacuum is probably around 30 to 40%, right? There is an overlap, but it’s not 100. But there is a distinct difference between vacuum and compressor. Vacuums are, the products that we are involved in are relatively low value compared to a compressor. Right. So if you take a customer using let’s say 22 kilowatt compressor vacuum, they may use maybe 3 kilowatt. Right. So it’s, it’s scale wise much smaller.
Right. But in terms of dependency as a utility, it’s still very high. Right.
Kamlesh Kotak
So this semiconductor is an area of opportunity for us for those products.
Jairam Varadaraj
Yes, but semiconductors use a lot of vacuum. But they are different technology of vacuum that we are not currently involved in. Those are very ultra high vacuum that is used. We are not in the. We are, we are more in the rough and medium vacuum, not in the ultra high vacuum. Okay.
Kamlesh Kotak
All right. Great participant. Just to mention the company is also hosting their annual analyst meet this time in Mumbai next week on February 26th. You may get in touch with AMSEC team or the IR team at LG for further details on that.
Jairam Varadaraj
Yeah, thank you.
Kamlesh Kotak
So with that we conclude the webinar. Sir, any closing remarks you want to make?
Jairam Varadaraj
Kamlesh, thank you as always for your support and amsec support for hosting this and it’s been a good conversation with everyone. Thank you for your patience and your involvement. Thank you everyone.
Unidentified Participant
Thanks sir. Bye. Thank you participants. With that we conclude the call. Have a good day. Thank you.