Elgi Equipments Limited Q3 FY22 Earnings Conference Call Insights

Key highlights from Elgi Equipments Limited (ELGIEQUIP) Q3 FY22 Earnings Concall

Management Update:

• ELGIEQUIP stated that sales have been positive all around the world, resulting in about 20% growth compared to 3Q21. And added that the company is well within the capex range of INR30-35 crores.

Q&A Highlights:

• Ravi Swaminathan of Spark Capital asked about the growth seen across sectors in India. Jairam Varadaraj MD replied that large project-based sectors like cement and steel have been muted. Cement, with real estate coming back, there is a strong growth. There is no one sector that has grown disproportionately high. All sectors have grown.

• Ravi Swaminathan of Spark Capital asked if 11% consolidated margins can be maintained going forward. Jairam Varadaraj MD said that on price realization, the company doesn’t think 3Q takes in all of it. ELGIEQUIP will continue to see marginal improvement in price realization in 4Q22.

• Ravi Swaminathan of Spark Capital asked if the company would need any price increases going forward. Jairam Varadaraj MD replied that if commodity prices continue to behave the way they are and there are, again, indications that they’re going to go up, then ELGIEQUIP has to react.

• Renjith Sivaram from Mahindra Manulife enquired about oil free compressors and the company’s position in the market. Jairam Varadaraj MD replied that it has a good range as any of the manufacturers in the oil-free segment. In electronics, ELGIEQUIP has got some very significant orders from some of the leading semiconductor manufacturers in Southeast Asia. And ELGIEQUIP is well placed.

• Renjith Sivaram from Mahindra Manulife asked if the Europe strategy is going as per planned. Jairam Varadaraj MD replied that the company’s losses in Europe are lower than the planned losses, and the  revenue in Europe is higher than the planned revenue. The company is in the third year of a 5 year plan and is doing less loss than planned.

• Harshit Patel from Equirus Securities asked about the distribution footprint overseas in North America and Europe five years ago vs. today.  Jairam Varadaraj MD answered that in Europe five years ago to now, probably distribution growth is 100x. Looking at North America, it’s probably 30x. The company’s strategy in both these countries has been to get into being considered by some of the strong distributors in both these geographies.

• Manish Goyal from Enam Holdings asked if the company expects further improvement in gross margin and reflecting that at the EBITDA level. Jairam Varadaraj MD said it may not be as significant as what the company has done from 2Q to 3Q or 3Q21 to 3Q22, but 1-1.5% is what the company expects in 4Q22.

• Manish Goyal from Enam Holdings asked that looking at the growth momentum, does the company expects to look for some capacity enhancement. Jairam Varadaraj MD replied that the company is continuing to invest in increasing capacity wherever relevant.