Elgi to set up manufacturing unit in China

Coimbatore-based Elgi Equipments Limited (EEL) is planning to set up a manufacturing facility in China for assembling its compressor parts.

Speaking to Business Standard, Jay Varadaraj, managing director, EEL, said that the project would be funded through internal accruals. However, he refused to disclose details about the exact investment required for the project.

The company has a cash reserve of Rs 115 crore this fiscal. The plant is likely to become fully operational by next financial year.

EEL already has its sales and marketing offices in Bangladesh, Sri Lanka, Indonesia, United Arab Emirates (UAE), Thailand, Malaysia, China, South Africa and Kenya.

Talking about the need for establishing a manufacturing unit outside India, Varadaraj said that though the company had a good demand for its compressors, progress in international markets was relatively slow since the customer development cycles were long.

"To make a more focused approach to this opportunity, we have decided to participate directly in selected countries.We have chosen China, Brazil, Malaysia and the Middle East as regions for study and direct participation," he added.

The manufacturing facility in China will be EEL's first overseas plant. The company is planning to set up plants in other regions also and decisions regarding this would be finalised during this fiscal.

EEL, which has a strong foothold in West and East Asian markets, is now eyeing Europe and other unexplored markets. The company has plans to set up a unit in the free trade zone of Saudi Arabia, besides exploring South Africa where it has a large distribution base for its piston compressors.

The company also plans to set up its own warehouses in European countries to keep up the delivery schedule and to cut down transshipment costs.

The company is willing to consider taking on board an equity partner who would bring more business to the company.

"We are not looking for a technology partner as we have adequate technical skills to do business anywhere in the world. We also do not require capital and hence will not look at a pure equity investor looking for an investment opportunity," Varadaraj added.

Elgi has a 35 per cent market share in the industrial compressor business in the country. The market size of the segment is around Rs 800 crore which is annually growing at 15-20 per cent.

Of its total income of Rs 312 crore this year, exports or international business constituted more than 20 per cent. As EEL's supplier base is in Coimbatore, the company has decided to locate its new factory close to the city and site selection is in the final stages, according to Varadaraj. The construction work of the new factory is likely to begin in 2007-08.