Setting new benchmarks in compressed air solutions for textile sector
Compressed air is considered the lifeline of a textile mill as most of the operations in the unit are on pneumatic control. It is a well-known fact that compressed air is one of the major energy consumption utilities. Given the fact that energy costs have been rising by the day, it is not surprising that top management of textile units in recent times have been focusing on exploring various cost-cutting opportunities with respect to air compressors, without compromising on the quality and performance of the machines. One company which has been helping them do so is ELGi Equipments. It is quite remarkable that in a field dominated by well-known global brands, the Coimbatore-based company has carved a niche for itself and continues to grow from strength to strength.
ELGi is one of the few companies in the world capable of designing and manufacturing airends and compressor packages. Its wide range of products covers reciprocating air compressors, lubricated screw air compressors, oil-free, centrifugal air compressors and precision engineered components.
For more than two decades, Dr. Jairam Varadaraj has been the driving force behind the company’s success. Born into a prominent business family, Dr. Varadaraj developed a keen sense for business development right from a young age. After finishing his doctorate in the US, he became part of ELGi Equipments’ top management. Under his leadership, the company continued to grow at a sustained pace and went on to become one of the top 10 compressor manufacturers in the world.
In an exclusive interview to The Textile Magazine, Dr. Varadaraj gave detailed insights into the company, its growth story, industry trends, what makes ELGi air compressors stand out from the crowd and its plans for the future.
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The fact that ELGi has made rapid inroads into the American and European markets, satisfying some of the most discerning clientele, is perhaps the best testimonial to its prowess in this field. Listing down the key reasons behind the success of ELGi’s range of air compressors in these markets, Dr. Varadaraj said: “Our products, in terms of performance, efficiency, quality, and aesthetics, are on par with or better than the best. And we are not resorting to any kind of chest thumping here. This is a validation from the distributors who have been selling the best air compressors and who also carry our products. Some of the distributors in the Americas and Europe sell two or even three brands. This is the feedback we have got from them – ‘ELGi air compressors are top notch’.”
Adding further, Dr. Varadaraj said: “We have enough evidence to prove that we are at par or better than the best, but that doesn’t mean we are close to what we intend to achieve. Remember the odds that were stacked up against us. For one, ELGi was a relatively unknown brand in these markets. Then there’s always this stigma of a “Made in India” label, which I feel is more of a perception than anything else. It is a perception though which is gradually changing. So, with all these limitations, in order to be competitive in these markets, being marginally better is not good enough. So that’s really what we are driving at. Remember customers in these markets can be unforgiving, unlike Indian customers. And if it is an Indian brand, then the forgiveness quotient is even less”.
Textile industry focus
While ELGi’s air compressor systems have been a hit across several industry verticals, there is a general view prevailing that the company thrust on the textile industry has not been aggressive enough.
“Our products, in terms of performance, efficiency, quality, and aesthetics, are on par with or better than the best. And we are not resorting to any kind of chest thumping here. This is a validation from the distributors who have been selling the best air compressors and who also carry our products. Some of the distributors in the Americas and Europe sell two or even three brands. This is the feedback we have got from them- ELGi air compressors are top notch”
When queried on this, Dr. Varadaraj said: “As a group we know textiles better than our competitors. This is because we have our own spinning mill in our group. We have been in the business of textiles for 40-odd years now. We know the pain points and challenges. Plus, we are based out of Coimbatore, a premier textile hub. Wherever you go, across the country, people in the textile industry know ELGi. Unfortunately, the problem is that while awareness about ELGi is good, the perception about our products is wrong. We were being perceived to be making old-fashioned compressors, whereas the products coming out of our world-class factory are at an entirely different level. This disconnect is not the customers’ fault. I admit it is our fault. It is perhaps because of our culture – to take a low profile. We need to reach out to the customers and tell them that we are different from what they think. We have started working on the process. This is where our new branding strategy comes in. We are also in talks with brand management companies to communicate to potential customers about our products, their specialties, and what makes us stand out from the crowd”.
As someone who has been dealing with air compressors day in and day out for well over two decades now, Dr. Varadaraj, when asked about the evolution of compressor technology, explained: “See, the basic technology has remained the same. It’s like the internal combustion technology in a car, where things such as the piston, crank shaft, brakes, etc., have remained more or less the same. With compressors, it was earlier piston compressors, before it gradually moved on to screw compressors in the 1960s. After that the basic technology has pretty much remained the same. What has changed though is that the reliability of the products has gone up from one level to another. The efficiency of the products has gone up. The integration of electronics and software has gone up to another level. All this is the result of better materials, heat treatment, surface coating, etc., basically better manufacturing process, resulting in more efficient air compressors”.
Throwing some more light on ELGi’s growth story, Dr. Varadaraj observed: “We started like everyone else. Indian companies went to Europe or America and got licences from top companies. When you get licence, you invariably get post-generational technology, no one will give you the latest one. They will give you the ‘know-how’, meaning they will give you a set of drawings and say this is how you assemble the machine. However they will never tell you ‘why’. The ‘know-why’ is never given. As a result, you become a constant slave to imported technology. When we started out in 1994, India was just opening up. We knew that if we go the licensing way, we will reach nowhere. We therefore had to build our own technology. We chose the harder path. From 1994 onwards we have been investing in R&D and latest technology. We learnt the ‘know-why’. We have also learnt the shifts that are taking place. Additionally, we have also learnt the direction of the shift. If you understand the shift and only respond to it, you are a follower. It is only when you learn to understand the direction of the shift that you become a leader. You can say that we are now at the cusp of being able to lead with the next generation of air compressors. In our company, we have this gradation – there is ‘catch up’ work and ‘get ahead’ work. We are increasingly doing ‘get ahead’ work now”.
“We have a design philosophy that lends itself naturally to efficiency. We use large rotors. As opposed to smaller rotors running at higher speeds, we have larger rotors running at lower speeds. This naturally brings in efficiency”
Energy efficiency edge
Competition in the air compressor market segment has been getting more intense by the day with a host of products doing the rounds. This being the case, when asked as to why should someone buy an ELGi air compressor, Dr. Varadaraj listed down the key reasons. Dwelling on the topic, he said: “A compressor’s life span ranges from a minimum of 10 to a maximum of about 15 years. When you take the lifecycle cost in that period, about 75% is energy cost – the power consumed to run the machine. Approximately 15% is the upfront capital cost. The 10% goes for maintenance. Till recently, a majority of people were thinking that we are the cheapest on the 15%. But no, we would like to tell them that we are the best in the 75%. That’s the value we bring to the customer. We bring the higher value on the biggest cost incurred during the lifecycle. Thankfully, this perception is gradually changing”.
Elaborating further, he explained: “About 10-12 years ago power was subsidized by the Government. That was the time when we were paying about Rs.1 – Rs.1.50 per unit of power. Now with the gradual addition of all sorts of surcharges, the price has shot up to about Rs.9, which is quite significant. Earlier they were buying based on the 15% component which made up for the upfront cost because they could not relate to the 75%. It was like ‘give me the cheapest stuff, I will buy’. Rising power costs have now brought in fresh awareness. Whether it is an autoconer, ring frame or blow room, everywhere the focus now is on saving power. This is where ELGi’s air compressors score over competition”.
Another key reason for ELGi’s air compressor range holding the competitive edge according to Dr. Varadaraj is the basic design philosophy behind these machines. “We have a design philosophy that lends itself naturally to efficiency. We use large rotors. As opposed to smaller rotors running at higher speeds, we have larger rotors running at lower speeds. This naturally brings in efficiency. To draw an analogy, if you take the efficiency of a 50 cc moped and compare it with the 1000 cc engine of a car, the latter will be more efficient. Basically, when things get bigger they become more efficient. Why are our competitors not able to do it? Because their primary focus is on cost, but our primary focus is on performance. For them it is like ‘if I make it smaller, it converts into lesser material and I can make it cheaper’. For us, we are looking at building our entire backend. That’s one of the reasons why we have our own captive foundry. That’s the reason why we build the machine that builds our air compressors. All this is being done in order to ensure that we give the customer a more efficient machine at a much lower cost. We have not forgotten that ELGi was being chosen for that 15% component of the lifecycle cost. Till such time we become numero uno, this focus will continue”, pointed out Dr. Varadaraj.
“We are building our own machines for a strategic purpose. If you look at the compressor, the airend that we produce in our factory is about 30% of the value of the compressor. Now, if we want to compete with top-notch brands, we need to be the lowest in that 30%”
Sharp focus on service
Prompt aftermarket service is one more key reason behind the ELGi air compressor success story. Speaking on this key aspect, Dr. Varadaraj said: “For us it is not just about responding when a customer calls. It is about restoring air. Today 96-97% of our customers- they get their air back in less than six hours. That’s a record nobody can beat. In fact, even our competitors acknowledge this strength of ours. We deliver uptime”.
Going further on the key reasons, Dr. Varadaraj stated: “We offer a six-year warranty in India, with the only condition perhaps that the customer use genuine spare parts. In America we were probably the first in the world to offer a lifetime warranty. We have been selling compressors in America for about three years now and have sold over one thousand screw compressors. We have had one failure during this period”.
The company has a strong sales and service network spanning the length and breadth of the country. With a team of more than 500 sales and service personnel, the response time is a maximum of eight hours. “Generally we are there in about an hour. That’s the physical infrastructure. We also have a strong system in place where every defect, however small it may be, is registered at the factor by evening. We also are coming out with a sim card-based device which is incorporated in our compressors. It is in the testing phase. While others have also been offering similar things, we are doing it with a difference. The device talks to the compressor and gives a comprehensive performance report through an algorithm. The software then starts predicting. See, any mechanical device will degrade with wear. Failure takes place when you don’t notice this wear. With this monitoring, you will be able to get there before the failure. Predictive maintenance is what we offer. We have supplied about 55 machines with the device. By the end of this year, we will make it standard on all our machines. Many of our competitors offer it usually for large machines and invariably tied up with a service contract. We don’t want to follow that path. We firmly believe that the device is meant for us. More than our customers, we want to know how our machines are performing, for it will help us keep improving and stay ahead of the curve”.
To give an idea about the substantial difference that the company’s air compressors can make to energy efficiency and energy costs, Dr. Varadaraj cited an example of a textile unit. Going into details of the project he said: “The customer has already bought another brand. We showed him a similar capacity air compressor of our brand and told him that he will get back the complete investment back in about four years time. See, you have to understand the significance. The prevailing perception is that an air compressor does not earn money, unlike, for instance, a ring frame which makes yarns that you can sell. A compressor is a utility like a generator which is not earning. Right? Now equipment that does not earn money returning your money in about four years time is phenomenal. We told the customer that we will install the machine in your factory, right next to the competitors for this next requirement. If it doesn’t perform up to your expectations then we will take it back. Needless to say, the machine will perform to promise”.
Without naming the textile unit, Dr. Varadaraj mentioned that it was a 25,000 spindle capacity mill where the air compressor was used for air jet weaving. While the cost of the machine was about Rs.15 lakhs, the savings were to the tune of about Rs.3.75 lakhs annually, allowing the textile millowner to get back the money in about four years time. “This is the kind of enhanced value that our products bring in and we have several such proven instances,” he added.
Manufacturing infrastructure
ELGi Group’s state-of-the-art manufacturing facilities are located in India, Italy and France. The Coimbatore plant where airends are manufactured is situated on an 89,000 m² of land with a built-up area of 32,700 m². The modern foundry, which it has set up for its own use is located near the Coimbatore plant. The screw compression elements are manufactured in-house using state-of-the-art machining centers for rotor grinding and machining intrinsic castings of various sizes. The factory is equipped with advanced, high precision rotor grinding machines, turning centers, and CNC horizontal and vertical machining centers. The in-house rotor manufacturing facility provides ELGi with unrivalled advantage over competition. The manufacturing unit is supported by the R&D division that leads the ELGi innovation program, a CADD unit with advanced design capabilities, an integrated machine shop, and a metrology laboratory.
ELGi is perhaps among a handful of companies that builds some of the machines used in the manufacturing process. Going into the reasons behind this step, Dr. Varadaraj said: “It is not for us to sell machines. We sell compressors. As mentioned earlier, we are building our own machines for a strategic purpose. If you look at the compressor, the airend that we produce in our factory is about 30% of the value of the compressor. Now, if we want to compete with top-notch brands, we need to be the lowest in that 30%. You can buy motors, valves, controllers, etc., from anyone in the world. Big players are buying these components in big volumes. They are probably getting these components cheaper than us. We are not there yet. We are number seven in the world. If you take that 30%, the biggest cost is capital cost, which is about 70% of that 30%. Now, how do I bring that 70% down? By building our own machines”.
The company intends to manufacture specialized motors in the near future. Explaining the reason behind the proposed project, Dr. Varadaraj said: “All manufacturers make motors which are standard – whether it is for pumping application, compressor application, or any other application. Now, the compressor’s performance is very unique. But the motor is standard. There is a compromise. There is not always a perfect match. Now, if we make a customized motor for a compressor, it will be more efficient. Even a 2% increase in efficiency makes a substantial difference. It converts into a lot of money for the customer at the end of the day.”
Now that there is a lot of expansion taking place in the industry, with the big players trying to increase their capacity as well as adding new manufacturing units. There is of course a general feeling that ELGi has not been aggressive enough, particularly when it comes to centrifugal compressors. When queried about this, Dr. Varadaraj explained: “As I said before, this is a wrong perception. We too have centrifugal compressors. We have a working relationship with Samsung which has now sold the business to another Korean company. We sell that product, and we have also developed our own centrifugal compressor. We have three machines that are already running. In probably two or three years, the numbers will definitely increase. But centrifugal for us is ‘catch-up’; it is not a new technology. It is already there. We just need to internalize it, which we will do”.
So, what does the future hold for ELGi? Dr. Varadaraj has a very clear vision. “As mentioned earlier, to be the best in the 75% component of the lifecycle cost – that is our mantra. We are confident that we will do it. We have demonstrated technology and we have the necessary infrastructure. Right now, we are number seven in the world and number two in India. Our goal is to become the number two player at the global level. We are sure we will get there in a phased manner.”
Sustainable technology seems to be the buzz word in the industry these days. Asked about ELGi’s role in creating a sustainable future, Dr. Varadaraj said: “We are all for sustainability. Our manufacturing processes are sustainable. The processes used in our foundry are sustainable and our products are also built based on sustainable technologies. I’ll give you an example. Some of our competitors’ compressors put out, say, between 2-3 ppm oil into the atmosphere. Now, this is not good for the planet. We are the only company that guarantees less than 1 ppm, which is very significant. Today we are building machines that do not use oil. Today you have oil-free screw compressors, oil-free centrifugal compressors, and so on. But they are 80%, 100%, and even up to 200% more expensive than lubricated compressors. So, only a few can buy them. The bulk of the industry still buys lubricated compressors. So, we are building compressors that offer higher efficiency without oil, but at the cost of lubricated machines. Now, when we bring in something like this, it completely changes the value proposition to the customer. The prototype product is already ready with us. The technology will go through a validation process. We should be launching the product in three years”.
Air audits
Air audits is among the key services offered by the company. Going into details about the company’s air audits, he said: “What we intend doing through our air audits is to fundamentally improve the design of the system. This will help customers constantly monitor the quality of the system rather than just the compressors. Air is constantly passing through the pipes. This causes pulsation. With regular wear and tear, leakages will happen. It is not like we do an audit and we set right a system for life. It takes time. It is expensive. We will do the audit, fix the leakages and give the customer the freedom to manage the specific areas of leakages.”
The audit reports prepared by the ELGi experts team include recommendations on short, medium and long-term measures for energy conservation, along with financial estimates and analysis for the implementation. The reports offer specifics into measurements and tests conducted at the customer sites. This is followed up by assistance in the implementation and performance monitoring of the energy conservation proposals.
Future plans
Of late, ELGi has chosen the path of inorganic growth through the acquisition mode in key overseas markets. Does it intend to continue doing so in the future? “We have made three acquisitions in the last six years. We have had some good experiences and some pretty nasty ones too. We have learnt our lessons. We won’t continue down the same road, but it doesn’t mean we will give up the idea completely. What we will do in the future is a modified version. For the next few years, there won’t be any acquisitions because we need to integrate and consolidate. We need to make strategic acquisitions, which are very different from those we have made in the past. For example, we had earlier acquired European brands in order to beat the ‘Made in India’ stigma. The brand is European, but everything that is not visible is ELGi. But when you do that, you need to remember that the customer is not stupid. Today’s discerning customer knows what every company is capable of doing. So the same guys in Europe came to us and said ‘please don’t give us the local brand, you give us ELGi instead.’ Customers these days know about the quality offered by every brand. So, there was a disconnect. In future, we will not acquire brands. Instead, we will make acquisitions for gaining distribution”.
According to Dr. Varadaraj, the biggest markets for the company are the Americas (30%), Europe (30%) and the rest of the world (40%). Adding further, he said: “As far as the rest of the world is concerned, apart from India, the biggest market is China. We have been there and we have burnt our fingers badly. We have learnt that you cannot take an Indian model and replicate it in China. You need a completely different model which includes new products. We are in the process of making products tailored for the Chinese market. Once we are ready, we will go back to China.”
ELGI, with a staff strength of 1,500 (500 outside the country), is considered a market leader in quite a few verticals, including food processing, automobiles, textiles and plastics and packaging. “Of these, the top six to seven industry verticals constitute about 75% of the air compressor market. Now, among these top six or seven, we are the number one in at least four to five,” said Dr. Varadaraj.
The company has lined up ambitious growth plans for the future. “Right now”, he said, “we are a Rs. 1,500-crore company. We intend to become a Rs. 2,500-crore company in about five years’ time, which is 15% annual growth. This is not an unrealistic target. With our capabilities, we should be there within the targeted time.”
ELGI is one of the few Indian companies that have created a value for the ‘Made in India’ tag around the world. Giving his views on the ‘Make in India’ campaign, he said: “I’m all for such campaigns. But it needs to be done at a very high standard. Enhanced customer experience should be the aim of every Indian company. We hope we have set a good example.”
“We have demonstrated technology and we have the necessary infrastructure. Right now, we are number seven in the world and number two in India. Our goal is to become the number two player in the world globally. We are sure we will get there in a phased manner”
“Right now, we are a 1,500 crore company. We intend to become a 2,500 crore company in about five years’ time, which is 15% annual growth. This is not an unrealistic target. With our capabilities, we should be there within the targeted time”