Elgi Equipments Limited (ELGIEQUIP) Q3 FY2026 Earnings Call Transcript & Summary

Hello, and good morning, everyone. On behalf of Asian Markets, we welcome you all to the 3Q FY '26 earnings webinar of Elgi Equipments Limited. We have with us Mr. Jairam Varadaraj, Managing Director, representing the company. I request Mr. Jairam to take us through the opening remarks and the presentation, which will be followed by the Q&A session, sir. Over to you, Jairam. Thank you.

Thank you, Kamlesh. 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 you through a reconciliation of the quarter performance with respect to the earlier quarter sorry, just give me a minute, please. Yes. So as you can see, we have improved our profitability. Our sales has grown by 18%. But the EBITDA should have been close to INR 2,000 million, but it's actually around INR 1,400 million. And the primary reason is on 2 counts, the employee cost and other fixed costs. Our 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 -- we are continuing to restructure Europe to bring it back to profitability or increase profitability. We have broken even last year. There has been some reorganization cost of letting people go, and that's been a onetime cost that's sitting in employee cost. And I have explained to you over the past year, we are investing close to 1.5% 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 that 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 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 2 to 3 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?

Yes, sir, it's visible.

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 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% is 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 P&L various quarters, our main impact, if you look at the trailing -- I mean, Q2 against trailing -- the Q2 trailing quarter, the impact on tariffs is almost 1%. We have mitigated it subsequently. But in the quarter, we had -- in Q2, we had historical inventory on the ground, which is based on earlier prices. And in Q3, we had the fresh inventory, 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 -- 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 -- we mitigated it. Now with the reduction 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 position continues to be strong. Our receivables are in good control. Our challenges have been inventory all over the world. There has been 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 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 an 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 seem to be coming back, except Europe. Europe continues to be a challenge. India, I think, had a good -- well, the GDP growth is 6.5%, which is a pretty good growth 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 led. 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 have 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 year but the next year as well. We'll talk more about the guidance for the next 5 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 Rotair by virtue of the tariffs on the portable compressors that are shipped to the U.S. 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 Europe. We are not assuming a growth-based P&L. We are looking at a cost managed P&L for Europe for not only the balance of the year, but for next year as well. U.S. has done well for us. Our industrial business, our Patton's 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 will be better than Q3 as it always is. But I think you can't expect it to be -- last year, Q4 was a big hockey stick. I don't think it will 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.

We'll probably wait for a couple of minutes for the question queue to assemble. And then probably start taking questions. [Operator Instructions] Sir, we'll take the first question from the line of Mr. Ravi Swaminathan.

Sir, congrats on a good set of numbers. At a standalone level, if you see after 4 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 within India, was the growth holistic, which subsegments are driving the growth faster on an above average level? And you had also mentioned that there seems to be some kind of a recovery from the domestic investment or CapEx. Which sectors are you seeing those green shoots from?

So to answer your first question, the growth has been across multiple things. It is not only India, but our export has also contributed more in Q3. But I don't think that's a trend. Export to our subsidiaries is a function of replenishment. So one quarter, there will be more, one quarter, 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 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 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, Ravi.

Got it, sir. And apart from textiles, like, say, infrastructure, industrial, that is steel, cement, et cetera, if you can give a broad flavor how those subsectors are growing, that will be great.

So cement, you know that cement has been muted. 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 are -- I think it's across the board, Ravi. I won't pinpoint it to any one sector that's standing out today.

Sure, sir. And with respect to the U.S. business, the tariff being cut from 50% to 18% or some much lower number. So we don't know the exact number. But 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 is the dynamics working there now vis-a-vis the local supplier, how competitive we are. Post this cut, we will be much more competitive?

So 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% tariff, right? 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 6 to 7 months, yes. 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. So we will see that impact. So we are past that tariff. In terms of local competition, nothing is really fully manufactured in the U.S. Even the local assemblers or so-called manufacturers are importing quite a bit from all over the world. So the impact continues for them because quite a few of them import from China where the tariff is still at a high level.

Okay. So is that -- I mean, in one way, this tariff has actually been a positive for us. I mean, so essentially, we are gaining in terms of realization-driven gains which are there. And now we are back to the old normal ways of growing in that particular country.

There is an old adage never waste the opportunity of a crisis. So that's basically what we have done. And like I said, the team has done a fantastic job of taking us -- navigating us to a position where we have come out very strong.

The next question we'll take it from the line of Mr. Harshit.

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 FY '26, do you expect FY '27 to be at breakeven level or we expect to register a significant positive EBITDA in FY '27?

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, Harshit. So next year, we are not talking about -- all this is not being done to breakeven because breakeven 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 breakeven. It will be a profitable set of book in Europe.

Understood, sir. Also on the U.S. front, as you 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 1Q FY '27 as well or this impact would be even higher because of the inventories that we are carrying.

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 cost and the post-tariff cost.

Understood. Just a small follow-up to that. You had last time mentioned that U.S. geography was at breakeven level for the first half of FY '26. 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?

U.S. is profitable, Harshit. So it's not significantly profitable, but definitely profitable. We expect to keep pushing that profitability level up going forward.

Understood, sir. Just 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 FY '27?

Yes. So we are still trying to push for first quarter, but it looks like we will -- it may slip to the second quarter, but it's not a significant movement from the thing. The products are ready. They are going through various stages of validation. We have started looking at our distribution structures, the internal team to drive this business, our pricing strategy, all of it is in advanced stage of progress. So we are well on the way to make this happen.

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?

Yes. So the Chinese import there are -- we don't know. 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 have close to -- the Chinese imports have close to in our estimate, 25% to 30% of the market, right, 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 operating cycles. Typically, if you look at 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 a factory longer, but the air demand is about 1,500 to 2,000 hours a year. So these kind of customers are not really driven by the efficiency, the energy efficiency of the compressor. 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 are price-wise will be as competitive, but we will provide Elgi quality, Elgi reliability and Elgi level of service. So that will be the differentiating factor. All these customers are known to us. They want to buy Elgi, but the price difference is so huge, it's -- you can't blame them. So we are now giving -- we'll be giving them a value proposition that's very compelling.

Sir, the next question in the chat is, can you comment on the raw material pricing because in past 2 months, metal prices have rose significantly.

So yes, this is a matter of concern for us, but it's not uniquely Elgi. 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 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 Elgi problem. We will get over it. I'm not concerned about it.

The next question is from the line of Mr. Balasubramaniam.

Sir, our in-house production is expected to cover 75% to 80% 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 clearance, drives and controllers. If you could share more details and color on our in-house initiatives.

So Bala, I don't know where you got that 70% to 80%. What we do is as a principle, we project our business of 3 to 5 years and basis that projection we invest 1 year in advance in our capacity, right? So this is our policy of capacity management. So we are well on track for that. So today, we have capacity for -- by the end of this financial year, we will have capacity for '27, '28 interest. So we are quite comfortable there. Now as I'd 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 lines there. Now that is INR 500 crores to INR 600 crores investment that we hope to invest over the next 5 years. Now we have started the initial phases, 2 plants have been 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, our regular annual CapEx is roughly in the neighborhood of about INR 50 crores. That takes care of the -- what I talked about that investment in capacity 1 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 5 to 6 years is to build that building capacity. And we are well on doing it.

Okay, sir. Sir, my next question aftermarkets nearly contributes 30% of revenue in India, but only 12% in Europe markets. So like what is the current installed base size and the growth rate in the U.S. and Europe? And in Europe, we are implementing hybrid strategy. So how it will benefit especially in the aftermarket side?

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 installed 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. The 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 base in place.

The next question we have is from the line of Mr. Salil.

Sir, I have some questions on the U.S. business. First of all, if your current inventory say is kind of bleeding out by Q2 of next year. So we have 4 to 6 months of inventory. Is this a normal level? Or did you kind of build up something? I mean how does this work out?

So like I said in the -- 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 salespeople always have an optimistic view of the future. When the future becomes present, then they become very pessimistic. So our planning system so far has been believing what the salespeople want and we replenish basis that. Now we have started a new program of designing the system for inventory planning for the various subsidiaries, which is in the final stages of validation. We implemented it in August, September last year. It's in the final stages of implementation. So I'm hoping to see better control over finished goods. So to answer your question, 6 months is excessive inventory, right? When you have a lead time of -- shipment lead time of about 2.5 months, really your inventory should be only about 3, 3.5 months, right? So that's really where we are headed.

Understood. Continuing on the U.S. business, now the distribution part of it is where you mentioned that there are certain challenges, right? So when you're trying to fix it, what would it be? And would you kind of revisit this partnership, the JV kind of structure that you had with some distributors or some areas?

No, this is nothing to do with our JVs, Salil. This is -- what I mean by distribution operations is Patton's and Michigan Air which is 2 distributors that we own -- now we -- this is -- in effect, this is a direct sale, right, because we own the distributor and we are selling directly to the customer. So -- can you hear me?

Yes, yes.

Yes. 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 present in.

Okay. And lastly, sir, given now that there is hopefully tariff advantage for India in general, what are the chances that demand kind of grows exponentially 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 there sufficient something else that you need to do to [indiscernible]

So in a B2B kind of business, Salil, especially capital goods, it doesn't behave to price elasticity. We lower the price, it doesn't mean you will double your revenue, right? So the idea is to -- 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. So the challenge for Elgi 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 some degree of freedom in terms of running schemes wherever there is a dual multi-brand distributor who's carrying our brand as well as other brands. Maybe through this, we get a better share of the wallet. But I don't see the cost becoming -- behaving in a very elastic manner, sales behaving in an elastic manner.

So it's more of market share gains possible rather than...

It has to be.

Sir, I'll take one question from the chat now. Sir, there's a question, is Elgi venturing into defense OEM?

No, we are not getting into our defense business. We have a joint venture, which is Elgi Sauer that has a large defense component. These are high-pressure compressors that are supplied for battle ships, 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 been...

Sir, next question, I'll take it from the line of Mr. Vinodhsastri.

Congratulations on achieving INR 1,000 crores of revenue for the first time. Sir, I will have 2 questions. For the last 3 to 4 quarters, in your opening remarks, you have said that the EBITDA should have been much higher, and it is primarily because of 2, 3 reasons 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?

Yes. So it's a good question. Vinod, I'm glad that you brought it up because that was an area that I wanted to address as part of my overall opening remark. 1.5 years ago, I talked about investing in initiatives to bring better process in finance, 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 2 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 1.5 years to 2 years, you will start seeing 50% of this 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 costs like the advisory costs and the onetime software development cost that we are in, 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.

Okay, sir. And a follow-up question from the last participant. There has been an inventory of 6 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 6 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%?

I couldn't understand your question. Are you -- is your suggestion will be run out of inventory to fund our sales? Is that your question?

No, sir. There is an inventory for the next 6 months and the tariff has already come down to 18%. And assuming that we sit at this 18% going forward for the next 2 quarters, that is Q4 and Q1 of the next year, will there be a dent in the revenue because of these -- all these inventories?

No. Why would there be a dent in revenue at all?

Because the cost should have been higher, so that is -- we have plans for...

Sorry, go ahead.

We have planned for 50% of this tariff, and we have done according to that. And next 2 quarters, assuming that we don't have such a high kind of thing, so that is why this question has come up.

So the inventory that is sitting is based on a 50% tariff. It's costed at that level, right? And our 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 tariff, 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.

One final question would be, will you be okay to share the market share of Elgi domestically, sir?

I don't like to talk about it because this is something that's extremely sensitive to competitive thing. But we are #2 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.

Sir, next question, we'll take it from the line of Mr. Amit Anwani.

Sir my first question is on domestic business. So there has been some announcement also in the budget about biopharma and assets, now they seem reduced. There should be some respite for the textile sector also. So I wanted to understand your view. And overall domestic market post also the GST reduction, there's been talks that there would be some revival with the industries. I wanted to understand your sense in terms of domestic market steady-state growth and which are the sectors which might have seen good growth for you and sectors where still growth is very regular still.

So 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 -- I mean, our strategic initiatives on biopharma kind of a thing. We are present in that segment. We have some extremely compelling products for that segment. And we will continue to do that. But do I see it exploding in terms of revenue? No, I don't see that happening. Did I answer all your questions, Amit?

Yes. Sir what's the kind of overall steady-state growth we should be...

So India -- I think India will be low double-digit is something that we are reasonably confident of, right? But 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 these kinds of tariff issues and wars and conflicts, if those things don't 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.

Sure sir. Sir, secondly on Europe. I think last time also you did highlighted recent times the European business and there was a breakeven target. And you did also highlighted [indiscernible] getting exported to U.S. from Europe. So now that situation is slightly better. 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 maybe 1 or 2 years?

So when I explained the P&L, one 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 hitting our P&L. It has hit Q3. It will 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 breakeven. Our goal is to get to profitability, right? We have crossed the milestone of breakeven. Now we are saying that for a current strategy for the current level of market, the cost structure that we should have is a 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 will, we will make a profit. So that we are confident of next year.

Sir, next question we'll take is from the line of Mr. Prabakar. Sir, I think we're facing some problem with his line. Probably, I'll take a couple of questions from the chat and then I 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?

That's a tough one to be very specific about, but I will give you a range. So if our current compressor is selling 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.

The next question in the chat is, sir, is there any further investment in motor manufacturing?

Absolutely. I mean if you look at one of the largest contributors to our ability to withstand the tariff impact has been in-sourcing our own motors, right, which was a project that we started 4 years ago. We didn't do it in response to the tariff. But timing-wise, it became very opportunistic. 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 magnet. 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 permanent. See, 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 2 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 magnet -- restricted list of rare earth. 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 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 6 to 8 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.

I'll take the next question from the line of Ravi.

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 1, 2 months?

No, we've already started this process, Ravi. I mean raw material, whether it's copper or aluminum or hot and cold rolled steel, it's affecting all companies, not just in compressors, but anybody doing mechanical machines, capital goods if they use these materials. So this work is an ongoing thing. So I wouldn't -- 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 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 are looking at reducing costs. So it's not a percentage that -- it is not a percentage that is out of a stratosphere that we can't handle as an operational response.

Sir, there's one question in the chat. Sir, do you see any use case emerging in the space you are operating, which can become a mega opportunity for Elgi like green hydrogen, nuclear power, data center, HVAC, EV, complex power grids, electrolyzers, et cetera?

So we are not -- we don't have -- we are not getting into compression of hydrogen. It's a completely -- 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 efficacy of the hydrogen economy. We'd like to understand a little bit more in terms of 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?

Yes.

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.

So that is what I see, sir. I will hand over the mic to Kamlesh ji for his questions.

Yes. So I have just 2 last points. If you want to touch upon the stabilizer technology or the vacuum products launch.

Thanks, Kamlesh, for bringing it up. The stabilizer, as you know, it's called Demand=Match. That's a brand 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 4, 5 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 the Demand=Match. So that's on Demand=Match. 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 reconstructing our plans for the next 9 to 10 years on vacuum. What -- 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.

Sir, just you can elaborate which segments and markets you find more application of vacuum products? Any specific sectors you want to highlight?

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, a 22 kilowatt compressor, vacuum, they may use maybe 3 kilowatt, right? So it's scale-wise much smaller, right? But in terms of dependency as a utility, it's still very high, right?

Is semiconductor as an area of opportunity for us, for those products?

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 more in the rough and medium vacuum, not in the ultra-high vacuum.

Okay. All right. Great. Participant, just to mention, the company is also hosting their Annual Analyst Meet this time in Mumbai next week on February 26. You may get in touch with AMSEC team or the IR team at Elgi for further details on that. Yes.

Thank you.

So with that, we conclude the webinar. Sir, any closing remarks you want to make?

No, nothing Kamlesh, thank you, as always, for your support and AMSEC's support for hosting this. And it's been a good conversation with everyone. Thank you for your patience and your involvement. Thank you, everyone.

Thanks, sir. Bye. Thank you, participants. With that, we conclude the call. Have a good day. Thank you.