Rajesh Doraiswamy, Jt. Managing Director of the company addressed the call:

Highlights of the call:

The company started as a single product manufacturer, manufacturing CAM operated rotary switches way back in 1986 in India and over the years evolved from a single product manufacturer to a company that offers total complete customized electrical solution to all our customers.

It has four state of the art manufacturing facilities are located in Coimbatore. We also have our in house R&D lab, which is recognized by the Government of India.

Through this focus and sheer determination to come out with products of highest quality it has been able to get a preferred vendor status with global giants like GE and Schneider.

All its products are internationally certified.

It registered an increase in revenue of 22% at Rs 155 crore for Q4 of FY2019.

Revenue for FY 2019 was at Rs 559.8 crore, up 26%.

In FY 2019 contribution from domestic sales at 86% was mainly driven by increase in demand and good traction for products in almost all business divisions like the building segment, industrial switchgear and wire and cable business.

In FY 2019, its legacy products such as rotary switches and toroidal transformers have shown growth and uptick in demand along with other products like three phase dry type transformers and wire harnesses.

Q4 EBITDA grew 3% to Rs 16.9 crore despite increase in raw material prices, which was managed by various value engineering.

EBITDA for FY2019 grew 19% to Rs.63.6 crore.

Q4 2019 PAT grew 73% to Rs.8.4 crore. Q4 had a deferred tax credit this year.

For FY2019 PAT grew 20% to Rs 24 crore.

In FY 2019 Salzer Magnet Wires contributed around Rs 65 crore with an EBITDA of around 7.5%.

Industrial switchgear division's new products of three phase dry type transformers, wire harnesses and others have continued to show growth and uptick in demand.

Transformers market size in India is Rs 1800 crore. With the current capex that it has done can fetch it sales of Rs 90 crore.

Transformers business is not order book driven.

The wire and cable division, from the start of this financial year, has started to manufacture and sell wires and cables under the Salzer brand, which is seeing good demand. The management is also seeing a growing opportunity here. This is apart from its regular brand labeling business that it is doing for Larsen & Toubro, Crompton and a few other large brands.

Building product division, is the only B2C business that it has. Going forward the management is confident of increasing contribution from this division in the coming two to three years to around 10% of revenue as it has opened up new opportunities in real estate sector where it has got some annual rate contracts with major builders. This division has contributed around 7% this quarter and 7.6% for FY 2019 driven by increase in sales and good traction for product offerings such as modular switches, MCBs, distribution boards, changeovers and Salzer branded wires and cables. This division has also increased focus on retail segment and is formulating strategy to further strengthen presence in this segment.

The fourth is the energy management division, which has contributed 4.1% revenue in this quarter and 2.6% in FY 2019. This is an order book driven business and this quarter it has been able to book revenues, which was due to it for the second year of the contract that it has been doing in Tamil Nadu.

Net worth of the company as on March 2009 was at Rs 287.2 crore.

Total debt as on March 2019 stood at Rs 139 crore. This has increased by Rs 4.4 crores on account of increasing working capital requirements. Despite this increase in total debt it has maintained debt to equity ratio at 0.48.

The company has improved working capital requirement reducing the inventory days by 18 days and the overall working capital days by around 30 days.

ROCE improved during the year to 16.7% from 15.2%.

The company continues to focus on adding new high margin products under its product portfolio, reach out to new geographies and offer total customer solutions to customers besides strengthening the revenue drivers, improving ROCE and working capital cycle also from the part of its core strategy.

It is also working on system and process management to grasp better visibility on orders based on which it can plan inventory level.

The collaborative efforts taken internally will lead it to improve efficiency, reduce working capital and inventory levels. These initiatives will also improve ROCE from the current levels to around 18% to 20% within the next two to three years.

With a very competent team in place, the management is confident of achieving the milestones it has set for the company.

It is constantly on the lookout for new opportunities and technical associations to strengthen the base of product offerings.

Though it is operating under the electrical and electronic product group for the ease of analysis, the company has classified its businesses into four different divisions namely the industrial switchgear business, the wire and cable business, the building segment business and the energy management business.

In FY 2019 two plants i.e magnetic wires plant and the wire and cable division received the prestigious PS16949 certification. This certification is prepared by the International Automotive Task Force and the Japan Automobile Manufacturers Association with the support from ISO. This technical specification in conjunction with ISO 9001 defines the quality management system requirements for design, development, production and relevant installation and service of automotive related products. This will enable it to enter a new sector of automotive across different segments adding newer innovative and high margin products and further diversifying its business in wire and cable.

The promoters have increased their stake in the company. In fact the promoters have increased the stake from 25.9% in FY2016 to nearly 36% in FY2019.

The credit rating of the company was upgraded by CRISIL to A stable from A- for the long term borrowings and A13 affirmed for short term borrowings reflecting a leading market position in the domestic rotary switches market and an adequate financial risk profile.

This is the second upgrade that it has received in three years from CRISIL.

The company has entered into a definitive share purchase agreement with the promoters of Kaycee Industries Limited to acquire 72.32% shares in Kaycee Industries Limited on May 24, 2019. Kaycee Industries being pioneers in the CAM operated rotary switch product that will help further to increase its market share in the industrial switchgear industry and consolidate its market leadership in this niche product. This acquisition is in line with its strategy of strengthening and growing suite of product offerings. The resulting synergy would enable the company to connect it further into the market on the back of enhanced product offerings and additional distribution channels that comes along with Kaycee.

Kaycee Industries was the first company to manufacture CAM operated rotary switches in India, so it is a 70-year plus old company and has been Salzer's main competitor for the last several years. They are number two in the market today. It will bring in goodwill, in terms of their brand and the approvals that they have with various government agencies.

Kaycee is operating at around 50% to 60% capacity levels.

In FY 2020 the management expects sales between Rs 640 crore to Rs 680 crore, up 15-20% without considering the figures of the acquired companies. It expects to maintain EBITDA margin between 11.5% and 12%.

Kaycee's topline is around Rs 25 crore, so it will add to around 5% on Salzer's topline at the current levels. Kaycee is also making a PAT margin around 4-5%, so basically Kaycee, will help Salzer in improving the PAT for both Kaycee as well as Salzer.

Kaycee Industries is already a separate listed company and for now the idea is to run it as a completely separated listed company. It will be a 72% subsidiary of Salzer Electronics.

With Kaycee Industries it has synergies with CAM operated rotary switch. Kaycee also has some new products that Salzer does not have like toggle switches, water meters and counters. These are some of the other products that Salzer will get.

Kaycee Industries' client profile is pretty strong.

Right now Salzer is acquiring 72% of Kaycee and is going for open offer on that, so its plan is to keep it listed for now. Salzer is paying around 15% more than the current market price for acquiring Kaycee Industries. It is paying approximately around eight times EBITDA.

Kaycee has been held by a large group called CMS Computers. It is a very large group and Kaycee is an unrelated business for the entire group. The management has not been that focused on this particular business and that is one of the reasons the company has not grown in the last seven years. Management of Salzer expects that the company is a small company and very agile and hopes that it can grow the company at a much faster pace that even Salzer.