Salzer Electronics hosted a conference call on May 23, 2022. In the conference call the company was represented by Rajesh Doraiswamy, JMD and S Baskarasubramanian, Director (Corporate Affairs).

Key takeaways of the call

Growth in Q4FY22 was on account of increase in volumes coupled with higher product prices. The company has not tinkered with price in Q4FY22.

Looking at the current demand scenario from OEMs and the market, a volume growth of 25% is definitely achievable. The confidence stems from strong demand in the country as well as from US and Europe. 

Effective May 2022 the company has increased the price of all its products by 6-10%.

Q1FY23 will again be a tough quarter. Expect to return to 10-11% EBITDA margin from Q2FY23 onwards.

Margin is impacted to large extent by time lag in passing on the price increase due to high volatility in input material prices and lack of EBITDA margin generation by Panels (a new product introduced and accounted for 4-5% revenue this year) due to initial teething issues as well as higher cost of freight, subcontracting charges and one time product development expenses. All this combined pulled down EBITDA margins by at least 8% in switch gear division.

The company has spent about Rs 1.5-1.6 crore towards product development and testing in switchgear business during Q4FY22 and this one-time expense has hit the margin in Q4FY22. The company has developed some new products for American and Australian markets in the last one and-half years and those products have gone through the third-party testing and approvals and the expenses are towards that.  These are some custom-built products for certain OEMs in US and Australia and total potential for these will come close to around $7-$8 million.

The company is passing on the commodity inflation to customers but due to time lag the margin is hit. Every two week there was change in price and that quick the company could not pass on the price increase and that along with product development cost has hit the margin.

The company do not operate on a large order book because most of the sales of the company is a 4-6 weeks delivery.

EBITDA margins of industrial switch gear division stood at 5.23% in Q4FY22 and 9.7% for the year FY2022. Wire and cable division EBITDA margin has been steady at 6.6% in Q4FY22 and 7.3% for the full year FY2022. The EBITDA margin of Building product division stood at 2.5%. The fourth is the energy management division during this quarter also we did not receive any new orders from the government as they were no tenders issued during this period.

 Contribution of industrial switchgears, W&C and Building products division to topline stood at 48%, 44.6% and 7.2% in Q4FY22.

Exports: Steady growth in exports in Q4FY22.  Export to the Americas and Europe grew 84%YoY and 52%YoY in Q4FY22.  Export to Middle East also grew 81% year-on-year in this quarter. For this quarter the export share of the revenue was 20.43%.  Export markets recovered well with significant demand coming in as   impacts of the pandemic subsides slowly in the global markets. Export demand is likely to be stable and positive in the near future. Expect good growth in volumes in the coming quarters. The company is well-positioned to cater to higher demands from customers and pious to take up new opportunities.

Expect revenue of Kaycee to touch Rs 50 crore from about Rs 30 crore in FY22.  Have taken up lot of exercise on cost cutting on the operational efficiency front and the results of which are started showing off. Expect EBITDA margins of Kaycee to improve further by at least 2%-3%   going forward.

The partnership with Schneider Electric (SE) is quite strong and the company is probably the largest supply chain partner for SE including the L&T business that the company is already doing and now become part of SE.   It continue to get new businesses from various division of Schneider so that is growing good. Apart from that it also have strong partnership with Honeywell and Eaton. It also working with ABB for export markets. So, all these partnerships have been there with the company for the last several years and they continue to grow quite strong.

Existing products portfolio, the domestic markets have continued to cover well over the last quarters. The switchgears business witnesses robust demand. It is optimistic that the demands for these products   to gain momentum in the coming years.

Data Cables and CCTV cables, which are higher value added products were added to the product portfolio of W&C division in FY2021 end and in the first full year of operation the revenue from data cables are Rs 20 crore and that is expected to go up to Rs 50-60 crore.

EV foray is still in initial stage. The company is not seeing any contribution from this business as there is delay in absorption of technology. The company expect EV product order booking to commence from Aug/Sep 2022.

The company is working with Valeo on a few new products that is under development.  At the end of this financial year the product development will complete. The company is not sure to whom it will go but expect Valeo to start selling to almost all OEMs.