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Salzer Electronics held a conference call on August 11, 2015. In the conference call the company was represented by Rajesh Duraisamy, JMD and Satyanand, GM Finance.
Key takeaways of the call
Short to medium term target is to add some high margin products such as dry transformers. The company is currently working on two more products apart from already announced dry transformers. The company is looking for technology knowhow.
Currently about 33% of revenue coming from L&T's marketing of the company's products. The company is supplier for Schneider Electric and GE. Both Schneider Electric and GE together contribute about 10% of the sales with former accounting for 7% and latter 3%. Expects combined contribution of both Schneider and GE to overall sales to improve to a level of 14% this fiscal. The company is also supplies to other major global electrical OEMs such as ABB but their contribution is not that big.
Capex on dry transformer projects is about Rs 22-25 crore; the company will invest at about MCB facility at about Rs 5-8 crore. Balance proceed funds will be used for reduction of WC management till next new project (for 2 products) comes up.
The company looks at revenue of Rs 650 crore in FY18 and Rs 750 crore in FY19. While the existing businesses of the company expect to grow at about 25% per annum, the products will bring in incremental revenue. Expects a PAT margin of about 7.5% by FY19.
Revenue contribution from new dry transformer plant will commence from Q1FY17 end. On commencement of commercial operation the new plant is expected to contribute about revenue of Rs 250 crore.
Sharp 550% increase in revenue of Energy management business was largely on account of burnout of recent order for supply and installation of energy saver panels. At EBITDA level the contribution of EMS is Rs 3 crore for the quarter.
The energy saver panels order is worth Rs 106 crore. The scope of the contract is to source and manufacture equipment and install it in 4 municipalities in TN. Payment terms – About 25% of the contract value will on supply and another 25% on installation. Balance will be 12.5% every year with interest of 8% on balance outstanding. As per the contract the project has to be complete installation in 12 months.
The contribution from this order to FY16 topline will be about Rs 43 crore. Contribution from next fiscal onwards will be only Rs 12.5 crore as it is spread over 4 years. Cost of development of product is approx Rs 48 crore with internally sourced products worth amount Rs 22 crore.
The company has already completed 2 such projects for Coimbatore and Madurai, where the payment is equally distributed over 4 years unlike current projects. The company has got payments in 6 months. In TN order there were 3 competitors who include Asian electronics and Belgium company.
Since this order is under IUDS scheme, there is no payment concern and normally the payment comes within 3-6 months.
IR sales in Q1FY16 are about Rs 1.2 crore but expect revenue of Rs 8-12 crore from IR this fiscal.
Promoter holding currently stands at 25.5% and after conversion of warrants the promoter holding will be about 29%.
The company currently exports to more than 40 countries. Exports account for about 20% of revenue.
Dry type transformer market in India is worth about Rs 2000 crore and is currently catered by two MNC players. And the company will be the 3rd player.
Dry type transformers target market is OE segment where the transformer will be used in a product such as higher capacity UPS in large data centre or Solar inverters in renewable projects. So the market addressed by existing transformer players such as CG, ABB, Alstom etc are different to that the dry type transformer market addressed by the company and its peers. Competitors in India are Namura and one more Italian company.
Latching relay – opportunity is very huge but the market has to mature as it is getting used in smart energy meters. The company is negotiating with an overseas player for technology.
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