Salzer Electronics hosted a conference call on Nov 11, 2022. In the conference call the company was represented by Rajesh Doraiswamy, Joint Managing Director and Murugesh, Joint Company Secretary.

Key takeaways of the call

Growth in sales in Q2FY23 came in primarily from industrial switchgear products as well as Building Products businesses especially in high demand products like Toroidal Transformers, Three phase Transformers, LAN Cables, Sensors, & MCB’s.

Seeing good growth coming in from Industrial switchgear and Building products businesses and witnessing substantially higher demand in many key products from these two businesses.

Three phase dry type transformers are well accepted in the market and orders have started to flow in. The company sees strong demand for this product particularly from renewables and machine tools.

EBITDA margin for Q2FY23 stood at 10% against 9.5% in Q2FY22. With raw material prices stabilize, the company start seeing the benefits of its price hike translate into better margin quarter on quarter.  Moreover the company is also expecting to reduce raw material consumption in coming quarters.   

Industrial Switchgear – This business accounted for 57.61% and 53.15% of net revenue in   Q2FY23 and H1FY23 respectively. The EBITDA margin for Q2FY23 was at 12.5% (160 bps increase from 10.9% in Q1FY23) and 11.8% in H1FY23. 

Revenue of Wire harness business grew by just 4%YoY in Q2FY23 disturbed by shortage of electronics components and chips which impacted the operations of customers. 

Contribution of Wires & Cables to net revenue was 34.15% in Q2FY23 38.87% in H1FY23.  C&W business revenue grew 8.9%yoy in Q2FY23.  As majority of the C&W business revenue of the company comes from agri market, the good monsoon led to slowdown in demand for agricultural cables.   The EBITDA margin in Q2FY23 is 7.71% up 100 bps on QoQ basis.

Contribution of Buildings Electrical Products to net revenue stood at 8.25% in Q2FY23.  This is the only B2C business of the company where it sells many electrical products for building segments.  Expect growth momentum to improve for this business going forward thereby increasing its contribution to overall sales.    The EBITDA margin for this business is also slowly turned positive with H1FY23 EBITDA margin of it stand at 2.7% against a marginal 0.15% a year ago. 

Contribution from Exports for Q2FY23 and H1FY23 stood at 25.41% and 23.15% respectively.

Exports revenue grew 18.3% and 24.2% for Q2FY23 and H1FY23 driven by higher exports to Middle East Africa, North and South America and Europe.

In the near future not expect high growth from NA and Europe but expect stable business due to geo political tension, inflation and talk of recession.  Exports to US and Europe were up 22% and 25% in Q2FY23 on YoY basis. Europe is the biggest market for the company. The company is growing at 15-20%YoY for last few years and that may moderate as per the interation with the customers. Both North Americas and Europe the company clocked a revenue of Rs 60 core.

Recently received two patents for duration of 20 years – one for integrated cam operated rotary switches, which is a legacy product contributing substantially to top line and another for MPCB. Such developments help protect our intellectual property and boost our efforts in R&D and product development.

EV Segment- Started 2 new JVs for EV charger and Conversion kits.    Seeing traction in EV charging space with fully Indian built DC fast charger ready for testing. The EV charger is expected to be ready for sales by March 2023.  However the Conversion Kits JV is facing initial teething issues and by end of next quarter will have more updates on this vertical.

KC Industries – Performance of it is improving since its acquisition with strong sales with EBITDA and PAT margin of 11.2% and 8% respectively.  Expect KC industries to clock revenue growth in the range of 30-35% YoY quarter after quarter going forward.  At the time of acquisition KC Industries was doing an annual sales of Rs 23 crore. Since the acquisition was made just before Covid the operations we impacted and now it has rebounded and improving with the support of Salzer.  In H1FY23 the sales of KC Industries were Rs 20 crore with 8% PAT.  As both Salzer and KC are competitors by working together gained market share in certain markets and got better pricing.   

Update on fund raising: To issue convertible share warrants (17 lakh warrants  convertible into one share share each)on preferential basis to  promoters at a price of Rs 278.5 which will result in increase in promoter stake from current 32% to 38%.  The proceeds from this issue will be used for capex and meet WC needs. 

The target of consolidated revenue of Rs 1000 crore and PAT of Rs 40 crore for FY23 is very much on and the company is working hard to achieve it.  

Going ahead, based on domestic as well as export outlook and strong product offerings the company expects to   maintain its growth trajectory.