Salzer Electronics, a company engaged in manufacture of electrical installation products has registered 60% leap in its net profit for the quarter ended June 2015 on a sales of Rs 91.14 crore, a rise of 33%. Strong growth at bottom-line is largely on account of good operating performance as well as lower interest and depreciation cost as proportion to operating profit. But for higher tax incidence the growth at bottom-line would have been much higher than reported.

• The value of production for the quarter was higher by 33% to Rs 87.98 crore even as the operating income (excluding other operating income) was up by 35% to Rs 89.55 crore. Sales higher than value of production for the quarter reflects liquidation of earlier period inventory. Other operating income was down by 27% to Rs 1.59 crore and thus the total sales were up by 33% to Rs 91.14 crore.
• Higher sale for the period was powered by industrial switchgear, copper and energy management business. While the revenue of building products was down by 14% to Rs 3.40 crore, that of industrial switchgear, copper and energy management was up by 18%, 12% and 550% respectively to Rs 40 crore, Rs 32.30 crore and Rs 15.90 crore. While the energy management has increased its contribution to sales from meager 4% in corresponding previous period to 17% in Q1FY16, that of industrial switchgear, building products and copper has came down by 500 bps, 200 bps, and 700 bps over a year ago.
• Operating profit margin expanded by 90 bps to 13.6% and this can be explained by lower staff and other expenses. Material cost as proportion to sales net of stocks was up by 40 bps to 70.2%. But the staff cost and OE was lower by 30 bps (to 4.4%) and 120 bps (to 11.6%) respectively.
• Other income was up by 232% to Rs 0.55 crore. The interest cost and depreciation was up by 33% (to Rs 4.15 crore) and 17% (to Rs 2.04 crore) in absolute terms but as proportion to operating profit they stood lower to 33.4% (from 35.9% in Q1FY15) and 16.4% (from 20.1% in Q1FY15). Thus the PBT was up by 69% to Rs 6.77 crore.
• Taxation in absolute terms more than doubled (up 103%) to Rs 1.72 crore. And the tax rate too stood higher at 25.4% compared to 21.1% in corresponding previous quarter. Thus the PAT stood lower by 60% to Rs 5.05 crore

Yearly performance

Standalone sales were higher by 16% to Rs 283.30 crore. But with operating margin expand by 10 bps the operating profit was up at Rs 35.46 crore, a rise of 17%. After accounting for higher other income, higher interest and depreciation, the PBT was higher by 45% to Rs 16.97 crore. Taxation was higher by 54% to Rs 4.99 crore and thus the PAT was higher by 42% to Rs 11.98 crore.

Recent Developments

Salzer entered into a technical alliance with Trafomodern, an Austrian company and one of the leading manufacturers of transformers in Europe. Salzer will use Trafomodern's Technology and design to manufacture Dry Type, Air Cooled Transformers, Chokes and Inductors in India. The Company will set up manufacturing facilities for transformers in Coimbatore.

Salzer raised Rs. 62.06 crore of capital successfully through Qualified Institutional Placement (QIP). The Company issued 26.41 lakhs shares at Rs 235 per share, resulting in dilution of 24% of the capital base. The QIP was very well received resulting in well diversified representation and demand. Allocation – 55% FII and 45% domestic mutual funds. Post issue, book value stood at Rs 132.73 per share. The QIP proceeds will be used for new product development and growth plans of Company.

L&T, an equity investor since 2007 has exited their stake in Company, in line with their strategic decision to exit all non-core investments made over the past several years. However, this has no effect on the business and marketing relationship that Salzer and L&T has over the last 25 years.

Management comment

D. Rajesh Kumar, Joint Managing Director and CFO of the company commenting on the results said, "We have posted a strong set of numbers this quarter. With new developments and expansions, the profit of the Company has increased by 58%." He further added, "Our technical alliance with Trafomodern will help us expand our product portfolio. We will start to manufacture dry type transformers in India for our customers here and abroad. The Company has aggressive plans to expand its presence both within India and overseas into new regions. Last month we raised capital of Rs. 62 crore through a QIP and will be using this capital to invest in on-going and new projects."

The stock hovers around Rs 290.