Salzer Electronics Q3FY18 Concall Summary

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About the company 

  • Incorporated in 1985
  • Collaborated with the German Salzer, the manufacturer CAM operated rotary switches
  • Evolved from a single product company to a complete customized electrical solutions provider
  • Technical associations with the reputed companies across the world
  • Deals in high quality products of international standards
  • Associated with Larson & Toubro from 1993, Plitron from Canada in 1995 and with Trafomodern model from Austria in 2016
  • Focused on getting into niche and of great value technologies
  • Has a preferred vendor status with global giants like GE and Schneider
  • All the products are international certified
  • Operate under electrical and electronics segment
  • Classifies business into four different divisions-
  1. Industrial Switchgear Division
  2. Copper, Wires and Cable Division
  3. Buildings Segment Division
  4. Energy Management Division
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Financial Highlights

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  • Financials restated as per Indian Accounting standard, Ind-AS
  • The net revenue from operations stood at 111 crores
  • In Q3FY2018 year on year growth of 22% seen as compared to Q3 FY’17
  • Exports contributed to around 18% of the revenues
  • Demonstrated growth in revenues in Q3FY2018
  • The growth mainly driven by a good pick up in industrial switchgear business and higher demand in the agri cable market
  • The EBITDA for Q3FY2018 stood at nearly 14 crores ascompared to 10 crores in Q3FY2017, showing a growth of 39%
  • The EBITDA margins improved by over 150 basis pointsto 12.2% on a year on year basis
  • Better product mix and increased exports to North Americabeing the reasons
  • The profit after tax is at 5.3 crores in Q3FY18 as against Rs. 3.4 crores in Q3FY2017 giving a growth of around 57%
  • Short term borrowing 100 crores and long term 10 crores
  • Cash on the books around  19 crores
  • Working capital required, but won’t increase in thesame pace, as mentioned in the previous quarter
  • Target is to come down to net working capital of around 90 days from 120days in March 2017
  • Expected to be down by 15 days in March 2018
  • Target is to go down another 15 days
  • The debt as working capital debt might go up if the turnover jumps by 20-25%
  • As a company net working capital utilisation will be coming down.
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9MFY18 Performance

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  • The net revenue from operations stood at 316 crores in 9 months for FY’18
  • The year on year growth ofnearly 16% seen as compared to 9 months FY’17
  • Export contribution stood at 18% of the total revenues
  • The growth in the revenues has been driven bybusiness of industrial switchgear and also wire and cable
  • EBITDA for 9 month FY’18 was at 37 crores with an year on year increase of 12%
  • The PAT increased by 16% to Rs. 15 crores in 9 months FY’18

Breakup Of Revenues

The industrial switchgear division

  • In Q3FY18, 49% of revenue came from the industrial switch gear business with 16.5% of EBITDA
  • It is at 46% for 9MFY18
  • Positive outlook with GST regime in place
  • Witnessing early signs of revival in the switchgear buSinead
  • Received very good enquiries from large OEMs for switchgear products and new products like wire harness and three phase transformers
  • The high standards ofquality will improve the demand significantly
  • Three phase dry type transformers looks promising
  • Industrial switch gear business EBITDA margin between 14 and 16%
  • With revenue share of the industrial business going up,the EBITDA margins get better
  • The industrial switch gear segments has products at higher and lower EBITDA,so, the product mix was quite strong

Wire And Cable Division

  • Second largest contributed to revenue in Q2F2018. Copper business was at 45% revenue at 7.5% EBITDA
  • Focus has been to do brand labelling for major brands
  • Salzer is branding for Larsen and Toubro, CromptonGreaves Consumer Product Ltd. Texno, Efab and a few other companies
  • In previous 2 years, focused on giving value added products likeelevators travelling cables, hoist cables, UL listed wires to various other customers
  • Contributed 45% of total revenues during Q2F2018
  • Contributed 49% in 9 months FY’18
  • Wire and cable business EBITDA margin between 7 and 8%

Building Segment Product Division

  •  The only B2C business
  • Contribution to total revenue remains small
  • contribution in the next 2 to 3 years is expected to be around 10% levels
  • Have new opportunities in the real estate sector where annual ratecontracts with major builders in Karnataka and Andhra Pradesh were received
  • Contributed around 5% of revenues in Q2F2018 and for 9 months FY’18

Energy Management Division

  • Booked revenue of nearly 1 crore constituting about 1% of total revenues
  • Contribution is at 1% on 9 monthly basis
  • This revenue were some spill-over invoicing on the project being done for 4 corporations in Tamil Nadu
  • Focus on achieving profitable growth by adding newer products which are customized, andvalue added in nature
  • Newer geographies to be explored which can yield bettermargins
  • Constant lookout for revenue opportunities for technical associations to strengthen the base of product offerings
  • EESL to come out with alarge tender to be around approximately 200 croreste.Plan to participate in the tender
  • Will have some news by end of Q4

Copper Price Volatility

  • Very well protected in terms of pricing fluctuation
  • Operated on a monthly average pricing rather than on a daily price basis
  • Bought on monthly average and sold on monthly average and changesare passed onto the customera
  • No fixed contract price on the wires. It’s based on average price


  •  Exports to Europe and US gives better margins compared to Indian markets and also exports to Far Eastand Middle East.
  • In Q3FY18, exports to US contributed around 6%, as againstnormally 3.5 to 4%. Going forward this trend should continue
  • Wire and cable business revenues to go up
  • EBITDA marginsshould be remaining in the same level or 0.2 to 0.3% down from these levels
  • The full year FY18 to close at about 11.5-12% EBITDA marginwhich is there for 9 months as well
  • A 16% top line growth expected to be close at around18% top line growth
  • The three phase dry type transformers, enabled to get into new verticals like solar, solar inverter,UPS and railways
  • A good order and flow, or good query for the product in themarket 

New Products AndOutlook For FY19

  • The industrial activities are gettingbetter and picking up
  • Added three phase transformers
  • Added the wire harnessing for the industry
  • The contribution from these twonew products expected to grow significantly in FY’19
  • FY’19, the 50% of revenue will continue to happen from industrial switchgear business
  • Wire and cable to be around 45% and the rest of the business to be the balance
  • Revenue outlook for FY’19 to be around20% or 18-20%standalone outlook
  • Should not be less than 530 crores for FY’19

Reason For Margin Expansion

  • Certain products give higher and certain give lower margins
  • In Q3FY17 exports were down in the high margin area.That change gave better margins in current quarter
  • In Q3FY18 US contribution was almost 6% compared to only 2% in Q3FY17
  • In Q3FY18 Europe contribution was around 5.5% against 4% in Q3FY17

Industrial Switch Gear

  • After GST a reasonably consistent demand coming fromvarious industrial sectors in India
  • Hoping the growth to be sustainable

Overall Traction

  •  Salzer was at a 9 crores level after 9months in FY2018
  • Should be able to be closing at least 14 crores business in FY2018
  • At 14 crores 15-16% capacity being utilized
  • Plan to do at least double the utilization or little more
  • For all the projects, 1/4th billing around 8 to 10 croresexpected to happen in Q4
  • Also expecting some new orders to come
  • EESL to come out with a new tender

Dry Transformer Targeting

  • The demand is good and the product is good
  • Unlike selling on a retail segment, selling in to technicalindustries takes a bit more time
  • Estimation is 30 crores target but should be able to do a little more
  • Originally the target was to reach 90 crores in 3years
  • The target is still the same and going to change
  • It is being pushed to double this every year
  • Should be able to do around 40-45 crores also

Opportunity For Technical Association

  • Always on the lookout for new generation products
  • Waited for three phase transformers and got a good partner on the technical side to back up
  • Likely, looking atvarious other segments of product
  • If given opportunity, readyto tie up with companies abroad

Adding Of High Margin Products

  • All the industrial products are being exported
  • Switch gear products are better margin than the wireand cable business
  • Trying to export these products to as manycountries as possible
  • • The world market demand is definitely better, and growing

Plans To Diversify

  • The scope of the business activity expansion was nothing in part
  • Need to ensure to be covered up in terms of memorandum of articles
  • Focus to remain in core electrical business
  • Focus is mainly on industrial switch gear and on wires and cable

Retail Level From Housing Segment

  • Not great till end of Q3FY18
  • Things are expected to getbetter

GE Transportation 

  • GE transportation, already have a contract in place for the Indian factoryof GE
  • A small business of 10 crores business for 10 years so, 1 crore per year for supply of contactors
  • The opportunity looking for is to get through toUS GE transportation
  • Business is expected to start rolling on from FY2019
  • Expect to add three phase dry type transformers with contactors to both India and US
  • The expansion will be three phase near the contactors
  • The realization of margins would be much betteronce entered
  • Already supplying to large clients in thesolar inverter industry and to railways
  • Both metro as well as the regular train engines, electric locos.
  • Couple of customers into recycling machine manufacturers gave some orders

  Salzer Magnet Wires merger

  • Announced acquisition of Salzer Magnet Wires in the previous quarter and is in the final stages
  • The shareholders of boththe companies have approved the transaction
  • Final closure with transaction should happen in Q4FY18
  • On completion, it will give a good boost to top and bottomline
  • Will also help to expand customer base and reduce cost
  • Three phase dry type transformer been widely accepted
  • New customers from new industry verticals like solar, UPS, recycling industry and railways to be added
  • FY’18 financials will be with the merged figures
  • FY’18 top line is expected to go up by at least 50 crores in the top line
  • Bottom line is expected to grow at least by one and half to two crores
  • Will add 10 to 12 crores of debt from the company
  • After the merger, new products will be launched while some of them have been already launched


  • Capex for FY18 should be around 20 crores and FY19 should be around 8 to 9 crores
  • Normal maintenance capex should be between 8 and 9 FY19
  • The debt same level like last year March
  • For FY19 the debt should be flat plus 10 crores of acquisition
  • Debt should be by next year should be 130 crores.