Salzer Electronics Limited Q1 FY25 Earnings Conference Call Insights

Key highlights from Salzer Electronics Limited (SALZERELEC) Q1 FY25 Earnings Concall

• Financial Performance
  • Revenues increased by 24% year-on-year to INR357 crore.
  • EBITDA grew by 28% to INR33 crore.
  • EBITDA margin improved by 34 basis points to 9%.
  • Profit after tax increased by 45%.
  • Export revenue grew by 37%, contributing 26% of total revenue.
• Market Outlook
  • Indian switchgear market projected to grow by $4.14 billion with 7.5% CAGR from 2023 to 2028.
  • Growth driven by renewable energy, building projects, and grid expansion.
  • Global switchgear market expected to reach $117 billion by 2028 with 6.5% CAGR.
  • Positive outlook for wire and cable industry due to India’s renewable energy targets and infrastructure investments.
• Smart Meter Development
  • Installation of machinery and testing equipment at smart meter factory completed.
  • Factory test lab received NABL and IIS certifications.
  • Smart meters being evaluated by seven AMISPs in India.
  • Advanced discussions underway to secure orders.
  • Challenges include resistance to smart meters and potential installation delays.
• Saudi Arabia Subsidiary
  • Plans to establish a wholly-owned subsidiary in Saudi Arabia.
  • Will manufacture fast-moving products locally.
  • Aims to meet local demand and provide duty-free access to GCC countries.
• Kaycee Industries Performance
  • Sales grew by 11.5% to INR12.6 crore.
  • EBITDA increased by 48% to INR2.2 crore.
  • PAT improved to INR1.5 crore from INR0.93 crore.
  • PAT margins improved to 11.93% from 7.7% in the previous year.
• EV Charger Manufacturing
  • The company is still in the development and testing stage for EV chargers.
  • The company’s subsidiary Kaycee Industries has taken a 30% stake in a fast-charging manufacturing company in Hyderabad.
  • The focus is on securing orders and proving quality for the smart meter factory.
  • The company is open to participating in tenders for EV chargers.
• Smart Meter Business
  • The company expects to start generating revenue from smart meters in the second half of the current year.
  • The company is targeting around 200 crores in revenue from smart meters this year and 1000 crores in the next full financial year.
  • The expected EBITDA margin for the smart meter business is around 14% at full utilization, and around 11% in the current financial year.
• EV Charger Business
  • The company currently owns a 60% stake in the EV charger JV.
  • The EV charger market is still evolving, making it difficult to provide long-term growth projections.
  • The company is continuing to invest in the EV charger business through its subsidiaries, based on the potential in the Indian market.
• Product Mix
  • The company expects the product mix to be 53-55% for industrial switchgears and 40-43% for wiring cables in the current year.
  • The smart meter business is expected to contribute around 30-40% of the company’s revenue in the next full financial year.
  • The company is trying to increase the revenue contribution from the building segment to around 10%.
• Building and Wiring Segment
  • The company has been trying to increase the contribution from the building segment, but it has been confined to the southern five states.
  • Focused on making the segment a INR100 crore revenue segment with no additional capex.
  • The dependence on white-labeled products has reduced from around 80% earlier to around 60% or less in the last year.
  • SALZERELEC is onboarding more customers for its Salzer branded cables, which have better margins compared to the white-labeled products.
• Business Potential
  • Confident of achieving INR1000 crores in smart meter revenue in the next financial year.
  • Company sees opportunities arising from integration issues and installation challenges faced by AMSPs, which it is prepared to overcome.
  • The known smart meter demand in India is around 25 crore meters, while the current supply capacity is around 3 crore meters.
• Copper Price Volatility Impact
  • The fluctuations in copper prices have been challenging to manage, leading to a 2% drop in EBITDA margins in the wire and cable business.
  • The company manages by monthly average trading, but sudden price spikes during customer orders can’t be fully controlled.
  • The situation has started stabilizing in the last two months, indicating the pressure from copper price volatility may ease going forward.
• Saudi Arabia Plans
  • The company is setting up a manufacturing plant in Saudi Arabia.
  • Idea is to meet Saudi Arabia’s 40% local content requirement, despite higher manufacturing costs.
  • The company is testing the Saudi Arabian market, weighing political and policy risks, but sees opportunities as other foreign OEMs invest.
• EV Charger Manufacturing Progress
  • The company’s EV charger subsidiary is struggling to meet Indian standards, facing final testing and software challenges.
  • The company has invested around 1 crore so far and is not expecting any major further investments until the product is proven.
  • Delay due to reliance on foreign collaborator’s proprietary technology.
• EBITDA Margin Outlook
  • The company expects to maintain an EBITDA margin of around 10-10.5% in the current year.
  • Without the smart meter business, the company believes it can reach an EBITDA margin of 11-11.5% in the next two years.
  • With the addition of the smart meter business, the company aims to reach an EBITDA margin of around 18% in FY26-27.