Salzer Electronics Limited (517059) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sagar Electronics Limited Q1 FY '27 Earnings Conference Call. Please note that this conference is being recorded. I now hand the conference over to Mr. K. Raman, Chief Financial Officer from Sandler Electronics Limited. Thank you, and over to you, sir.

Good morning, everyone, and thank you for joining us today to discuss the unaudited financial performance for the first quarter year ended 30th June 2026. I have with me Mr. Rajesh Kumar Dureshwani, Joint Managing Director; Mr. Siva Kumar, Assistant Vice President, Marketing; Mr. Dalari,stident Business Development; Mrs. Menaka, General Manager Accounts; and Mr. A. M. Murz, Company Secretary; and Mr. Jitanakedia, Non-Executive Director, KC Industries. I shall now take you through the consolidated financial performance for the quarter ended June 2026. During the quarter, our revenues increased by 13% year-on-year growth to INR 498 crores from INR 441 crores in the previous corresponding period. This growth was mainly driven by higher demand for industrial switchgear, wires and cables and Building Products division business mainly due to high demand products like 3 phases transformers, wire harness, relays and new products like contactors, et cetera. Contribution from exports at approximately 18.6% EBITDA excluding other income was INR 31 crores in Q1 2027 as against INR 42 crores in Q1 FY '26. The EBITDA margin for the quarter stood at 6%. The profit after tax was INR 8 crores in Q1 2027 as against INR 17 crores in Q1 2026. PAT margin for the quarter stood at 2%. Moving on to the breakup of revenue as for the business divisions. The Industrial Switchgear division contributed 54% of the total revenue in this quarter. This business grew 10% year-on-year in Q1 2027. The EBITDA margin for this business division stood at 8% in Q1 2027. The Wire & Cable division contributed nearly 40% to our revenues this quarter. There is an increase of 11% on year-on-year growth in this division during the quarter. EBITDA margin for this division stood at 5% in Q1 2027. The Building Products division has contributed 6% to our revenues in this quarter. There is an increase of 48% year-on-year growth in Q1 2027. On the exports front, for this quarter, the export share of revenue was nearly 19% in Q1 2027. Now I'd like to hand over now to Mr. Rajesh to take us through the business development and -- thank you.

Thank you, Mr. Raman. Good morning, everyone, and a very warm welcome to Salzer Electronics earnings conference call for the quarter ended 30th June 2026. Thank you all for taking time to join us today. We have shared our results update presentation and media release, and I hope you have received and gone through the same. I would like to begin by giving you an overview of our business performance, key operational developments and the opportunities that we see ahead. Before discussing our individual business segments, I would like to briefly touch upon the broader environment in which we are operating at present. Globally, the operating environment continues to remain mixed and volatile. While global economic activity has demonstrated resilience, businesses continue to navigate trade policy uncertainties, geopolitical developments, changing tariff structures, the West Asia conflict and volatile and a very high raw material prices. The IMF's latest July 2026 outlook projects global growth at around 3% in 2026, followed by an improvement to 3.4% in the coming year 2027. At the same time, global economy continues to face risks from geopolitical tensions, supply chain disruptions and elevated inflationary pressures. For an electrical equipment manufacturer like Salzer, the global environment has a direct impact, particularly through copper, silver, aluminum and other key plastic raw materials as well as through freight, currency movements and export market demand. During the quarter, we witnessed elevated and volatile input costs, particularly in copper, silver and aluminum. These commodities are important inputs across several of our switchgear components and products like transformers, contactors and other switchgear products. This environment resulted in margin contraction during the quarter. However, importantly, we continue to see healthy underlying demand, and we are addressing input material inflation through sourcing efficiencies, calibrated pricing actions of our finished products and operational efficiencies. Coming specifically to India, we remain positive about the structural outlook for the electrical equipment industry. India is going through a significant phase of electrification, infrastructure development and energy transition-led investment. The electrical and allied electronics industry is closely linked to investment in power transmission and distribution, manufacturing, infrastructure, railways, renewable energy, data center boom, real estate and industrial automation. According to IEMA, the transmission and distribution segment accounts for approximately 65% of the Indian electrical and allied electronics industry, highlighting the importance of India's ongoing power infrastructure expansion. The Central Electricity Authority's latest data also reflects the continued expansion of India's power infrastructure. In May 2026 alone, India added approximately 3,500 megawatts of renewable capacity, 1,120 kilometers of transmission lines and 7,200 megawatts of transmission capacity, while peak demand reached approximately 270 gigawatts. We believe this continued investment in the electricity ecosystem creates a favorable multiyear demand environment for electrical equipment manufacturers like Salar. Another important structural trend is the increasing intensity of electricity consumption across the economy. India's transition towards renewable energy, electrification of mobility, data center expansion and industrial automation is increasing the requirement for efficient, reliable and intelligent electrical infrastructure. This creates opportunities for all of Salzer's product lines. IEMA estimates significant future requirements around battery storage, EV charging infrastructure, railway electrification and smart city infrastructure, which reinforces the broader opportunity for companies operating across the electrical ecosystem. For Salzer, this transition is particularly relevant because we are progressively expanding from being a traditional electrical component manufacturer towards a broader electrification and energy management platform. Now coming to our key updates on the recent developments in the last quarter. During the quarter, we continued to strengthen our strategic investments in emerging businesses and technologies. We made an additional investment of INR 13 lakhs in our wholly owned subsidiary, Saldari Infra Private Limited, taking the total investment to INR 93 lakhs. We also invested an additional INR 1.68 crores in Athilium Private Limited, an associate company, increasing our total investment to INR 4.2 crores and our equity stake to 47%. These investments reflect our continued focus on building capabilities in emerging areas and creating new growth opportunities that complement our core electrical solutions business. Coming to our newer growth businesses, our export contribution currently stands at approximately 19% in Q1 FY '27, and we are working towards increasing this to back to 25% over the medium term. We continue to see opportunities across U.S., U.K., Europe and Middle East, particularly for our engineered switchgear and electrical products. The changing global tariff environment is also creating opportunity for Indian manufacturers as customers increasingly diversify their supply chain. Our subsidiary, KC Industries continues to perform well. KC's top line grew 8% year-on-year in Q1 FY '27. EBITDA stood at INR 2 crores and PAT at INR 1 crore during the quarter ended. Before I conclude, I would also like to address the margin performance of Salzer in Q1 FY '27. As we mentioned earlier in this call, the primary reason for the pressure on margins during the quarter has been the sharp increase in key raw material costs, particularly copper, silver and plastics, coupled with the lag in the full pass-through of these cost increases to the customers. This is an industry-wide challenge rather than a salvo-specific issue. While we expect the second quarter to continue witnessing some pressure, we believe it should be relatively better than Q1 as our pricing actions gradually take effect. Subject to raw material prices remaining stable, we expect margins to start normalizing from the third quarter this year onwards. Having said that, FY '27 is likely to remain a challenging year given the global macroeconomic environment, geopolitical uncertainties, which disrupts the supply chain and continued volatility in commodity prices. We remain confident that our diversified business model, strong customer relationships, disciplined cost management and focus on value-added products will help us navigate these near-term headwinds. At Salzar, our approach has always been to build a business for long term. While quarterly results may be influenced by short-term factors such as commodity price volatility, exchange fluctuations, pricing cycles and broader macroeconomic environment, our strategic priorities remain unchanged. Over the last 10 years, Salzer has delivered a revenue CAGR of nearly 17%, while over the last 5 years, our revenue CAGR has accelerated to 23%. Similarly, PAT has grown at over 20% CAGR during the last 5 years. We believe these numbers demonstrate our ability to consistently create value over the long term despite periodic short-term challenges. We continue to invest in new products, technologies, manufacturing capabilities and exports and emerging businesses that will create sustainable value over the coming years. Before I conclude, I would like to thank the entire team at Salzer Electronics for their dedication and hard work. I also thank all our stakeholders, our customers, suppliers, bankers and shareholders for their continued trust and support. This is all from our side for now. We would now be happy to take your questions. Thank you.

The first question comes from the line of from MK Investment.

In our investor presentation, it is mentioned that our FY '27 EBITDA target is 10%. Can you please confirm?

I think that was expected to reach 10%. But looking at the current global scenario and with continuing West Asia conflict, and fluctuating raw material prices, I think we would turn it down to around 8% to 8.5% for this full year because we see this margin pressure to continue in Q2 also and normalize in Q3 and Q4. I think Q3 and Q4, we should be reaching 9% to 9.5%. But on an overall full year average, we should be at around 8%.

But while investor presentation is not actually going with the management looking into the business side, sir. So why your investor presentation and your con call are completely different tones...

I think we will and we will make the investor presentation.

I spoke -- I actually e-mailed to your particular company secretary and he's still arguing with us that it is as per management's commentary. So what we see, as a shareholder, we don't want all these 2 different things because our -- we are an investor group and our clients are actually demanding us. see why there is a discrepancy in the con call and the investor presentation.

Sir, we understood that. I think we will correct it. I got your point.

The current participant line is disconnected and we'll move to the next question. The next question comes from the line of Darshil Zaveri from Crown Capital. So just wanted to know, I think in Q4, we mentioned that you are doing price hikes in June, and we've done some price hikes for that also. So how much of that has been accepted? And what is still left, sir? Like if you could quantify that?

So we have done almost 3 price increases over the last 6 months. However, as we do the price increase, we always accumulate the pending orders, which -- so the price increase comes into effect after the already orders that have been taken. So there is always a lag in the pass-through. And that is the reason that is what we are seeing in the margin contraction. So whatever price increase we have done in April, it has been passed through. I think we have done some price increase in June, which will take effect, I think, from August. And we are proposing more price increase in August, which will take effect in September.

Okay. Fair enough, sir. But sir, just wanted to know, I think we're going to get some annuity income, right, from our energy management in Q2. So has that started in July? Or is it going to start.

It will be starting in middle of August. I think project is progressing as planned. And I think the project gets completed in July, we will start seeing the revenue from August.

Okay. So sir, just wanted to understand like if our base business, we are expecting around 9%, 9.5%, right, of EBITDA, maybe from Q3 onwards, not Q2. And our annuity income will also directly flow through our PAT, right? There will not be any cost attached to it, if I maintenance...

Cost will be attached to it, but minimal.

Minimal, right, -- so that way, our Q3, Q4 margins can be 10% because I don't know if the 9% is including annuity or just the base business because annuity will be significantly higher margin, right? So just wanted to get your thoughts on that, sir.

No, I think the annuity business is approximately INR 2 crores per month for the project, and that will flow through to us by around 50%. So it will not significantly change the percentage is what I believe.

So it will be for us in our books, it will be -- so if it's less than 50%, it will be recorded in P&L from JV or it will be recorded in a consol...

It won't consolidate, but I think as an associate company, we will get the revenues from the company.

Okay. Okay. Got it. Got it. Fair enough, that's it. And then just wanted to know like over the last 4 years, if I would see our top line has maintained the growth guidance that we have been able to do of 20% plus. But somehow our PAT has not converted to that level. It would be -- I understand that a lot of factors have not been in our favor. But what do you -- because right now, energy is the place where everyone is growing, right? So we just want to know that how can our company get back to the margins that it was that where the top line growth and the profit growth are also matching, right? I'm just talking especially from FY '24 to '26 and '27 continuing right now, right? Even '27 will have some margins. We used to do 10%, I think, and now we are at 6%. I understand like a lot of things are not in our control, but what can we do better? Because that's led to significant value destruction in our share price also, right? Are promoters planning a buyback or some stake increase that can give a signal to the Street or something? What are your thoughts on that, sir?

Sir, I agree with you. I think if you look at the -- that's why I mentioned about the CAGR in the 5-year period. I think in the 5 years, the PAT has grown close to around 20% CAGR. Though from FY '24, it has not been. And FY '23, if you see the CAGR has been reduced to around 14% per annum. But I think we have to understand for the last 2 years, there has been a margin pressure experienced and particularly in FY '26 last quarter. So that is one of the reasons that the CAGR in the last 3 years has reduced to around 14%. But having said that, I think we are in a very good sector where we are seeing very high growth, demand is good. That is the reason that revenues started to grow significantly. And when this pricing normalization happens and the complete pass-through happens, I think we'll be back to the normal margin levels. And with all the product lines and the relationship that we have with our OEMs, we continue to see good demand coming for all our products, and we will be back to the normal levels by Q3 onwards.

Okay. Fair enough, sir. And just like just 2 other questions from my end, like this is more regarding our policy. So can we do a cost-plus policy where the RM gets passed through faster? Or -- because our copper and silver both are traded, can we hedge them somehow because maybe that could help us retain our margins, right? If we would have -- I don't know if we think we can have silver.

No, I think first question is your cost-plus model. I think we don't want to do a cost-plus model on our standard switchgear products. One of the reasons is that, that will make us open our costing sheets to our customers. So far, I think we have tried to avoid that. That also gives an advantage when the commodities are not fluctuating or not going up like what we have seen in the last 6 months. In a normal situation, we have an advantage because we don't open a cost sheet and the cost-plus model will be negative in a normal situation. So that's what we have seen. In that situation, I think we are trying to see how quickly we can pass through this kind of a fluctuated commodity price increase. So that is something that we are still working on, not just Salzar. I think almost all switchgear industry is struggling with this kind of a pass-through. And we are working on it, and we will try and see. Earlier, it used to be a quarter. Now I think we are trying to do it in less than 2 months pass-through. If we can shorten that further, I think we will not see much of a fluctuations, volatility in our margins. So that's what we are trying to do, one. Second, on the hedging, I think we normally try to avoid hedging the commodities, except for the stocks that we hold. I think that is the natural hedge that is created. It also works the other way around when the prices fall. If you take an example of silver, I think from INR 70 a gram, it went up to INR 400, and it has come down to around INR 250 now. So we can also be caught on the other side. So we normally, as a business policy, we don't hedge commodities, except for the stocks that we hold.

Okay. Fair enough, sir. And just in a new growth area, I think EV charging, we are -- I think we are looking to double the revenue -- and the smart meter business, if you could just comment something on that, sir. And I think Saudi Arabia also you are planning to commission. Is that underway? How is the scenario out there? So could you just comment on these 3, sir?

Saudi Arabia is definitely on the cards. However, I think there has been a delay in starting of the plant because of the West Asia disruptions. So we are now planning to ship our machines and equipments and start installation mostly by September, October. Hopefully, by that time, things can be much better in West Asia is what we believe. So we have planned to that time line. So otherwise, I think we should have already started from this April, May, but didn't happen because of the West Asia conflict. That is on Saudi Arabia. On smart meters, we don't have any new update other than what we mentioned in the last con call. We did a very, very small revenue from smart meters, close to around INR 3.5 crores from that plant. And we have no major updates in the smart meter as of now, but we continue to be positive to see how we can get a larger chunk of the business share from the market. On EV charging, I think things are progressing well. So far, I think there are close to around 160, 170 DC fast chargers have been supplied, shipped and installed across the country through various charge point operators. And we continue to see good demand coming in. And -- this quarter also, I think we expect that close to around 60 chargers will be supplied in Q2.

The next question comes from the line of Karan Mehta from Real Float Ventures LLP. So I just have a couple of questions more broadly about the business from a -- just from a structural perspective. So I guess my first question is just around the distribution part at Sulzer. And sir, if you could just help me kind of understand. So I do appreciate that you've added to the the talent bench with the hiring of a new CFO in the recent past. Could you also help me just understand the distribution and your sales organization in particular? I know that you have a strong linkage with the L&T's distribution channel. So how much would that be in proportion to your direct distribution? And if you could just generally provide color around how your sales organization is structured and what changes do you see on that front?

Sure, sir. Thank you very much. On the sales front, we have multiple sales fronts. I think we deal with an OEM front, and we deal with the B2B electrical wholesale business. We also have a B2C electrical wholesale business, and we have an export front. So these are the different marketing channels that we have. And as you said, we also have a very strong linkage and understanding with erstwhile L&T Switchgear division, which is now called YLK of part of Schneider. So the distribution that YLK does for us, I think it is close to around 15%, 1-5, 15% of our total revenue that goes through the YK distribution channel. And another -- I don't know the percentage, but we have General Manager and Vice President, Marketing, heading each of these distribution channels, like the B2C retail and B2B wholesale -- retail wholesale and the OEM. So there are different heads who are taking care of these channels, and there are teams across the country under these people. taking care of the business and reporting to them. On the B2C retail channel, which is our Building segment product that alone, I think we are operating only in the southern 5 states. And recently, we've expanded into the Eastern region like Jharkhand, Madhya Pradesh, Orissa, Chhaktiskar. So these are some of the new states that we have added on the B2C retail front. So this is the marketing structure that we have.

That's very helpful. Just any idea about the headcount strength in your distribution on the distribution side, just rough numbers?

So total overall marketing team strength, including all these channels, we have close to around 65 people, excluding the leaders.

That was very helpful, sir. And just as a separate point around reporting. So I also appreciate that the format of the presentation for this quarter includes a lot more kind of information about the industry environment and end markets. So we are operating in a number of high-growth end markets like renewables and data centers. And I was just wondering if it would be possible to break out the contribution from these segments, if not on a quarterly basis, then maybe on maybe a half yearly or annual basis. I think it would be helpful to just understand the company's evolution in these areas.

You mean to say about our customer segment, correct?

Yes. Like -- so what percentage of the revenue comes from like a data center or...

I understand that. We will try to include that and see -- because we have to -- we should have full data on that. But whatever information possible that we have and we will collect, we will try and project that at least once in a year or once in a year.

Yes, that would be very helpful because we are operating in the right segments, but it would just help us as investors to understand and quantify that piece. And just the last question is, are we benefiting from any government schemes? Obviously, there is a big push around creating domestic champions in the electronic and electronic component industry. So what schemes are we -- would you think we are benefiting from most at the government level?

Right now, there's nothing that we are benefiting. But I think we can apply for PLI or ECMS going forward. And on the EV chargers, there is a new policy that is come of PME drive. So there are some incentives for the users of the charges, not directly to us. Apart from that, I think we receive export incentives, and that's what we are enjoying right now.

The next question comes from the line of Shravan Modi from Syndicate Family Office. How do you see...

Your voice is breaking. Can you become -- can you be a little louder?