Salzer Electronics LtdQ2 FY23Electrical Equipment

Salzer Electronics Ltd

Q2 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 2

Fundraise

N/A

Order

N/A

Capex

Yes

1 of 3 growth signals are positive — mixed outlook.

Full analysis

Revenue guidance

Category 2

→Salzer Electronics projects a revenue growth of 20% to 25% for the current financial year.
→Confident of doubling turnover in the next 4 years; possibly achieving it one year earlier if conditions are favorable.
→Expects export share to remain stable at or above 26%, supported by new products and expanded geographies.
→Wire & Cable segment anticipated to grow 18% to 20% annually with focus on improving EBITDA margins.
→Growth driven by continuous product innovation, expanded customer base, and entry into new markets.
→Macro-economic factors and increasing investments in India favor business growth.
→Capacity utilization ranges between 60%-80%, implying potential to scale revenues without major capex spikes.
→Annual capex typically ranges from INR 10-15 crores to support expansion and product development.

Margin guidance

Category 2

→EBITDA has nearly doubled in the last 4-5 years, growing from INR50 crores in FY19 to INR92 crores in FY23.
→Management projects 20-25% revenue growth for the current financial year (FY24).
→Focus on improving EBITDA margins from sub-10% blended levels, especially targeting Wire & Cable margins to revert back to 7.5%-8% by year-end.
→PAT margin expected to cross 4% in this financial year.
→Company aims to grow revenues by at least 20% annually to support margin expansion.
→Plans to improve return on capital employed (ROCE) to 18% within next 2 years by reducing working capital and improving margins.
→Growth driven by new products, customers, and geographies.
→EBITDA margin expected to improve by 100-150 basis points compared to last year.
→Enamelled copper wire business to grow 5-10% this year, limited by capacity constraints.

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Fundraise plans

→There is no explicit mention of any current or planned new fundraising through debt or equity.
→The company expects to maintain the current level of debt for the financial year due to long working capital cycles post-COVID.
→Efforts are ongoing to reduce working capital days and bring down debt gradually.
→Historically, capex ranges between INR 10-12 crores annually with occasional fluctuations, aimed primarily at maintenance and capacity expansions.
→No concrete plans for equity fundraising were discussed, though growth and margin expansion remain key focuses.
→The company is cautiously monitoring market conditions, including potential global slowdowns, which may influence future funding needs.

Order book

The transcript provided does not explicitly mention the current or expected order book or pending orders for Salzer Electronics Limited. However, based on the discussions: - The company is experiencing growth due to new products, customers, and geographies. - They expect to double turnover in the next 2-3 years with ongoing capacity expansions. - Growth drivers include switchgear and Wire & Cable businesses with 18-20% growth expected in cables. - The management remains cautiously optimistic amid global economic uncertainties, aiming to grow revenues by at least 20% to expand margins. - Supply chain issues that affected previous order fulfillment are easing, suggesting improved order processing ahead. No specific numeric details on order backlog or pending orders are provided in the transcript.

Capex plans

Yes

→Historically, Salzer Electronics has made capex of INR 10-12 crores annually, sometimes going up to INR 15-20 crores, and sometimes as low as INR 8-10 crores.
→The company plans to continue this level of capex mainly for maintenance and dynamic capacity expansions, particularly in the switchgear segment.
→With existing land, buildings, and infrastructure, the current capacity and planned capex are expected to support doubling turnover from FY '23 levels within the next 2-3 years.
→No concrete plans yet on entering the smart meter business, but the company is evaluating this opportunity and expects to update in a couple of quarters.
→Overall, continuing capex around INR 10-12 crores yearly is planned to support growth and margin expansion.

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