Salzer Electronics

I went through the recent concall but am not able to understand why this is now close to 52 week low. Vijay Kedia seems to have exited last year. Seems to be oversold to me and am thinking of taking a position here. Any idea what’s cooking here?

Disc - Not part of my portfolio yet.

Recently Promoters Holding have increased to 31% . Promoters are bullish on the companies prospect. 3 new investors too have added in last two quarters having more than 2% stake.
Disc- Invested

As per new Shareholding data Insiders holdings have increased.

Salzer entered into a joint venture with Kostad Steuerungsbau GmbH to manufacture DC Fast charging stations for electric vehicles (EV).

Salzer entered new JV with E-March LLP to manufacture electric conversion kits for vehicles

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Q3 Update:
Approximate realisation for conversion kit has been raised to INR 1-1.2 lacs, which was originally in the 70-75k range. The increase is mostly due to the cost of the battery and the motor.
With this increase, the price of the conversion kit will be almost 50% of the cost of a new e-rickshaw of the same power and speed.
Six more months before this gets launched. Will be interesting to see whether people go for new e-rickshaws or convert their existing diesel rickshaws. CNG rickshaws are also a very good option. At this point of time it is anybody’s guess how the rickshaw segment is going to pan out. I do see a lot of headwinds for e-rickshaws in the short term specially when there is no compulsion to convert.

  • Availability of charging infrastructure
  • Power and speed limitation
  • Significant conversion cost

Disclosure: Invested


Sharing a video covering Salzer Electronics in detail for all the members who want to get upto speed on what’s happening with the business.

Salzer is a sure shot proxy play on the super hot EV theme, in a market where clear winners have not emerged yet, Salzer aims to build on the need for infrastructure of the Electric Vehicle Industry and become a winner in the space.

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I read through the past four or five management comments, but the company does not practice what it preaches.
They set a goal of 1,000 cr for FY23, and this time they can make it happen.


AR 23 is a good read - Switchgear etc are seeing healthy demand and grew 40%+ incldg exports, higher probability case of 20%+ topline and much higher Ebdita growth(improving product mix + RM stability + better realization ) - overall a good proxy for electrical infra theme with good growth + some rerating possibilities,

  • New products (much higher margins) seeing good traction in exports with spike in export for 3 phase dry transformer and DP contactors volumes, should aid product mix improvement.


  • Industry & tailwinds - some tailwinds working in favor ofIndian players in expports particularly , CG Power in their concall has indiacted very high demand for switchgears and supply constraints giving visibility for future, to an extent that they are not able to fulfil given very large OB /enquiries. A possible tailwind here

  • switchgear projections indicate rapid expansion i

Price action Taken out ATH on charts and likely to do well from here

EV chargers - Mgmt calls EV chargers JV as high optionality case FY 25 onwards but need to be seen as project has seen some delays, though some good discussion in Q1 concall here on status updates and higher focus on fast chargers (not a crowded space like regular chargers) - space as a whole should see exponential growth in coming times. Their JV with EU player makes it less denting on capital reqmt.

  • Promoter also indicated raising holding in one of recent interviews - more connected to mkt perception than performance itself, if and when it happens will help further

D - invested


Growth is clearly visible in the numbers but the return ratios are disappointing .ROCE is around 10 percentage.Management is not walking the talk interms of working capital.Its increasing

Salzer Electronics Notes

Salzer Electronics Limited is engaged in offering Total and customized Electrical Solutions in Switchgears, Wires & Cables and Energy Management business.

End user demand

Financial Performance

  • FY23 revenue grew by 29 to 1013 Cr
  • EBITDA grew by 43% to 91 Cr and margins were at 9%
  • Subsidiary Kaycee industries grew 42% to 42.3 Cr and PAT grew 87% to 3.5 Cr

Product Mix

  • Industrial Switchgears at 54.3%
    • EBITDA margins ar 11.5% for this division
    • 3-phase dry type transformers grew 180% in FY23
    • Wire harness grew 18%
  • Wires & cables contributed 38% and grew 15% in FY23
    • EBITDA margins ar 6.5% for this division
  • Building product contributed 7%
    • EBITDA margins ar 2.7% for this division
  • In the switchgear business, 65% of the sales comes from the toroidal transformers, three phase transformers, rotary switches, wire harness, and isolators.
  • “Our segmentation in the wire and cable has been more into agri segment and our distribution is through Larsen and Toubro. And that’s the reason, given the agri segment is a seasonal market. So, when it goes up and down we are struggling. We’re trying to bring down the dependency on that particular product segment, but it is taking a time, it will take some more time before we see 8% to 10% margin improvements. 8% to 10% EBITDA margin in the wire and cable at least two years from now.”

Customers segmentation

  • Products are mostly sold under Salzer brand - “Majority of the business that we do is selling to them under our brand. But we also do certain branding businesses for some OEMs. But the majority of the business is we sell to them under our brand.”
  • Continue to see steady growth in exports to America, Brazil, Argentina, Chile
  • Exports to Americas grew 55% in Q4FY23
  • Exports contributed 26% in FY23, growing 42%
  • “Top 15 customers for us might be contributing around 45% of our sales approximately. That is the concentration that we have. We don’t have a single customer giving business beyond 10%. So, customer concentration is very, very low.”
  • 15%-19% business coming from renewables
    • “I think on the renewable side, we have good businesses coming from solar inverters, the business, solar inverter manufacturers for our transformers and Wire Harness. And we also get AC/DC contactors not for the renewable business, but for the HVAC market in North America. For that also, I said that I think this quarter onwards, we have started seeing the revenues from that business also.”

Demand drivers & outlook

Management Verbatim -

  • “On the switchgear front, growth was driven by high margin products like toroidal transformers, three phase transformers, wire harness, rotary cam switches, and isolators. All these comprised approximately 65% of our switchgear division sales.”
  • “There is a growing demand for a lot of projects such as roads, bridges, buildings. The government’s focus on Smart Cities development is also expected to spur demand for a lot of electrical products in our portfolio. Even the private investments continue to happen in a big way in India, which is also increasing the demand for all our products.”
  • “There’s increasing demand for renewable energy sources such as solar, wind, and hydro power, which has opened new growth opportunities and demand for switch gears, transformers, wires, and cables’
  • In first 3 quarters, experienced slowdown in W&C business due to high inflation and slowdown in agri market
  • Going forward from exports side, if US gets into recession, there will be an impact on Salzer business

External Links

CG power 120 Cr capex in power transformers and distribution transformers

Global demand to grow by 6%

Wire harness demand to grow because of EV push but industry is competitive


The global switchgear market size was valued at close to USD 90 billion in 2022 and is projected to reach USD 145 billion by 2031, registering a compound annual growth rate of 5.5% during the forecast period of from '23 to 2031.

The size of the Indian switchgear market was estimated at USD 9.75 billion in 2022. During the period 2023 to 2029, it is projected to grow at a CAGR of 7.12%, reaching a market size of USD 18 billion by 2029

Large TAM, small co no TAM concerns

Supply side dynamics

Product Pricing/RMs behavior

  • Company raised prices after RM price hikes to recoup margins and as RM prices are coming down, margins should improve
  • “We used to be at around 13%, 14% EBITDA margin levels in our switchgear products which considerably dropped to around 9%, 9.5% in FY22 because of the raw material price fluctuations. So, which we gradually started improving in FY23 and we are at around 11.7% as of today, “
  • “So, the more transformers that sell, then the blended margin inside the switchgear business will be slightly down compared to what we will sell more of the contactors or switchers and terminal blocks and things like that. So, there is a slight change in the EBITDA margin within the switchgear businesses, there are certain products like rotary cams switches or isolators or cable ducts that can give us 17% EBITDA or 16% EBITDA and there are also certain products like wire harness or three phase transformers or toroidal transformers for example, which will give us a 11% or 12% EBITDA and also sometimes we sell into certain sectors where we are new, where we have to get the business. So, then the price we have to be competitive, and the EBITDA margins in those sectoral sales also can be little down. So, that is the reason that we have not gone to 12%, 12.5% EBITDA margin, but we are at around 11.7%”

Differentiation/Value Proposition

  • Largest manufacturer of Cam Operated Rotary Switches, market leader with 25% share
  • Wide distribution network in 50 countries and access to L&T’s local network through more than 350 distributors
  • In-house manufacturing and R&D enables superior customization of products
  • Amongst few players in India, to offer total & customized electrical solution
  • Branding partner to various large OEM’s in India

Patent Applications

“There are certain products that we have applied patent for, like one for rotary switch again a new technology rotary switch we have applied patent, there are some contactors, some contactors we have developed new which we have applied patent for and there is also a wire management, the cable ducts we call but the broad name is wire management system, we have applied a patent for that. There are also new designs, new concepts which we have applied for patents.”

Switching Costs/Network Effects/Economies of scale

No concrete data but some indirect examples -

  • Preferred supplier to GE, Schneider and only approved supplier of Nuclear Power Corporation
  • Largest supplier of rotary and load break switches to Indian Railways


Fragmented nature of the industry with several players

  • Management on competition in toroidal transformers
    • “Toroidal transformer is nothing but a transformer, a little different transformer, it can replace the normal transformers in the market. So, any transformer, a small transformer, I’m not talking about the large transformers on the road, the distribution transformers but these are small equipment transformers that you see inside a stabilizer, inside a UPS that’s a common equipment that I can sight you can see it, a stabilizer a transformer inside a stabilizer, is a stabilizer which we can, a toroidal transformer can replace. A toroidal transformer is a little different in technology which is highly efficient, sometimes the shape and size can be adjusted to suit the requirement of the customer, these things cannot, it will have low magnetic noise, these advantages will not be there in a normal EI core traditional transformer. So, that’s the difference between a traditional EI core transformer and a toroidal transformer. So, in the competition there are hundreds of manufacturers of standard traditional transformers in the country. If you take toroidal transformers there used to be very few but now a lot of people have started making toroidal transformers also, because the whole technology people are converting from EI core into toroidal transformers because of the high efficiency and the advantages of flexibility in shape and size. That’s the difference between toroidal and transformers and application is wide application, medical equipment, any equipment. That’s a toroidal transformer that is being used.”
  • EV Fast chargers


Capital Allocation

  • Acquired 74% stake in competitor Kaycee industries in FY20 and business has scaled well with better ROCEs than Salzer base business
  • To do preferential issue of 47 Cr for promoters to increase stake in the company and use funds for growth
  • Forthcoming capital allocation decisions
    • Hosur plant for 15 Cr to meet demand for toroidal transformers and wire harnesses
      • In the first phase, the company will use 15,000 sq ft and balance in the second phase, with commercial production expected to begin in March 2023.
      • “Creating this facility at Hosur with proximity to the presence of large Auto Component Suppliers, Two Wheeler Manufacturing companies, and other world leading manufacturers of electrical products in the region would gain more momentum with quick delivery and improve focus on customer requirement and satisfaction. With this new manufacturing facility, Salzer aims to provide timely delivery and high quality products to customers in India and abroad”
    • JV to manufacture fast chargers will require 12-15 Cr
    • Working capital expenses
  • Some concerns around capital allocation -
    • Subpar ROCE around 10% as W&C business is a drag to overall business
    • Company trying to enter into EV fast chargers which could be competitive market again
  • Analyst concern around lack of focus and management’s response -
    • “We started off as a rotary cam switch company that’s how the company started three decades ago and there is a limitation for a rotary cam switch within India or globally because the market size is limited. And then the reason that we ventured out and started making various other different products is that we wanted to grow on scale and also be with the customer connected with many products. And that’s how almost all the top switchgear companies across the world have grown including Schneider, including Siemens or Eaton or even the Indian companies like Larsen and Toubro or Havells for example. L&T is a switchgear company, but they have 25 products within the switchgear segment. So, that’s how this business happens in the market, the business trend is like that… We actually went a little more diversified started making transformers, wire harness and also various other products that may or may not fall under the switchgear definition, but it sells to the same customer, the same customer uses this, sometimes we get a customer for rotary cam switch because of transformers or vice-a-versa. So, that’s the advantage of having the large product portfolio and trying to expand all the products and as you rightly asked how and which product you’re going to expand, as the opportunity comes we are allocating capital and expanding capacity dynamically as the opportunity comes to us. Last year was the year for three phase transformers because the growth in three phase transformers was close to 78% or 100%, no no, 250% actually year-on-year. So, when the demand came in, we had to be dynamic and we had to expand the capacity and then we had to capture this market. So, that was the reason that from 25 crores in FY22 we were close to around 75 crores in FY23 on that business and it continues to, the growth has slowed down but it continues to grow at around 30%, 35% in this year. So, that is how we manage the product portfolio within the segment.”

Terminal Value Decisions

  • EV chargers optionality (Formed JV’s with Kostad Steuerungsbau GmbH & EMarch LLP to enter EV market)
    • “Long term vision is to be a global electrical solutions provider. That’s what we are looking at. So, anything to do with electrical solutions, we want to be there. And we want to be a first mover. So, that was one of the reasons we got into electric charging, because we thought that EV is going to be the future in the next 10, 15 years, at least a two decade business from now, before the technology can change or whatever happens. So, we thought, we have all the capabilities, we have all the components that will go into a charger, and why not make a charger. And luckily we got a JV partner to manufacture that and that is how we are into that is the reason that we are into that. We have a reason for this, because we can use our components. And we have the technology and we can see that, the future business is there. The future technology is there and as an electrical company we want to be in that space that’s the reason we’re doing that. ”
    • Management has come in this division with some target of 500 Cr revenue from EV chargers, but they are not openly saying much about this division

Past Execution & Future Guidance

  • Walk the talk (Mix bagged)
    • In FY18, management said “We definitely see a constant improvement on the EBITDA margin; I think if you look at year on year basis, I think we have almost increased by around 2% almost. We would constantly try to increase the EBITDA by at least 1% going forward in the next one year, 0.5% to 1% is what we expect this EBITDA to increase.”. But margins have not expanded since then but came down
    • Achieved more than this - “FY2019, the acquisition itself will add us at least 10% of our revenue, so we should be growing at least by 15% minimum if everything goes normal, so overall we expect to clock at least Rs. 535 Crores for next year approximately. “
  • Future Guidance
    • Achieved internal target of 12% ROC
      • “We will continue to not just focus on profitable growth, but also on capital efficiency and enduring to improve our working capital cycle and being a cash flow positive company continuously.“
    • Top line growth guidance of 20% and PAT growth of 25% for at least 2 years
    • Expects to sell $20M of newly developed product contactors in NA market
    • Business split in 5 years - 60:30:10, 60% from the industrial switchgear business, 30% wire and cable, 10% from building electrical. EV charger would be a subsidiary and could have equal revenue if it scales up
    • Margin expansion to happen because -
      • RM prices have come down
      • Increased scale will drive some operating leverage
    • Target to reach 18% ROCE
      • “We are working to improve our ROCE to close to 18%. That’s what our target here internally is. And one of the reasons is the long working capital cycle. I think that is where the reason that the capital employed is higher. So, as I have been telling, I think, we are working to reduce our inventory, bring down our receivables. So, these are the 2 major contributing factors for higher capital deployment. “
  • Execution
    • Co. had some plans in the EV conversion kit business recently which has not scaled and management accepts that and is going slow on that venture now. The company faced some ‘teething troubles’ per the management to build cost effective product for Indian market

Valuations & Summary

The business is at 17 PE and valuations look very reasonable given the growth prospects. Management guides of 20% topline growth with margin expansion if RM prices remain benign. But the reasonable valuations are somewhat justified as the market isn’t sure of management’s capability and execution prowess. Over the years even though the range of products have increased in the switchgear segment but the margins and ROCEs have not increased much to inspire confidence. Some doubts on capital allocation have been there as market sees Wires & Cables business have dragged margins, upcoming EV fast charging business may or may not work out, EV conversion kit business has not gone anywhere. The end customers are bigger in size and may have higher bargaining power, supply side is fragmented with several players trying to capture demand in sunrise power, infra and renewables sectors.

But no company is a perfect investment and given the valuations and growth prospects, this seems worth tracking. The company may be in a sweet spot at the moment with tailwinds in power, infra and renewables sector and maybe able to sustain growth in the near to medium term. With top line growth coming good, there is a very good chance to increase margins gradually and EV business is an additional optionality at the moment. Management vision and execution will decide if business can change gears and create sustainable wealth.


The promoter integrity is a big concern here.Though,the company’s borrowing and interest cost are rising but instead of looking at those factors promoter decided to increase his remuneration by around 20%.I doubt they are utilising shareholders capital effectively.

The company announced there results any input? Bottom line seems to be of concern.

Q2FY24 Concall Notes:

General Notes:

• Overall market was a bit slow as OEM pushed back the orders.
• Some of the high margin products such as rotary switches, isolators, cable ducts declined in sales due to which EBITDA margins didn’t grow as expected.
• HVAC segment may grow to be $20 million in next 2 years
• Inventory has gone up due to which ST borrowings have gone up as well.
Management claims that they have tech capabilities required to manufacture various electrical, electromechical, and electronic components, and that’s the reason that all the MNCs have come and stuck with them for years.

EV chargers:

• Charger is undergoing testing at ARAI in Pune to get the BIS certifications. Expecting launch in Q4FY24.
• Management believes that this EV charger mfg business has potential to be game changer
• EV chargers will be used for public charging (B2B, B2G) not B2C as these are expensive products.
• Can earn 16-20% EBITDA margins here after these chargers evolve and reach steady state.
• Can produce 70-100 chargers a month as of now.
• Currently, there are no ready-made customers for the charges in domestic market. Company is looking at creating a charging network themselves one year down the line.
• For exports, JV collaborator will sell the chargers and Salzer will build these chargers for them.
• There will be many playes in India in this segment, however, there will only be 2-3 players in fast charger category.

• Expect sales in Europe and USA to increase over the coming quarters due to recently developed new products for HVAC such as contactors, disconnect switches and whips.
• Exports have grown well this qtr (28% vs 25% last year). Export market is growing well because of new products addition. Export margins are a little bit bette, but currently not great due to additional costs incurred due to various reasons. It should stabilize from Q3/Q4.
• Subsidiary Kaycee sales have been growing consistently and EBITDA margins improving consistently. Expect Kaycee to do same in coming quarters.

Cap Utilization: Overall Hosur plants - Overall 70%, New plant 30-40%

China Dumping: Don’t see threats from China dumping because of BIS certifications, mandatory stds, and competent Indian players who supply to int’l companies

Pricing Power: Salzer passes on prices for wires and cables, but not for industrial switchgears as they have annual rate contracts. They do it for this segments only on annual basis.

Growth Forecast and Margins Guidance
• Growing at slower rate. Q3 might not be much different that Q2 as they are still seeing slowness. Hoping Q4 would be better
• May not achieve 20-25% kind of growth this FY, can lock-in 18-20% kind of growth.
• Management expects this to be a temporary blip rather than structural slowdown. This will turn around once things are stabilized internationally as well as domestically (election, inflation etc.)
• EBITDA margins for Industrial Switchgear - 11.5%, Wire and cables - 7%

ROCE Improvement:
• Still committed to get 18% ROCE mark and is a constant work in progress.
• Biggest challenge is bringing the inventories down.
(still I don’t see any concrete steps, no clear direction on how they will reach there)

Disc: Invested


Promoters pledged 3% of Salzer for the stated purpose “Provided as a security to Tata Capital Financial Services for its Loan Facilities to Salzer Spinners (Promoter Body Coprorate) for acquisition of equity stake in Salzer Electronics Limited”

I translate it as Promoter pledging of shares to get funds to increase their stake in Salzer Electronics Limited.
This looks like a bullish sentiment shared by Promoters to me.