Salzer Electronics Ltd (BOM:517059) (Q1 2027) Earnings Call Highlights: Revenue Climbs 13% but ...

Q & A Highlights

Q: The investor presentation mentions an FY27 EBITDA target of 10%, but the commentary on this call suggests a lower figure. Can you clarify the discrepancy? A: D Rajesh Kumar, Joint Managing Director, acknowledged the discrepancy and stated that due to the current global scenario, the West Asia conflict, and fluctuating raw material prices, the company is toning down its full-year EBITDA margin guidance to around 8% to 8.5%. He explained that margin pressure is expected to continue in Q2 but should normalize in Q3 and Q4, where the company expects to reach 9% to 9.5% margins. He confirmed the investor presentation would be corrected to align with this guidance.

Q: What is the primary reason for the margin contraction in Q1 FY27, and what is the company's strategy to address it? A: D Rajesh Kumar, Joint Managing Director, explained that the margin contraction is primarily due to a sharp increase in key raw material costs, particularly copper, silver, and plastics, coupled with a lag in passing these costs to customers. He noted that the company has implemented three price increases over the last six months, but there is always a delay as pending orders are cleared first. He stated that the company is working to shorten the pass-through period from a quarter to less than two months and expects margins to start normalizing from Q3 FY27 onwards, subject to raw material prices remaining stable.

Q: Can you provide an update on the Saudi Arabia plant and its expected revenue contribution? A: D Rajesh Kumar, Joint Managing Director, stated that the Saudi plant's start has been delayed due to West Asia disruptions. The company now plans to ship machines and begin installation by September or October 2026. The plant will initially manufacture wire ducts (cable ducts) and terminal connectors. No major revenue is expected from the plant in FY27, but the company anticipates approximately INR 25 crores of additional revenue from the Saudi plant in FY28.

Q: How is the company addressing the margin pressure in the switchgear business, and why is the wire and cable business more resilient? A: D Rajesh Kumar, Joint Managing Director, clarified that the wire and cable business operates on a cost-plus model with customers, with about 70% of the business being white-labeling for large brands, making its margins stable despite copper price volatility. In contrast, the switchgear business is not cost-plus and uses significant copper, silver, and plastic. Although there is a price variation clause, the pass-through is not immediate, leading to a 4% to 4.5% margin contraction in the switchgear business over the last two quarters. The company is working on shortening the pass-through period and implementing calibrated pricing actions.

Q: What is the current status of the smart meter business, and what is the company's plan for this investment? A: D Rajesh Kumar, Joint Managing Director, acknowledged that the smart meter investment is currently a drag on the balance sheet. The company generated only around INR 3.5 crores in revenue from the plant and has no major updates. He noted that the Tamil Nadu tender has been cancelled, and the company is waiting for new tenders. Management is analyzing the situation and will decide on the future of this investment in the next two to three quarters if the business does not pick up.

Q: Can you provide an update on the EV charging business and its growth trajectory? A: D Rajesh Kumar, Joint Managing Director, stated that the EV charging business is progressing well. The company has supplied, shipped, and installed around 160-170 DC fast chargers across the country through various charge point operators. The company expects to supply around 60 more chargers in Q2 FY27 and continues to see good demand in this segment.

Q: What is the company's capacity utilization, and does it need to invest in new capacity to support growth? A: D Rajesh Kumar, Joint Managing Director, stated that capacity utilization in the switchgear business has increased to around 80% to 85% due to high demand. The company can achieve its FY27 growth projection of 23% to 25% with existing capacity. However, it may need to make balancing capacity investments for switchgear next year. The wire and cable business can continue for another year with the same growth rate without major CapEx.

Q: How is the company managing its working capital, and what are the CapEx requirements for FY27? A: D Rajesh Kumar, Joint Managing Director, noted that while working capital remains a strain, the number of working capital days has improved compared to the last quarter. He explained that rising raw material prices increase working capital utilization. For FY27, CapEx is expected to be minimal, around INR 15-16 crores for balancing and maintenance, plus some minor CapEx for the Saudi plant and expansion of the Azure plant. No major CapEx is planned for smart meters or EV charging as existing capacity is sufficient.

Q: Can you provide more color on the company's sales and distribution structure? A: D Rajesh Kumar, Joint Managing Director, explained that the company has multiple sales channels, including OEM, B2B electrical wholesale, B2C electrical wholesale, and exports. The company has a strong linkage with the erstwhile L&T switchgear division (now LK, part of Schneider), which accounts for approximately 15% of total revenue through its distribution channel. The marketing team consists of around 65 people, excluding leaders, with dedicated heads for each channel. The B2C retail channel operates in the southern five states and has recently expanded to eastern states like Jharkhand, Madhya Pradesh, Orissa, and Chhattisgarh.

Q: How is KC Industries performing, and what is its role in the broader portfolio? A: D Rajesh Kumar, Joint Managing Director, stated that KC Industries' top-line grew 8% year-on-year in Q1 FY27, with EBITDA of Rs. 2 crores and PAT of Rs. 1 crore. The company has synergized operations between KC and Salzer, with KC's revenue growing from around INR 25 crores pre-COVID to around INR 60 crores currently, and PAT growing from INR 1.5 crores to around INR 5 crores, a CAGR of 27% over the last four years. KC continues to grow in areas where Salzer is not present, and the company expects KC to maintain this growth rate for the next three to four years.For the complete transcript of the earnings call, please refer to the full earnings call transcript .