Salzer Electronics Limited (517059) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Salzer Electronics Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Vineet Agarwal from Aditya Birla Capital.

Thank you, Kartik. Good afternoon, everyone. On behalf of Aditya Birla Money, I welcome you all to the quarter 1 FY '26 post earnings conference call of Salzer Electronics Limited. This conference call may contain forward-looking statements, which are based on beliefs, opinions and expectations of the company as of the date of this call. These statements are not guarantee of future performance and involve risks and uncertainties that are difficult to predict. I now invite Ms. Savli for opening remarks to be followed by question-and-answer session. Over to you, ma'am.

Thank you, Vineet. Good afternoon, everyone, and thank you for joining us today to discuss the unaudited financial performance for the quarter ended 30 June, 2025. I have with me Mr. Rajesh Doraiswamy, Joint Managing Director; Mr. P. Sivakumar, Assistant Vice President, Marketing; Mr. P. Bellary, Assistant Vice President, Business Development; Mr. S. Venkatachalam, General Manager, Commercial; Mrs. R. Menaka, General Manager, Account; Mr. K.M. Murugesh, Company Secretary; Mr. Jitendra Vakharia, Non-Executive Director, Safety Industries; and Mr. Raman, Executive Director, Safety Industries. I shall now take you through the stand-alone financial performance for the quarter ended June 2025. During the quarter, our revenues increased by 25% year-on-year to INR 432 crores from INR 347 crores in the previous corresponding period. This growth was mainly driven by higher demand for industrial switchgear and wires cables business divisions, mainly on account of high-demand products like 3-phase dry-type transformers, wire harnesses, relays and new products like contactors, et cetera. The EBITDA, excluding other income, was INR 41 crores, a year-on-year growth of 32%, mainly on account of increased sales in higher-margin switchgear products and wires and cables business. EBITDA margin for the quarter stood at 10%. Profit after tax was 18%, a year-on-year growth of 33%, while the PAT margin stood at 4%, a year-on-year improvement of 25 basis points. Moving on to breakup of the revenue as per business division. The Industrial Switchgear business contributed to 55% of our total revenue this quarter. The business grew 31% year-on-year and 14% Q-o-Q in Q1 FY '26. EBITDA margin in this business stood at 14% for the quarter. The Wire and Cables division contributed nearly 41% to our revenues this quarter, translating to a 17% year-on-year and a 27% Q-o-Q in this division. The EBITDA margin stood at 5%. The Building Products division contributed to the balance 5% of our revenues. Coming to the exports, we continue to see steady growth, mainly due to higher sales in North and South America, Europe and Asian countries. During the quarter, exports to Europe grew 19%. Asian countries grew 20% year-on-year. For the quarter, the export share of our revenue was nearly 24%. The growth in revenue translated to 14% year-on-year and 20% quarter-on-quarter. Thank you. And I'd now like to hand over to Rajesh to take us through our business development and the way ahead.

Thank you, Savli. Good afternoon, and thank you all for joining us today. A very warm welcome to everyone joining this conference call of Salzer Electronics Limited for the first quarter ended 30 June, 2025. I hope I am very much audible for all of you. I appreciate you all taking time to be with us today. Our results update presentation and the media release have been shared and Savli just shared the financial numbers to you, and I trust you have had the opportunity to review all of them. I would now like to take you through some key updates on our recent developments and our outlook for the future. We are operating in a very dynamic and rapidly evolving global landscape, driven by accelerating infrastructure development, smart new technologies and electric mobility revolution. Indian electrical market is on a steady growth trajectory as we have told in the last quarter. The market is valued at approximately USD 14 billion currently and is expected to reach close to USD 20 billion by 2031, implying a healthy CAGR of close to 6%. Similarly, the broader electrical equipment market is projected to grow at 15% CAGR from the current USD 95 billion to grow to USD 25 billion from 2025 to 2029. This surge is fueled by rapid urbanization, renewable energy integration and government-backed infrastructure initiatives. There is growing adoption of smart switchgear equipped with real-time monitoring analytics and automation that enables safer, efficient power distribution, especially in the smart city environments. Smart meter is also seeing significant traction with technology, enabling more efficient energy management, predictive maintenance and grid optimization. On the EV charging market also is growing at a breakneck speed. India alone is set to grow from USD 92 million in 2024 to USD 750 million by 2030, nearly 43% CAGR in the next 6, 7 years. While globally, it is heading towards USD 76 billion by 2032. OEMs and fuel retailers across the country are expanding aggressively, and Tamil Nadu is emerging as a manufacturing hub with major investments from leading players. From a trade perspective, I think the latest development is the U.S. tariffs. Post our results, we have seen what has happened. While the higher U.S. tariffs present a near-term headwind for exports to U.S.A., industry experts believe India's robust infrastructure pipeline and manufacturing-led growth will help cushion the impact over the medium term. For Salzer, we have a 7% direct physical exports to U.S.A., which will have an impact in the short term. Apart from this, we also see an impact of approximately 3% to 4% in the indirect business. However, our diversified market presence and product spread will help us to navigate these shifts effectively and sustain our growth trajectory. Now coming to our key updates on the recent developments. I would like to start on the smart meters. In our smart meter business, we remain encouraged with the progress following the INR 50 crore order that we secured in Q4 of last financial year. While execution in Q1 was limited to approximately INR 2.5 crores due to the customers' readiness for field installation, the product is fully prepared for delivery and the customer has reaffirmed their commitment to clear the entire order in Q2 of this financial year. We expect the next set of INR 50 crore order to come through any time of -- in this year -- in this quarter or in the early next quarter. That said, I would also like to address the expectations openly. When we had earlier guided towards the possibility of INR 900,000 crore revenue in smart meter sales, it was based on the then available visibility of tender awards, supply gap and planned deployments by our customers. However, as we entered this business and as the year unfolded, it has become clear that the industry-wide field level challenges, including installation readiness, coordination with governments and DISCOMs, infrastructure preparedness are impacting actual rollouts for all the players across the sector. You all must have seen various news reports in the previous months about the actual deployment of smart meters being less than 10% of the total demand. As a result, we revised our revenue estimates for FY '26, which has drawn a lot of criticism in the market. We want to emphasize that this is not a reflection of our execution capabilities or market position. Our technology, our capacity, capability and the product readiness remain intact and competitive. Our smart meters have been tested and passed for the highest quality levels. In business, in real-world execution dependencies beyond our direct control, and this is a classic example. We continue to work very closely with various AMISPs and other stakeholders to support faster deployments, and we are very confident that the strong underlying demand for this product will translate into substantial growth over the medium term. Our commitment to being a leading and trusted smart meter partner remains unchanged. I say that further guidance on this business will be given by us as things evolve over the next quarters. On EV chargers, as you all know, our initial joint venture in this space didn't take off as planned, but we didn't step away. We quickly reworked our approach and have now successfully entered the business on our own terms, and we can see the results now. In Q1 FY '26, we have sold close to 50 chargers in the Indian market, and we are also in talks with large Indian multinationals and other entities for long-term partnership for this product. With the market momentum and our new model of business, we see strong potential to make EV chargers a meaningful part of our growth story, along with our partner company, Ultrafast Chargers Limited. Further to entry into speed sensors 5-years ago, we are pleased to announce now the development of a new temperature sensor tailored for the automotive industry making another milestone in our product innovation journey. This sensor is currently undergoing validation with 2 leading Tier 2 automotive OEMs, and we are encouraged by the progress so far. We anticipate commencing commercial supplies from Q4 of this financial year, which will open up an additional and promising revenue stream for Salzer, further strengthening our position, not just in the automotive solutions space, but also in the HVAC, home appliance and medical equipment space. Furthering the INR 192 crore energy efficiency project awarded by Bangalore Corporation last quarter, we are pleased to share that Salzer through our wholly owned subsidiary, Salzer EV Infra Private Limited, has partnered with our consortium partner, Schnell Energy Equipment, to form an SPV called Effilume Private Limited on May 31, 2025. This SPV will execute this Bangalore Corporation project, which includes implementing our in-house developed energy management system and replacing conventional streetlights with energy-efficient LED lights across parts of Bangalore, thereby reinforcing our commitment to smart city initiatives and national energy efficiency goals. As far as our subsidiary, KC Industries is concerned, KC's top line grew 10% year-on-year in Q1 FY '26 to INR 14 crores from INR 13 crores last year first quarter. EBITDA was at INR 2 crores in Q1 FY '26 and PAT was at INR 1 crore in Q1 FY '26. The EBITDA and PAT margins are healthy for KC. With a strong balance sheet, growing market and operational efficiencies, Salzer Electronics aims to deliver sustainable profitable growth while capturing emerging opportunities in energy efficiency, electrification and smart infrastructure. I sincerely thank the entire Salzer Electronics team for their unwavering dedication and hard work and express my deep gratitude to all our stakeholders for their steadfast trust and support in the company's journey. This is all from our side for now. I would like to thank you all very much for your time and attention. We can take questions now.

[Operator Instructions] We have first question coming from the line of Deepak Poddar from Sapphire Capital.

Sir, just wanted to understand first upon your 2 businesses on smart meter as well as your DC chargers. Now given the delay you have mentioned, and I think we are expecting more orders, but as of now, our order book still remains at around INR 50 crores. So how do we see -- I mean, this entire year, we were looking at some INR 500 crores kind of execution. So now how should we see it? I mean, are we willing to revise it downwards? And so what sort of range one should look at now?

I think whatever is the guidance that we have given in the last quarter remains intact. So, we are working to see how we can get to that level of around INR 400 crores is what we guided last quarter. So, we remain there, and we are pushing to see how we can get that order. And the recent development is also the Tamil Nadu tender is out and people are going to win those bids. So that will be an additional pipeline for the AMISPs. And we being a local player of manufacturer, we should be having an advantage over the rest of the smart meter manufacturers. So that's another thing -- that is a new development that has happened.

And how big is this for Tamil Nadu?

Tamil Nadu, total tender is around 3 crore meters. So there are many participants as of now, but we will have to wait and see who wins the bid and for how many packages and then...

So won't it take time? I mean, do you expect Tamil Nadu revenue can come this year itself?

No, I think orders will come in this year, but revenues will start next year because implementation will start next year.

Okay. Yes. So that's what I wanted to understand in terms of if we still want to, I mean, maintain that INR 400 crores kind of execution in smart meters itself. But in terms of visibility, still the visibility remains good.

Yes, visibility still seems not there today, but we are hopeful of having some visibility in the coming quarters.

Okay. So what sort of pipeline one can expect, I mean, in terms of order pipeline from this INR 50 crores currently we have?

So I think in the call, I mentioned that we are expecting the next set of INR 50 crore order from the same customer anytime this quarter. So once it comes, then we will have more visibility from the customer on how he is going to place the order for the rest of the year.

Okay. Fair enough. And what sort of EBITDA margins one can look at in the smart meter business?

We're looking at around 12% to 13% EBITDA margin in the business.

12% to 13%. Okay. And my second question is on your DC chargers. We have sold around 40. So, what sort of ASP we see per DC charger? And are we still targeting 1,000 DC chargers selling this year?

I think the value per charger is between INR 6 lakhs and INR 12 lakhs, INR 13 lakhs. I think that's the range that we sell for DC fast chargers. And we are also selling AC chargers, which is INR 1 lakh or less per charger. So that's the value that we are looking at. On 1,000 chargers, I think we are talking to various large entities for a long-term partnership. So, we expect once the partnerships are -- the understanding with the companies come through, then we will receive volume orders from them. I think that's where our confidence of selling this volume comes up.

Okay. But this 1,000 remain intact?

Yes.

And what sort of margins one should look at in this business, EBITDA margins?

EBITDA, I think the operating margin will be close to again around 12% to 15%. But the initial volumes, I think we will have -- we will not be able to expect that margin because the threshold volumes have to be reached. So, it is still a new business, new entity. So, we will have to wait. But on a steady long-term basis, it should be between 12% and 13% again.

Yes. And this margin at what volume level we can see this kind of margin? I mean, currently, the scale would be small, right?

Yes. So, I think when we reach a scale of 70 chargers a month, I think that you should be able to see this margin.

No, no, come again, sir, I missed that.

60 to 70 chargers a month manufacturing.

60 to 70 chargers a month. So this year only, we are targeting 1,000, right?

We have to reach there. So until then...

Yes. Okay. Understand. And just my final question is on your tariff side. So now have we started seeing the impact of tariff? I mean, what sort of impact we are seeing? So can you throw some more light that would be very helpful.

Right now, I think we are seeing a knee-jerk reaction by all the customers because a 50% tariff is way too high for anybody to absorb in the market. So right now, I think some customers are taking action of making the shipments quickly before the tariff kicks in. Some customers are postponing their shipments asking us to hold. So, there are multiple things, one. Secondly, there is a confusion that prevails among the customers itself, not knowing how this is going to impact or how long this is going to last. So as of now, I think there is no clear indication on how this is going to be dealt with. But I'm sure I think on an immediate short term, I think customers will find a way to see how they will be able to overcome this tariffs -- but having said that, I think we will have to expect a minor impact on the revenues to U.S. if 50% remains.

Understand. And any margin impact also we anticipate because of this?

No, I think because the revenue to U.S. is just 5% of our total sales. So, we won't see a major impact for us because we will be able to offset that with the growth that we are seeing in the current year. That should not be a problem. But I think as a country, we will have a lot of indirect impact on the business and the economy. That might impact the growth of not just Salzer, but the growth of the -- all other companies. That is more factor than the direct expose that we took.

The next question is from the line of Mr. Senthilkumar N. from Joindre Capital Services Limited. There seems to be no response. We have the next question from the line of Mr. [ Bhagwat N. ] from Prosperity Wealth Management Private Limited.

Congratulations on the strong quarterly performance. My question is with regards to the new temperature sensor product for the automotive industry. Could you please provide an update on the market size potential revenue target for Salzer and estimated margin from the business?

Sir, I think this is a very new business. We are just targeting this business to see where we can position ourselves. So, before I commit on the revenue projections, I think we need to first get the product approved from our customer and get a forecast from them before we really give any commitment. I think it is just an initial announcement of our product development team, what they have done is what we have now given. So I would request you to wait until this quarter. And before the next quarter starts, I think we will have a full update on this product.

And this product is going to contribute from Q3 onwards as it's mentioned…

Q4.

Q4 of this year.

Yes.

Okay. My second is...

I can give a sense of the global market size for this particular product, mentioned, which we are looking at. I think it is close to around USD 7 billion is the global market size for this temperature sensor. And the sectors that we -- the product can be used is automotive, consumer electronics, HVAC and health care. These are some of the large sectors that uses these type of temperature sensors.

Okay. My second question is with regards to the smart meter segment. As you can see the publicly available data with regard to smart meter installation, that seems like an uptick in terms of installation, like around 1.4 crore smart meters that was installed in FY '25. And we can see around 1.1 crore smart meter has been installed till this year as of this 4 months. So that seems like uptick. So how should we see that in terms of Salzer like going ahead for this year?

I think there are -- as I mentioned in my call, there are multiple challenges for our AMI customers also. And as a new entrant, we are also seeing multiple challenges. So I think we are trying to overcome these things, and that's [ technical difficulty ] scale it back, and that is not good. So that's why I'm waiting to see. We will come back and announce as the order and order book is full for us, and we have a good forecast and commitment from our customers. As you know that definitely, there is an underlying demand of 25 crore meters out of which 2 crores or 2.5 crores have been installed. So still there is a large gap going on. And still, there are a lot of states that are coming out with the tenders and awarding the tenders. So, there's a big market still available for us to tap. So, we can expect that the next 4, 5 years, this business is going to grow at a good speed.

Sure, definitely. But with regards to the short term, like for current year FY '26, are we still hopeful of achieving the INR 500 crores to...

No. We -- I think we scaled it down long back in the last quarter itself. So, INR 500 crores is a very optimistic figure. Yes. I think we should be close to that number if everything goes well in the second quarter. So, by the end of the second quarter, we will have more clarity on our order book and how this is going to go.

Great. Understood. So just my last question from my end, if possible. So, we have done really well in our core switchgear segment. So, could you please comment how does it look for the next 3 quarters?

I think on the core business, as we have seen, I think we have grown close to 25% year-on-year. And sequentially also, we have grown close to 20%. We expect that this momentum should continue if there is no surprises in the global market, in the geopolitics. Even if something happens like that, I think we will still continue to grow at around 15% to 18%. If not, I think we should grow at least 18% to 20%, 22% in the next 3 quarters. Our standard legacy business is now seeing a lot of demand inside the country. And we are also exploring new markets outside of India, like I think as Savli mentioned, our UAE and Asian markets have grown faster this quarter. And we are also seeing Australia, New Zealand as a new market that we have got. So, things are looking good. Existing business will continue to grow at this speed.

The next question comes from the line of [ Kunjal Trivedi from Bana Property ].

Congratulations for the good set of numbers. Sir, my question is also related to the smart meter orders. As we are facing delay or we are anticipating delay orders, now since we have already stopped the inventories for the smart meter manufacturing, will it have any major impact on the margins or the yield in coming quarters, number one. Number, sir, my second --

Go ahead.

and my second question is on our Saudi unit, as you had said in the last call that we will be allocated land in the coming quarters. So what is the update on the same?

On the smart meter inventory and margins, I don't think we are seeing any impact because whatever is our Q1, I think we have shown the results of Q1, which is after taking the impact of whatever we have done in the last 2 to 3 quarters, including the smart meters. So, I don't see a major impact because of the delay in the smart meter business. On Saudi, I think we are close to identifying a place, and we should be starting our operations from Q3 onwards this year.

Okay, sir. So as you said that we have already taken the margin impact on the same in the last quarter. So, we will not be facing the margin or -- compression on the smart meter --

[indiscernible]

We have the next question coming from the line of Pranjal Mukhija from GrowthSphere Ventures LLP.

I have a question on the smart meter side. Sir, our commentary seems quite -- our comment number seems quite contrary to that given by the other companies that are present in this market right now and generally with the way execution has been happening on ground. So, I just wanted to understand, sir, with the production capacity that India currently has around 6 crores to 7 crores kind of meters and new tenders are going to come out soon, like especially with the Tamil Nadu one, which has just recently come out the 3 crore meter. So I just wanted to understand, sir, I mean, what is the right to win any order in this market? Because I mean, all the other bigger players, I mean, they have a much better experience, much better track record. And again, this is a product which you have to sort of maintain for the next -- for a longer period of time, like 10 years. So I just wanted to understand like what is the right to win here?

Actually, there's a little bit of a confusion in this whole business. I think we are not into tendering. We are into manufacturing and supplying of meters as a product.

No, sir, I agree to that. But I'm saying what about the AMI procure products from us. Is it just the price element because I mean you -- like you mentioned that our meters are going to make a margin of 12% to 13%, whereas the industry currently is making anywhere between 18% to 19% EBITDA margins. So are we selling them the meters cheaply? This is the only reason why they're coming to us? Or is there some other...

You are comparing some of the very well established long-term players who have been in this field for years together and who have had the volumes and some of those players also are into the tendering business. So a direct comparison may not be [indiscernible] puts across...

Not just with the AMI space, but I'm also talking about other unlisted manufacturers, even some listed ones that are getting listed now. They have much higher margins.

My only confidence is that there is a huge demand-supply gap. And I don't think there is a 6 crore, 7 crore capacity right now. I think the capacity, in my opinion, is around 3 crore meters a year, all players put together is what I look at it. And there is a huge demand supply gap. And if the installation -- because the tenders have been awarded almost 1.5 to 2 years ago. And if the installation was happening at that speed that it has to happen, the central government in the last month would not have extended 2 more years for implementing this project. So they instead of 27 months, I think they have extended it by another 24 months. So that shows that what are the difficulties in the field, how the infrastructure is not really capable of taking this at the speed is what is understood. So that's what we are seeing in the market, and that's what our customers are telling us from the field. And I'm not saying that it is not being done. It is being done. It is slowly picking up, and we expect that it will definitely go at a speed it has to go in the coming quarters. I'm only trying to justify that I'm not against the views of the general market. I'm along the market views.

So I just wanted some clarity on -- are we only sort of going at this market because of the demand supply gap? Or do we also like there's some differentiating factor with us as an organization like...

Of course, we have a lot of differentiation, a lot of technical upgrades we have done. There are so many new features that we have added, which is why I think some of the customers are looking at our meters, one. Second, I think as a new entrant, we have our own [technical difficulty] it's also a part of the delay.

So could you share some of those -- some of the examples of the features that we have, which is different from the market?

I won't be able to do it right here in the call because of various reasons.

The next question comes from the line of [ Ankur Kumar from Alpha Capital ] .

Congrats for a good set of numbers. Sir, my first question is on our margin. So we have come back to 10%-odd type margin this quarter, having some cost-related issues in the last quarter. So can we expect this 10% type to continue? Or how should we look at it?

Yes. I think we want -- I think we expect definitely this margin percentage will continue. And we also hope that we would like to increase this by at least another 0.5 percentage point in the next few quarters.

Got it, sir. And sir, in our press release, we are talking about INR 50 crores of smart meter order to go into Q2. So has it already gone or -- and what kind of margin can we expect on that INR 50 crores, sir?