Salzer Electronics Q1 FY27 earnings call

Salzer Electronics Limited reported a 13% year-on-year revenue growth, reaching INR498 crores in Q1 FY27, up from INR441 crores in the previous corresponding period. This growth was primarily fueled by higher demand for industrial switchgear, wires and cables, and the Building Products division. However, profitability saw a significant decline, with EBITDA falling to INR31 crores (from INR42 crores YoY) and PAT dropping to INR8 crores (from INR17 crores YoY), resulting in EBITDA and PAT margins of 6% and 2% respectively.

The primary reason for the margin contraction was the sharp increase in key raw material costs, particularly copper, silver, and aluminium, coupled with a lag in passing these costs to customers. This resulted in a 3.2% elevation in raw material consumption. Management indicated that this is an industry-wide challenge and expects margins to remain under pressure in Q2 FY27, with normalization anticipated from Q3 FY27 as calibrated pricing actions take full effect.

The Industrial Switchgear division contributed 54% of total revenue, growing 10% YoY with an 8% EBITDA margin. The Wire & Cable division accounted for nearly 40% of revenues, growing 11% YoY with a 5% EBITDA margin. The Building Products division was a standout performer, achieving 48% YoY growth and contributing 6% to total revenue. Exports constituted approximately 18.6% of the total revenue in Q1 FY27.

Salzer continued its strategic investments, injecting an additional INR13 lakhs into its wholly-owned subsidiary, Salzer EV Infra Private Limited, bringing the total investment to INR93 lakhs. An additional INR1.68 crores was invested in associate company Effilume Private Limited, increasing the total investment to INR4.2 crores and equity stake to 47%. The EV charging business is progressing well, with approximately 160-170 DC fast chargers supplied and an expectation to supply around 60 more in Q2 FY27.

The commencement of the Saudi plant has been delayed due to geopolitical disruption^🌐s in West Asia, pushing the shipping of machines and installation to September/October 2026. Management expects the plant to start generating additional revenue of approximately INR25 crores in its first year of operation, FY28. Initially, the plant will focus on manufacturing wire ducts and terminal connectors for the Saudi market.

The Smart Meter business remains a concern, described as a 'drag on the balance sheet' with no significant movement over the last three years despite investments. The Tamil Nadu tender for smart meters was cancelled, and new tenders are expected in the coming year. Management is analyzing the segment's performance and will make a strategic decision on the investment over the next 2-3 quarters if the business does not improve.

Working capital continues to be a strain, although the company reported an improvement in working capital cycle days compared to the previous quarter and year. Finance costs were reduced by 300 basis points or 3% on revenue. Management emphasized ongoing efforts to operate efficiently and further reduce working capital days, acknowledging that raw material price increases inherently lead to higher working capital utilization.