Stock Pick from Electric Equipment

CHOICE SCRIP

Here Is Why

• Salzer intends to double its revenue in the next three years.

• L&T holds 26 per cent stake in the company.

• The company’s fund-raising plans have been approved by its directors.

A manufacturer of low-voltage electrical products, Salzer is all set to expand its production capacity to cater to the increase in demand that will arise out of the government’s power infrastructure outlay for the coming years.

SALZER ELECTRONICS: POWERED TO PERFORM

With a lot of buzz about the focus on development of infrastructure, the power sector is one of those that have also come into the limelight. The government is trying its bit to attain its ambitious targets, as for example through the rational allocation process of coal mines to power companies, proactively clearing power projects stuck in environmental mires and pushing plug-n-play arrangement for future power projects. As the power sector is expected to grow, power distribution too has to grow well ahead of power generation.

Here’s a fundamentally strong company manufacturing a number of low-voltage electrical distribution products. Salzer Electronics was established in 1985 to design and manufacture world-class cam-operated rotary switches in technical collaboration with Saelzer Schaltgerate Fabrik, Germany. Salzer manufactures load break switches, wiring ducts, terminal connectors, selector switches, ammeter switches, voltmeter switches, DC disconnectors, electro magnetic relays and magnetic wires. The company has also entered into technical and financial collaboration with Plitron Manufacturing, a leading manufacturer of transformers in North America, in 1995 for manufacturing toroidal transformers with 50 per cent buy-back agreement.

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Salzer has a strong research and development facility with a full-fledged laboratory and captive tool room to upgrade and develop products, thereby setting new market trends. More importantly, its in-house R&D has been recognized by the Ministry of Science and Technology. The company has patented its rotary switches and is a market leader in India for this product as well as for PV application switches and PVC wiring ducts.

Interestingly, Salzer earns almost 25 per cent of its revenue from an international distribution network spread across 50 countries. Further, the company has plans to expand its distribution to countries such as USA, Africa and the Middle East. The remaining 75 per cent revenue comes from its domestic markets. Moreover, Salzer has a marketing tie-up with L&T which sells its products through more than 350 dealers across India. This profitable marketing association was established in 1993 and has also led to Salzer manufacturing wires and cables for the conglomerate L&T. The association turned into a partnership with L&T acquiring 26 per cent stake in the company.

In our recent interaction with Salzer’s Joint Managing Director and Chief Financial Officer D. Rajesh Kumar, it was revealed that the company has plans to double its turnover to Rs 600 crore in the next three years. The company is also in discussion with some European companies to expand into the space of high-voltage transformers. Also, the Board of Directors has recently approved raising of funds up to Rs 70 crore through issue of equity shares, other convertible securities or share warrants to the promoters and promoter group. The additional capital will help Salzer launch its expansion plans and achieve turnover targets in the coming days. Further, the issuance of equity to promoters and 26 per cent holding of L&T lends confidence about Salzer’s management. Hence, we recommend buying this stock.