Buy Salzer Electronics Ltd For Target Rs.270 - Sushil Finance
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Well positioned to benefit from tailwinds for the electronicsindustry
The electronics industry flourishes when consumer spending increases; or when government spending on infrastructure and industrial development happens. With projects like Make in India, Housing for all, development of highways and electrification of railways, the need for electrical components is bound to rise. Salzer manufactures switchgears and wires &cables, which are essential components is all electrical applications.
Major segments are consistent and carry strong growth potential
In the current scenario of pandemic waves and lockdowns, Salzer is able to deliver on its 2 main segments consistently. This is due to the B2B nature of the business. The growth potential for these segments is high with switchgear markets expected to grow at a CAGR of 6.7% over FY20-25E and wires and cables market to grow at 15% CAGR over the same period, driven by various economic factors and government initiatives.
Entry into EV segment to capitalize on growth opportunities
With growing capital influx and adoption of electric vehicles (EVs) in India, Salzer has formed 2 joint ventures (JVs) to capitalize on this opportunity. The first JV is with an Austrian company Kostad Steurungsbau GmBh which will manufacture DC charging stations and chargers. The second JV is with an Indo-Austrian start-up EMarch LLP, which will be manufacturing EV conversion kits for auto rickshaws, buses, etc.
OUTLOOK & VALUATION
We have forecasted a revenue growth of 10.2% CAGR over FY20-24E where we expect revenue for FY24E at Rs. 836.6 cr, EBITDA at Rs. 93.7 cr at an EBITDA margin of 11.2% and Net Income of Rs. 43.3 cr. We estimate FY24E EPS at Rs. 27.09 and assign a PE multiple of 10x to arrive at a target price of Rs. 270, which is an upside of ~70% from today’s closing price of Rs. 159. We initiate coverage on Salzer Electronics Ltd. with a BUY rating, over an investment horizon of 24-30 months.
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