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Highlights from the Quarter (Q3FY22):

Salzer Electronics reported consolidated revenues of Rs. 218.8 cr for the quarter, up 23% YoY and 9% QoQ. EBITDA for the quarter stood at Rs. 19.2 cr, translating to an EBITDA margin of 8.79% vs Rs. 17.9 cr at a margin of 10.06% in Q3FY21 (down 128 bps YoY) and Rs. 20 cr at a margin of 9.99% ( down 120 bps Q0Q) in the preceding quarter. Net profit for the quarter stood at Rs. 7.6 cr vs Rs. 6.5 cr in the same quarter last year (up 17% YoY) and Rs. 8.0 Cr in the preceding quarter (down 5% QoQ). The company delivered an EPS of Rs. 4.8 for Q3FY22. During the quarter, export revenue accounted for 22.10% of total revenues, showcasing 51.56% YoY, driven by growth in Europe and Americas. Industrial switchgear contributed 49.6% , Wires and Cables contributed 43.6% and Building segment contributed 6.8% of revenues for Q3FY22.

The management attributed the revenue growth to improvements in the Switchgear and Wire Harness business. The EBITDA margin came under pressure slightly during the quarter as a result of rising prices. While the company did take price hikes to offset the increasing raw material costs, rising freight costs negatively affected the margin. Going forward, raw material prices are expected to stabilize and improve margins. As the 3 rd wave of the pandemic is over, the company expects things to stabilize and the performance to get better in the coming quarters as both domestic and export markets are showing signs of recovery.

OUTLOOK AND VALUATION

Salzer’s performance for the quarter is slightly better than our estimates. The company has shown a good recovery during the quarter despite headwinds such as increasing raw material prices, freight charges and the 3 rd wave of the pandemic. We expect the company to do well in Q4FY22 and close the year on a high. We maintain our forecasts and keep our estimates unchanged. We maintain our target price of Rs. 270 (@10x FY24E EPS) which is an upside of ~29.6% from today’s price of Rs. 209. We maintain BUY for Salzer Electronics over an invest horizon of 18-24 months.

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