Salzer Electronics Ltd Management Discussions.


The following discussions on our financial condition and result of operations should be read together with our audited standalone and consolidated financial statements and the notes to these statements included in the annual report. Unless otherwise specified or the context otherwise requires, all references herein to "we", "us", "our", "the Company", "Salzer" are to Salzer Electronics Limited and its subsidiary.

Global Economic Overview

The global economy experienced a major slowdown in 2019, and recession fears became widespread towards the end of the year. It is argued that the risk of a larger downturnwhile not absentwill be contained, and the global economy will likely return to its slow, long-term growth trend of 2.7 percent sooner rather than later. Indeed as initial signs of an easing in the downturn in the industrial cycle emerged, a phase one trade-deal between the US and China is signed, and consumers continued to show strength based on rising wages and low inflation rates, recession fears have begun to ebb.

Unexpectedly, however, a new downside risk has emerged through the COVID-19 crisis in China. It is likely that this viral outbreak has severely hit Chinas economy during the first quarter of 2020. Under the assumption that the number of new cases will subside in the first quarter of financial year 2021, it is expected to rebound in subsequent months. However, as Chinas economy is on a much slower growth path than in 2003 at the time of the SARS outbreak, it is expected that the rebound to be more modest as well. As a result, it is estimated that annual growth rate for Chinas economy for all of 2020 is downwards from 3.4 percent to 2.8 percent.

The global economic impact of COVID-19 is almost certainly going to be greater than that of the SARS epidemic in 2002/2003, which also started in China. First of all, the share of the Chinese economy in the total global economy is currently 20%, much higher than it was in 2003 (9%, see figure 2).

Figure 1: COVID-19 is hitting Chinese industrial production

Secondly, the Chinese economy is now much more closely interlinked with the rest of the world than it was 10 to 20 years ago. For many countries, China is now (i) an important export market, (ii) a source of tourism and (iii) a supplier of intermediate good. Over the years, the value chains of international business have become increasingly fragmented and spread across the world, and China has become the worlds factory. For example, a major proportion of all consumer electronics (mobile phones and laptops) is now made in China, as are the batteries for many electric cars and the raw material for certain medicine.

Under the "rapid containment" scenario the impact of the coronavirus outbreak on global GDP growth is quite modestalthough bigger in Asia than elsewhereand would still keep 2020 growth at 2.4 percent, slightly above of the 2019 estimate of 2.3 percent. Industrial production is likely to come back into positive territory, and businesses will continue to leverage innovation and digital transformation to grow top-line revenue and reduce costs to avoid a major squeeze on profits. The contribution of trade to global growth will continue to be a challenge, obviously exacerbated by the China crisis. In addition, businesses are shortening value chains by "trading up" and "going local." Productivity growth is critical to make up for the slack of slower globalization and weaker growth of the global workforce in the years ahead.

Source - globaloutlook/


Global Switchgear Industry

Global switchgear market is expected to grow from around $ 100 billion in 2019 to $ 155 billion by 2025. Switchgears are switching devices designed to protect, regulate & control power generation, transmission & distribution equipment and electric motor control systems.

They are located on both the low voltage and high voltage side of large power transformers in substations. A switchgear includes circuit breakers, fuses, and isolators. Besides stopping flow of current in a circuit manually, switchgear automatically do the thing whenever there is an over current in the circuit or any other abnormal situation arises, thereby protecting valuable equipment.

Growing investments in renewable forms of energy and surging demand for safe and secure control distribution systems and advanced monitoring units is increasing the demand for switchgear. Additionally, the replacement and modernization of aging electrical networks is further contributing to the growth of global switchgear market.

Innovations in smart grid technologies and growing focus towards environmental protection would further boost the demand for switchgear, globally.

The global switchgear market is segmented based on insulation, installation, voltage, product, end user, region and Company. Based on insulation, the market can be segmented into air insulated, gas insulated and others.

The gas insulated segment is expected to hold the largest market share during the forecast period on account of its use in various industries for fulfilling the high demand for energy. Based on installation, the market can be bifurcated into indoor and outdoor. The outdoor segment is expected to grow at a fast pace during the forecast period owing to the widespread application in transmission and sub transmission sectors.

Based on voltage, the market can be categorized into low, medium and high. The low voltage segment is expected to dominate the market and hold the highest share of the market during the forecast period. Based on end user, the market can be fragmented into Transmission & Distribution Utilities, Industrial, Commercial, Residential and Others. The Transmission & Distribution utilities segment is anticipated to register high CAGR during the forecast period, as the segment is responsible for the generation, transmission, and distribution of electricity.

Among these regions, Asia-Pacific region is expected to dominate the overall switchgear market followed by Europe, North America, Middle East & Africa and South America. The major players operating in the global switchgear market are Bharat Heavy Electricals Ltd., Mitsubishi Electric Corporation, CG Power and Industrial Solutions Limited, Siemens Aktiengesellschaft, General Electric Company, Eaton Corporation pic, ABB Ltd., Alstom SA, Schneider Electric SE, Havells India Limited and others. Major companies are developing advanced technologies and launching new products in order to stay competitive in the market. Other competitive strategies include mergers ^acquisitions and new product developments.

Source - global-switchgear-market-is-expected-to-grow-from- around—100-billion-in-2019-to—1 55-billion-by-2025- 300999308.html

Indian Engineering Overview

In the last few years, India has emerged as a global engineering hub. Several global manufacturing majors have partnered with Indian firms in setting up successful engineering units across the country. A few of these include Alstom (France), Ansaldo (Italy), Babcock (UK), Colfax Corporation, GE (USA), Hitachi (Japan), Legrand (France), MHI (Japan), Schneider Electric (France), and Toshiba (Japan).

One of the key areas of focus for domestic players has also been technology up-gradation. Several firms have formed strategic alliances with technology suppliers to upgrade their production and processing capabilities. With the entry of foreign players, competition has further increased, spurring domestic investment in technology to significantly improve production quality and capacity. Increasingly, domestic players are securing ISO 9,000 accreditation to further strengthen their position in the global market.

The Indian engineering sector accounts for 5% of Indias GDR Rising domestic demand, increasing investment and growth opportunities, favourable government policies and global & domestic focus on establishing low cost plants have propelled the engineering sector to greater heights. The contribution of the engineering sector to Indias GDP over the last few years can be categorised on the basis of cost, the manufacturing segment and pure engineering industry.

Indian Electrical Sector

India is on the verge of becoming major power nation among developing economies. Electricity is a key constituent for the economic growth of the country and is directly linked to GDP of the country. There has been a surge in demand for power in India due to increase in capacity utilisation, industrialization, urbanization and population.

Currently through reforms such as Power for all, government plans to add 93 GW by 2022, this would fuel the demand for power transmission and distribution equipment. The Indian power and distribution transformer market is forecast to reach $2.9 billion by 2022. Presently the government is taking major steps to strengthen the power transmission and distribution network and has undertaken imitativeness such as UDAY for financial turn-around of power distribution companies.

Indian Switchgear Industry

Rapidly growing electrification need for remote areas along with rising electricity generation has positively affected the demand for various electrical equipment. Progressive targets by regional government to deliver electricity to rural zones is set to cater to the switchgear market growth.

Switchgear is an electrical apparatus used in a circuit to effectively regulate, control and switch on or off the circuit as required. It is readily installed in different residential, commercial, industrial and utility application to ensure operational safety, cost-effective and uninterrupted operations.

The current path in an electrical network is at times hindered due to break down of insulation layers leading to problematic fault or short circuit conditions. These erratic situations may lead to harmful consequences like equipment damage, fire and explosions, islanding and other failure. Switchgear are widely installed in low, medium and high voltage systems to deal with the abnormal operating levels in a variable network between load centers and generating stations.

Switchgears generally consists of two components power control components to control conduction in the equipment and power switching components, to break the connection in the fault incidents. It is also installed to de-energize the equipment and thereby effectively maintain and test the system to rectify fault levels. Switchgear is a combination of numerous devices like current & voltage transformers, relays, circuit breakers, fuses, isolators, switches and other equipments for enhancing operations.

Expanding transmission & distribution (TSD) network has influenced the usage switchgear across different regions. Asia Pacific region holds the lions share owing to the presence of large industrial establishments like bulk manufacturing units.

Furthermore, Europe occupies a substantial market positionon due to long standing distribution network along with increasing adoption of renewable technologies. North America switchgear market is set to grow at a considerable rate owing to the expansion of existing commercial and industrial infrastructure along with the construction of new grids for renewable power.

Indias switchgear market is projected to grow at a CAGR of over 15% through 2023, on account of rising development across residential, commercial and industrial end use sectors. Moreover, electrification programs running across the country and development of transmission and distribution networks is further fueling growth in Indias switchgear market. Additionally, with rising per capita income, demand for various electrical appliances like air conditioners, fridges, etc., is also growing, which in turn, is increasing the electricity consumption and the need of switchgears to regulate and control these appliances.

Indias overall market for switchgears is anticipated to grow more than 7% at the end of the forecast period. Low Voltage Switchgear will be in dominance for the forecast period in switchgear industry. In specific Medium and High Voltage switchgear market, Medium Voltage custom built products are in the dominance and are anticipated to be in dominance for the forecast period. MV and HV switchgear is anticipated to have CAGR of more than 8% from 2017-18 to 2022-23.

The presence and advancement of adequate infrastructure is essential for sustained growth of the Indian economy. Indias power sector is one of the most diversified in the world. Sources of power generation range from traditional sources, such as coal, lignite, natural gas, oil, hydro and nuclear power to viable nonconventional sources such as wind, solar, agricultural and domestic waste. Switchgear is necessary from the point of production of electricity to end users.

(Source - analysis/switchgear-industry-indispensable-part-of-indias-future/ 80717005790/en/lndia-Switchgear-LV-MV-HV-Market- Overview

Indian Wires & Cables Industry

Doubling of demand for electricity in the future will generate the need for development of quality electrical infrastructure supporting this growth for several years to come. This augurs well for the development of wires and cables industry in India. Being one of the key segments of the power sector, the wires and cables sector is experiencing an escalating demand owing to the growth in power generation infrastructure.

The wires and cables market in India comprise nearly 40% of the electrical industry and is growing at a CAGR of 15% as a result of growth in the power and infrastructure segments. The segment has been witnessing unprecedented growth owing to the boost provided by the recent policy and regulatory initiatives as well as Government schemes like Ujjwal Discom Assurance Yojana (UDAY1, the Deendayal Upadhyay Gram Jyoti Yojana (DDUGJY), the Integrated Power Development Scheme (IPDS) and the Pradhan Mantri Sahaj Bijli Har Ghar Yojana Saubhagya. Further, Indian Railways Railway Mission 41K has generated the potential for Indian wires and cables industry through electrification of 38,000 km route. Under DDUGJY, the government has envisaged the electrification of all villages.

(Source - industry-betting-big-on-infra/ )


Salzer Electronics Limited is among leading players offering Total and Customized Electrical Solutions in Switchgears, Wires & Cables and Energy Management business in India. The Company is the largest manufacturer of CAM Operated Rotary switches & Wire Ducts in India, with a market share of 25% & 20% respectively. The Company caters to a wide range of products with five In-house manufacturing facilities located in Coimbatore.

The Company has a wide distribution network locally and globally, exporting to more than 40 countries. In India, Salzer markets its products through its own distributors and more than 350 local distributors of LS.T. The Company has a strong RS.D team that focuses on developing and commercializing the technologies of the products, and as a result, can offer total customized electrical solutions to its customers.


The consolidated performance of the Company for the financial year ended March 31st, 2020, is as follows:

Total revenue from operations at Rs. 566.9 crore for the year ended March 31st, 2020, as against Rs. 559.8 crore for the corresponding previous period, an increase of 1.6%, mainly driven by Industrial Switch Gears Business. The Contribution from Export Sales was 17.2%, driven by Industrial Switchgear Business

The Breakup of revenue for the Electrical Installation Products:

• Industrial Switchgear 45 % of net revenues, YoY increase of 9.9 %, mainly on account of higher exports

• Wires & Cables 47.0 % of net revenues, YoY decline of 1.9 %

• Buildings Products 6% of net revenues

• Energy Management 2 % of net revenue

The raw materials consumed for the financial year ended March 31st, 2020 were Rs. 419.8 crore as against Rs. 418.8 crore for the corresponding previous period, an increase of 0.2%.

The staff expenses for the financial year ended March 31 st, 2020 were Rs. 26.4 crore as against Rs. 24.9 crore for the corresponding previous period, an increase of 6.0%.

The other expenses for the financial year ended March 31st, 2020 were Rs. 55.5 crore as against Rs. 52.4 crore for the corresponding previous period, an increase of 6.0%.

The EBIDTA (earnings before interest, depreciation and tax) was Rs. 65.2 crore for the year ended March 31st, 2020, as against Rs. 63.6 crore for the corresponding previous period, an increase of 2.4%.

The depreciation for the financial year ended March 31st, 2020 was Rs. 14.4 crore, as against Rs. 12.2 crore for the corresponding previous period, an increase of 18.8%.

The EBIT (earnings before interest and tax) were Rs. 51.6 crore for the year ended March 31st, 2020, as against Rs. 52.2 crore for the corresponding previous period, a decline of 1.1%

The interest for the financial year ended March 31st, 2020 was Rs. 21.2 crore as against Rs. 19.9 crore for the corresponding previous period, an increase of 6.4%.

The profit after tax for the financial year ended March 31st, 2020 was at Rs. 26.4 crore as against Rs. 24.0 crores for the corresponding previous period, an increase of 10.2%.

The EPS (Earning per Share) for the financial year ended March 31st, 2020 was Rs. 16.5 for a face value of Rs 10 per share, as against Rs. 15.2 for the corresponding previous period.


As on March 31st, 2020, the total networth stood at Rs. 309.4 crore and total debt was at Rs. 173.68 crore.

The net debt to equity ratio of the Company stood at 0.53 as on March 31st, 2020.


Salzer primarily operates in four divisions, viz. Industrial Switchgears, Copper Business, Building Products and Energy Savers.

Industrial Switchgear

The Industrial Switchgear business occupies the first place in contribution to the total business of the Company in 2019-20. This division includes transformers, terminal blocks, rotary switches, isolators, general purpose relays, wiring ducts, MPCBs, contactors, control panels, and overload relays etc.,. The products are mainly targeted for the Original Equipment Manufacturers (OEMs) like Engineering Conglomerates Larsen & Toubro Limited etc., Panel Builders, special Machine Manufacturers etc.,. The Company commenced its operation in 1985 with this segment which is now having both domestic and export markets considerably. These products have all the necessary international certifications like UL (Underwriters Laboratories Inc), CSA (Canadian Standards Association), Intertek Semko certification and CE (Conformite Europeanee).

During the year, this business posted revenue of Rs. 254.29 Crs against Rs. 231.48 Crs in FY19, with the growth of around 9.9% and contributed 44.8% to the top-line.

Copper business

The copper business comes second in contribution to the business. In this division, Larsen and Toubro plays a major role in the off take. This vertical commenced some 16 years back and focusing more on domestic market. After few years of flat performance, the segment witnessed robust recovery and during the year, the business reported a revenue of Rs. 266.62 Crs as against Rs. 271.69 Crs with year on year decline of around 1.9%.

The copper division includes wires and cables, flexible bus bars, enameled wires, bunched conductors and tinned wires.

Building Segment

Salzer has a wide range of products under this division including modular switches, wires and cables,

changeovers and MCBs. Modular Switches drives this segment in a major way.

Some of the features are:

• Contemporary and aesthetically sleek switches -10, 20 and 32 Amps A

• Silver nickel contacts for enhanced electrical life

• Manufactured using high-grade engineering plastics

• Safety features: anti-spark shield and finger- protected switch terminals

• Speciality products viz. movement sensors, shock protectors, shaver sockets, key tag switch, programmable timers, remote switches and touch switches etc.

During the year, the Buildings Products business contributed 6.2% of total revenues.

Energy Savers

The energy saving business is a new business vertical and expects to further boost growth by focusing on the manufacturing and installation of energy saving and efficient products like street light controllers and energy saving panels. During the year, this business contributed to 2.1% of net revenue.

Key Developments

Salzer Electronics - an approved vendor for Schneider - was awarded as the Best Collaborative Supplier for 2019.

In line with the focus on increasing product offerings and expanding footprint into newer segments along with access to all India dealer network, the Company acquired 74.8% stake in Kaycee Industries Ltd for a total consideration of Rs 18.10 crore

• Kaycee Industries Limited a " preindependence" Company with a legacy of "three quarter of a century", being pioneer in Industrial Switchgear business and among the leading provider of electrical and electric component in India with manufacturing facility located at Ambernath Thane

• Appointed Mr. Raman Krishnamoorthy as Vice President Finance & Operations of Kaycee Industries. Mr. Raman is a Finance Professional with over 21 years of experience in various aspects of financial and operational Management Cost optimization, operating Controls, Accounting, Tax, Reporting, Budgeting, Cash & Treasury Management, Legal & Compliance, Insurance and Risk Management


The Company faces the following Risks and Concerns:

Commodity risk:

A part of the business is substantially dependent on copper. Factors that could affect the copper business include rising copper prices. However, this increase in prices is passed on to the customer, and as the Company operates on a monthly average pricing mechanism, it does not expect to be significantly affected by this risk.

Competition Risk

This risk arising from more players wanting to be a part of this business. Like in most other industries, opportunity brings with itself competition. In each individual business division the Company faces different kinds of competition risk from both domestic manufacturers and bigger international companies. However, Salzers strong reputation, its brand goodwill and ability to customize orders as per its customers, has differentiated the Company from its competition. Over the years, the Company has expanded its presence geographically and added more customers. It also offers total and customized electrical solutions to its customers. As a result, the Company has achieved a Preferred Supplier status with GE and Schneider who source their products from Salzer on a global basis. The Company also has a substantial advantage over others due to the superior quality of infrastructure, customercentric approach and highly innovative approach. Thus, the Company does not expect to be significantly affected by this risk.

Regulatory Risk

If the Company is unable to obtain the required certifications and approvals for existing and new products, growth will be affected. However, the Company has all the necessary international certifications for existing products. Moreover, with the previous experience of obtaining the necessary certifications for new products, the Company does not expect this risk to affect it in the coming years.

Execution risk

The Company is planning to expand its product range as well as add technologically-advanced new products. The execution of the project is dependent on land purchase and project management skills. However, land acquisition is not a concern as the Company has a sufficient land-bank to increase capacity and support the addition of new products.

Concerns like unprecedented natural calamities, political/ social turmoil may remain. However, these threats are faced by the whole industry. With improved and efficient processes in place, the Company is well- positioned for sustainable growth.

Forex risk

Given the volatile global economy and fluctuations in the foreign exchange market, the Company does face forex risk. In order to mitigate this, hedging tools have been adopted to arrest the negative impact. Importantly, Salzer has a natural hedge having both import and export at appropriate value and as the result, any volatility in the forex market does not have a significant material impact on the business.


Ongoing investments across commercial and residential sector will complement the industry statistics - Rising space constraints along with ongoing investments in RS.D sector for the enhancement of smart and compact control equipment will further complement the industry scenario. Continuous investments across commercial and residential establishments including public and private apartments, offices, and restaurants will further fuel the product demand. Moreover, ease-of-operation, longer product life cycle and enhanced equipment safety are the essential features which will accelerate the product adoption.

Growing inclination toward energy efficient systems will complement the industry outlook - Increasing demand for safe & reliable systems coupled with the increasing demand for HVDC systems across the TS.D network will complement the demand DC switchgears. Expansion of extra high-tension transmission networks to cater to the growing energy demand across the manufacturing and industrial sector will further stimulate the product demand. In addition, rising fund allocation toward solar and offshore wind farms across developed and developing countries will further complement the switchgear market growth.

Ageing Equipments in many Countries The installed base of switchgear in many countries either has exceeded or is nearing their recommended operational life. Such conditions provide good prospects for the replacement market. There are possibilities for switchgears to explode if at all they fail, causing potential damages to other equipment, facility and environment. This may involve liabilities such as compensation, environmental cleanup and legal action. Presently the nature of the load has changed to a large extent, mainly due to growth of electronic equipment that is being used. Therefore, in order to ensure high power quality, improved efficiency and to meet the load demand the existing aged switchgear should be replaced the new ones.

Increase in Electricity Generation

The world electricity capacity is expected to grow over a period of time. There bas been a trend of increasing re-location of industrial activity from developed economies to emerging economies such as China, India, Eastern Europe and Latin America. Such a trend arises because of two reasons. Firstly, the low-cost advantage that the companies can derive out of shifting some of their operations in these countries. Secondly there has been a growing domestic demand in these emerging economies for increased industrial and commercial production. To meet the growing demand for more power, countries will require increased investments in electricity infrastructure. Such growth in the installed capacity would require additional infrastructure investments in switchgears. Additionally, the upgradation of transmission and distribution infrastructure to meet the federal and state level energy efficiency mandate is likely to boost the demand for switchgears. The impact of this driver is expected to be medium in the short term and high in the medium and long term over a period of time.


• Competition from local and multinational players

• Execution risk

• Regulatory changes

• Raw Material Cost


The company has proper human resource and industry relations policies, which are reviewed periodically. The human resource team conducts various training sessions for employee development on an ongoing basis. These development programs are aimed at augmenting employee potential and represent an integral part of the overall business goals. Besides, employees profile represents a well balanced mix of experience and youth.

As on March 31st, 2020, the Company had a workforce of 581 people on rolls.

Way Ahead

The demand of electricity is growing on a year-on-year basis, which will open new growth opportunities. Currently, 10 per cent of Indias export market is contributed by transformers. With the introduction of the "Make in India" initiative, the share of transformers is set to grow in the near future. Several incentives have also been introduced for capacity addition in power generation, which are expected to significantly increase the demand for transformers and other electrical equipment in the coming years. With huge investments proposed across sectors such as power, infrastructure, etc., the transformers market in India is slated for strong growth. The excess capacity in the transformer industry in India, and entry of new players is further expected to increase market competitiveness. This is also expected to lead to market consolidation over the next few years.

The Company expects to capitalize on this opportunity. Besides, Company also focuses on having technical tie ups with globally renowned players to develop technically advanced products for its customers.

Salzer also works on sourcing global technologies to make products in India under the theme of Make in India an initiative by the Government in making products locally. As a part of the Make in India story, Salzer enters into a tie-up with global firms, for importing technologies to make different products and commenced commercial production.


Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in government regulations, tax laws, economic developments within the country and such other factors globally.

The financial statements are prepared under historical cost convention, on accrual basis of accounting, and in accordance with the provisions of the Companies Act, 2013 (the Act) and comply with the IND AS Accounting standards. The Management of Salzer Electronics has used estimates and Judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements, reflect in a true and fair manner, the state of affairs and profit for the year.