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Renew | June 2018

The Power Enabler

Established in 1985 as a small enterprise in collaboration with a German company, Salzer Electronics today is a dynamic chain of four factories. Starting its journey as a manufacturer of cam-operated rotary switches, Salzer has evolved from being a single product manufacturer to a company that offers complete customised electrical solutions to its customers. <br /> <br /> Salzer Electronics has been in business for more than three decades (established, 1985). The company began designing and manufacturing a range of world class cam-operated rotary switches in technical collaboration with<span style="font-weight: bold;"> Saelzer Schaltgerate Fabrik, GmbH., Germany</span>. In 1993, Salzer entered into a business association with the country's engineering major, Larsen &amp; Toubro (L&amp;T), to market its products at a pan-India level. Currently, 35 to 40 per cent of Salzer's product offtake is done by L&amp;T. To be precise, Salzerhas access to L&amp;T's local network through more than 350 distributors. In 2015, it entered into a technical collaboration with Trafomodern, an Austrian company, to expand its transformer range (from single phase to <br /> three phases).<br /> <br /> Through various initiatives, Salzer has been able to deliver high quality products of international standards and gain leadership position in the world market. Be it association with L&amp;T or Plitron from Canada, it has always focused on getting into technologies which are niche and offer great value. It has also been able to get the preferred vendors' status with global giants like GE and Schneider. The company has classified its businesses into four different divisions, namely, industrial switchgear, wire and cable, building segment and energy management. <br /> <br /> Salzer, with its four manufacturing facilities in Coimbatore, manufactures the widest range of electrical products, including rotary switches, load-break switches, wiring ducts, terminal connectors, DC disconnectors, electro-magnetic relays, wires and cables, wiring harness, motor control products, and magnetic wires besides modular wiring accessories and allied specialty products. Interestingly, its unit I- where rotary switch, contractors and relays, and three-phase dry type transformers are manufactured -is completely run by women staff. <br /> <br /> Salzer's manufacturing facilities are equipped with full-fledged type testing laboratory that can take product loads upto 500 Amps and an environmental test chamber for conducting humidity test, salt spray test and other basic tests as per UL standards. It also has an in-house tool room facility for manufacturing and servicing moulds and press tools, equipped with CNC wire cut machines and spark erosion machines, CNC machining centre, EDM drilling, mix of conventional machines and latest digital measuring equipment. Importantly, all machines are inspected and certified by the GE tool division. <br /> <br /> <span style="font-weight: bold;">Number games</span><br /> For the quarter ended December 2017, the net revenue from operations was Rs 1.11 billion, registering a year-on-year (y-o-y) growth of 22 per cent from Q3 FY17. <br /> Exports in this quarter contributed to around 18 per cent of the revenue. &quot;The growth was mainly driven by a good pick up in the industrial switchgear business and by a higher demand in the agriculture cable market,&quot;<br /> <br /> says <span style="font-weight: bold;">Rajesh Doraiswamy, Joint Managing Director, Salzer Electronics. </span><br /> The earnings before interest, taxes, depreciation and amortisation (EBITDA) for the quarter stood at nearly Rs 140 million as compared to Rs 100 million in the corresponding previous quarter, showing a growth of 39 per cent. The EBITDA margins also significantly improved by over 150 basis points to 12.2 per cent on a y-o-y basis. The reason for this rise is due to a better product mix and increased exports to North America. The profit after tax is at Rs 53 million in Q3 FY18 as against <br /> Rs 34 million in the corresponding previous quarter, showing a growth of around 57 per cent.<br /> <br /> Moving to the company's nine months performance highlights, the net revenue from its operations was at Rs 3.16 billion in FY18. The y-o-y growth was nearly 16 per cent as compared to nine months FY'17. Export contribution during the nine months was 18 per cent of the total revenues. The growth in the revenues has been driven by the company's key business, industrial switchgear and wire and cable. <br /> <br /> Asked about the success of the revenue performance of the company, the second-generation entrepreneur hails the company's ability of manufacturing 80 per cent of the components in-house. Over the years, Salzer has enhanced its capital efficiency through optimised use of resources, enhanced manufacturing automation, extensive manufacturing integration and increased material efficiency. The result is that the company is driven by the need to enhance revenues through a less-than-proportionate increase in employed capital. It is driven by progressive value addition that enhances margins. It has invested in high-technology products ring fenced from competition, helping drive revenues during challenging times.<br /> <br /> Says Doraiswamy, &quot;Manufacturing the components in-house is a major value addition; we outsource less. Besides, we also have laboratories in-house for testing. It is something very special and not every company has this. So any product that we make is tested internally, even before it goes to an external lab.&quot; <br /> <br /> <span style="font-weight: bold;">Business profiles</span><br /> The company's overall business portfolio is diversified into four segments. Industrial switchgear segment is one of the largest contributors to the overall revenues of Salzer. It comprises manufacturing of cam-operated rotary switches; toraidal transformers, relays, load break switches, wire harness etc. The market conditions in India as well as in the USA and Europe continue to be very challenging. Yet, this division has managed well. Its y-o-y growth rate is 7 per cent and its contribution to the total revenue of the company is 49 per cent. &quot;With the GST regime in place and the overall economic scenario being healthy, we are looking positive. We are witnessing early signs of revival in the switchgear business,&quot; says Rajesh Doraiswamy.<br /> <br /> Going forward, the company expects a strong recovery of demand from across the spectrum and foresees healthy business coming from both domestic and international markets and also from companies like GE, Schneider, Honeywell, ABB and Siemens. <br /> The next in line is the wire and cable segment. According to Doraiswamy, this division has been focusing on doing brand labelling for major players. It brands for Larsen and Toubro, Crompton Greaves Consumer Product, Texno and Efab among others. In the last two years, Salzer has also started giving value-added products like elevator travelling cables, hoist cables and UL listed wires to various other customers. This division contributed 45 per cent of the total revenues during Q3 and 49 per cent in nine months FY18. Salzer, which also manufactures specialised cables for the solar sector, is expecting a double-digit growth in the next two years from the current Rs 50 million. <br /> <br /> In terms of expansion, the company is investing heavily on setting up a data cable manufacturing unit, within the existing wire and cable segment, at a cost of Rs 250 million. The unit is expected to come up in the next six months, according to the Salzer management. <br /> <br /> Third is the building segment, which is the only B2C business that the company has today under its belt. Although the contribution to the total revenue from this division remains small, Salzer management told the visiting media that in the next two to three years, they are confident of increasing the contribution from this division by about 10 per cent. &quot;The division has given us new opportunities in the real estate sector where we have some annual rate contracts with major builders in Karnataka and Andhra Pradesh,&quot; Doraiswamy told PT. <br /> <br /> Fourth is the energy management segment and an order-driven business. This is a new technology-oriented business which was developed by the company's in-house R&amp;D team. This product segment is the largest energy service company (ESCO) with the highest CRISIL rating, Grade A, in the country. <br /> <br /> Overall, the revenue growth has been driven by the building segment and the wire and cable segment. Both of them have grown more than 30 per cent y-o-y. Through its continued association and increase in orders from valued customers like GE, Schneider, Honeywell and ABB, Salzer has been able to achieve this growth. Going forward, Salzer's focus is to achieve profitable growth by adding newer products which are customised and value added in nature, exploring newer geographies which can yield better margins.&nbsp; <br /> <br /> Meanwhile, the company is taking baby steps in manufacturing sensors. A visibly excited Doraiswamy shares, &quot;This is something new we recently started.&quot; He adds, &quot;We are trying to do lot of sampling and get in some technology partners from Europe.&quot; This business segment, according to the management of the company, is still in its nascent stage. Hopefully, the company is optimistic about launching speed sensors, pressure sensors, temperature sensors etc., in FY2019-20. <br /> <br /> <span style="font-weight: bold;">Certifications</span><br /> Over the years, Salzer has obtained the prestigious ISO 9001 certification bestowed by NQA-UK for design, development, manufacture and supply of cam-operated rotary switches, selector switches and allied products. <br /> <br /> The company is also certified for ISO 14001:2004 and OHSAS 18001:2007 and its products have been approved by the Canadian Standards Association, Underwriters Laboratories, VDE (Association of German Electrical Technologists), Conformite Europeanee (CE) with RoHS compliance, and TS 16949 for quality management system.<br /> <br /> Commenting on whether India should adopt the mandatory certification for products eyeing export markets, Doraiswamy conveyed that even though the country does not have a separate standardisation process for product certification, it has adopted standards from Germany which are equivalent to CE certification. According to him, BIS certification is not mandatory in India for the line of products manufactured by Salzer. <br /> <br /> With a series of certifications in its kitty, Salzer is known as a brand in more than 40 countries. The company is selling switchgear products to countries like USA, UK, Canada, Germany, Italy, Poland, Malaysia, Thailand, Vietnam, UAE and Australia. At present, its export revenue is around 20 percent of its total revenues. &quot;We continue to focus on export markets and grow this business. Our focus for the next two years will be the African markets,&quot; says Doraiswamy. <br /> <br /> <span style="font-weight: bold;">R&amp;D</span><br /> When it comes to research and development, many Indian companies try not to invest citing a number of reasons. However, Salzer has continuously invested 3 per cent of its revenue every year on R&amp;D activities. Setting new market trends, the company has invested extensively in R&amp;D, supported by a full-fledged laboratory and a captive tool room to upgrade and develop products. Its in-house R&amp;D is recognised by the Ministry of Science and Technology, Department of Science and Industrial Research, Government of India. The company enjoys a patent for its rotary switch, while five products await patent approvals.<br /> <br /> According to Doraiswamy, third-party testing is an expensive proposition these days as the cost is very high. &quot;We can do most of the testing (product) in-house before we opt for outside certification. The tool room gives us the flexibility of changing the design, getting new products and making the company more flexible to our customers.&quot; <br /> <br /> <span style="font-weight: bold;">Challenges</span><br /> Although the revenue figure speaks well for the company, challenges are inevitable due to a lull in the power sector. Despite having a diverse portfolio, the company is struggling to grow at 8û10 per cent. &quot;The Indian electrical equipment market is growing flat due to lack of new projects in the last four or five years,&quot; observes Doraiswamy. &quot;Normally we used to grow at 15û20 per cent, which was easy for us earlier.&quot; But he sees some hope in the transmission and distribution segment. According to him, this sector is growing and better business can be expected out of it going forward. <br /> <br /> When asked what has kept the business going, Doraiswamy promptly replies, &quot;It is mainly the share of export market which is constant at 40û45 per cent <br /> that has kept us going despite turbulent times.&quot;He concludes by saying, &quot;If the core sector grows in India, we have business.&quot;<br /> <br /> &quot;The company is investing heavily on setting up a data cable manufacturing unit, within the existing wire and cable segment, at a cost of Rs 250 million.&quot;<br /> <br /> &quot;Overall, the revenue growth has been driven by the building segment and the wire and cable segment. Both of them have grown more than 30 per cent y-o-y.&quot;<br /> <br /> <span style="font-weight: bold;">- RAHUL KAMAT</span><br />
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