SHARETIPSINFO >>Research Reports >>Salzer electronics Ltd research (08-01-2010)

COMPANY OVERVIEW:
Salzer Electronics was established in the year 1985 to design and manufacture of world class Cam operated Rotary Switches. Company is market leader in India in Rotary switches.
Company manufactures Load Break Switches, Proximity Switches, Wiring Ducts and Terminal Connectors with CSA-NRTL/C approval.
Salzer also export its product to 41 countries across the 6 continent. Export are done directly by company or through Crompton
In India L&T has been marketing the product under the brand name of Salzer since 1993. Company also develops product exclusively for L&T on the design given by it.
In 2006 L&T bought 13% stake in the company. L&T also holds 49% stake in Salzer Cable an unlisted entity. Now Salzer electronics is being merged with Salzer cable post merger L&T stake in the merged entity will be 26%. The move will strengthened the tie with L&T.
Company is also entering into the manufacturing of compact fluorescent lamps at an investment of about Rs 2 crore.

PRODUCT MIX:

INDUSTRY OUTLOOK:
The government thrust on infrastructure and power sector will keep the demand for cables and switches high. Indo-US nuclear deal is also expected to bring more business to the sector. Industry is poised to go for robust growth as there is shortage of power and India is planning to add 100000 MW in the 11th Five Year Plan.

INVESTMENT RATIONAL:
Merger of Salzer Electronics will help in strengthening the balance sheet and company can easily raise funds for expansion.
Post merger the consolidated sale is expected to be Rs 300 crore in FY11. In FY10 merged entity is expected to have sales of Rs 200 crore.
Salzer cable is looking to double its cable capacity to 550 tons copper cables/wires per month by 2011. Company is expected to invest around Rs 20 crore in the capacity expansion.
Salzer Electronics is also investing around 5-6 crore every year to enhance the capacity.
Higher stake of L&T in the company will help the company image.
Company supply of electrical product to L&T is expected to increase in coming months due to closer association.
L&T could utilize Salzers presence in 41 countries to market its product.

SHAREHOLDING PATTERN:

FINANCIAL:

Key Highlights:
Total Income grew at CAGR of 41.75% in last four years.
PBDITA grew at CAGR of 36.9% in last four years.
PAT grew at CAGR of 28.3% in last four years.

RATIOS:

Key Highlights:
EPS has grown at CAGR of 28.3% over the last four years.
PBDITA margin remained flat.
NPM has declined from 6% to 4.43%, decline of 157 basis points. Decline was mainly due to increase in interest burden and depreciation.
Interest cover decline from 2.7 to 1.97.

COMPARISION OF Q2FY2010 WITH Q2FY2009:

Key Highlights:
Total Income declined by 12.86% to Rs 20.65 crore on YoY basis.
PBDITA declined by 1.35% to Rs 3.64 crore on YoY basis.
PAT increased by 13.07% to Rs 1.73 crore.

VALUATION &OUTLOOK:
At CMP of Rs 112 stocks is trading at 14X to FY09 earning and 9X to FY10 earning. We value the company at 14X, the fair value come at Rs 168 per share. So stock has considerable upside from the current level. Company also has consistent dividend paying track record. At current market price the dividend yield is 1.6%.
Company outlook remains good on expansion. The merger of Salzer electronics with Salzer Cable will help the company in raising fund. Association with L&T and L&T having 26% stake in merged entity will help the company in medium to long run.

CONCLUSION:
Investors with 6-8 months of investment horizon could take position on the counter. The risk reward ratio is favorable.

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