Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil A/Stable/Crisil A1' ratings on the bank facilities of Salzer Electronics Ltd (SEL).

 

The rating reaffirmation continues to reflect the strong market position of the company in the domestic rotary switches market, its healthy relationships with key industrial clients, extensive distribution network and comfortable financial risk profile. These strengths are partially offset by exposure to intense competition and large working capital requirement.

 

Revenue grew by 22% on-year to Rs 860 crore in the first half of fiscal 2026, driven by strong growth of 28% in the industrial switchgear segment and 16% in the wires and cables segment. The company continued to leverage its healthy relationships with original equipment manufacturers, leading to stable domestic revenue contribution of 76% to overall revenue during the first half of fiscal 2026 while the remaining came from export. Domestic revenue grew by ~28% to Rs 650 crore in the first half of fiscal 2026 from Rs 500 crore in the corresponding period of the previous fiscal. Within the domestic segment, the switchgear and wires and cables segments contributed 59% and 36%, respectively, while the remaining 5% was contributed by building products and smart meter segments. Increasing push by the Ministry of Power under its Revamped Distribution Sector Scheme (RDSS) to replace all existing energy meters with smart meters will drive revenue growth in the smart meter division although ramp-up in terms of revenue contribution to SEL is yet to be seen. Export grew by 11% to ~Rs 156 crore in the first half fiscal 2026 from ~Rs 140 crore in the first half of fiscal 2025. Revenue growth is expected to be 22-25% for fiscal 2026 and 7-8% thereafter, driven by strong demand from the domestic switchgear segment and multiple price hikes in the second half of fiscal 2026.

 

Operating margin declined to 9.11% in the first half fiscal 2026 from 9.80% in the first half of fiscal 2025 on account of increase in raw material prices, especially copper and silver, besides operating loss in the recently commissioned smart meter segment. With price hikes expected in the second half of fiscal 2026 to cover the increase in raw material prices, the operating margin is expected to improve to 9.2-9.5%. Improved offtake in smart meter products from fiscal 2027 and stable commodity prices should support increase in the operating margin to 9.5-9.9% over the medium term.

 

The financial risk profile will remain healthy supported by moderate debt metrics, albeit debt will remain elevated owing to large working capital requirement. Gearing was 0.84 time as on September 30, 2025, despite increase in working capital debt on account of inventory backlog in the smart meter division, which is expected to improve over the medium term. Debt is expected at a similar level supported by better profitability and moderate debt-funded capital expenditure (capex) of Rs 35-40 crore towards annual maintenance, which will be funded through internal accrual and debt, if required. Debt protection metrics, such as net cash accrual to adjusted debt (NCAAD) and interest coverage ratios were 0.09 time and 3.3 times as of September 2025, are expected to remain stable over the medium term with improving profitability. Liquidity will be supported by cash accrual of Rs 80-85 crore in fiscal 2026 and Rs 95-120 crore from next fiscal against modest debt obligation of Rs 10 crore and Rs 17 crore, respectively. Cash surplus was over Rs 26 crore as on September 30, 2025, and working capital limit of Rs 475 crore was utilised over 85% on average during the nine months through November 2025.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of SEL and its subsidiaries, Kaycee Industries Ltd (Kaycee), Salzer EV Infra Pvt Ltd, Salzer Electronics Arabia Ltd and Salzer Kostad EV Chargers Pvt Ltd, as these entities are under common management and have significant business and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers - Strengths

Healthy revenue growth from existing and upcoming new products, aided by strong market position in the domestic rotary switches market and healthy relationships with industrial clients

Revenue growth is likely to remain steady, supported by the market leadership of SEL in the cam-operated rotary switches segment, strong product profile and established clientele. Acquisition of the nearest market competitor, Kaycee, in fiscal 2020 (a pioneer in industrial switches) was complimentary and synergistic to the existing business and enhanced the market position of SEL. The acquisition also helped SEL to expand its footprint into railways and provided access to a pan-India dealer network. The steady revenue growth will be driven by addition of new products in the industrial switchgear segment and the marketing and distribution arrangement with Schneider Electric India Pvt Ltd (SEIPL; ‘Crisil AAA/Stable/Crisil A1+’). SEIPL is the erstwhile electrical and automation division of Larsen & Toubro Ltd (L&T). Continued focus on research and development and technology tie-ups with global majors should help maintain competitive edge.

 

Comfortable financial risk profile

Networth increased to Rs 570 crore as on September 30, 2025, from Rs 542 crore as on March 31, 2025, limiting gearing to 0.84 time as of September 2025 despite debt addition of about Rs 60 crore to fund the working capital requirement. Debt protection metrics were healthy, as reflected in estimated NCAAD and interest coverage ratios of 0.04 time and 3.27 times, respectively, in September 2025. While the company has completed its capex for the next 1-2 fiscals, moderate maintenance capex of Rs 25-40 crore is expected over the medium term, which will be funded through cash accrual and debt (if required). Increase in the demand for switchgear products and offtake from the smart meter segment will help improve the operating margin to 9.5-9.9% over the medium term, leading to stable cash generation and healthy debt metrics.

Key Rating Drivers - Weaknesses

Lower-than-expected offtake in the smart meter business

SEL has set up a smart meter manufacturing facility in Annur to manufacture smart meters for Advanced Smart Meter Infrastructure Providers (AMISPs), to replace existing energy meters with smart meters under RDSS. The facility, set up for ~Rs 70 crore, commissioned operations in fiscal 2025 and has revenue potential of Rs 400-450 crore. However, offtake from this project has been slow owing to infrastructure challenges and delayed implementation by AMISPs. In fiscal 2026, SEL has executed orders worth Rs 22 crore in the smart meter segment and has orders of Rs 50 crore. While the company has adequate inventory of smart meter products, overcoming the implementation challenges will be critical for improving the operating profitability.

 

Working capital-intensive operations, and exposure to intense competition in the electrical cables industry

Gross current assets remained large at 210 days as on September 30, 2025, compared with 215 days as on March 31, 2025, because of the diversified product mix, which includes transformers, wire harnesses, relays and cam-operated switches, and 15-17 product lines. The throughput time of the segment is long and the company keeps sizeable inventory to ensure continuity in process. Receivables were ~Rs 40 crore for the smart meter business, excluding which the collection period of the company ranges between 85 days and 90 days. When the share of the smart meter business increases in the revenue mix, the working capital cycle will improve. Prudent working capital management will remain critical over the medium term.

 

Domestic manufacturers of electrical installation products face intense competition from the unorganised sector and cheap Chinese imports as the industry has low entry barriers and the technology can be easily replicated. Although longstanding relationships with customers with guaranteed offtake and introduction of value-added products will support offtake in the electrical cables segment, exposure to competition may limit profitability.

Liquidity Strong

Healthy cash accrual of Rs 90-110 crore per fiscal will comfortably cover annual debt obligation of Rs 10-17 crore and moderate capex of Rs 35-40 crore per annum over the medium term. The company had liquid surplus of ~Rs 26 crore as on September 30, 2025, and fund-based bank limit of Rs 475 crore, which was utilised over 85% on average during the nine months through November 2025. Healthy gearing of ~0.8 time as on September 30, 2025, provides the company sufficient headroom to raise additional debt to meet capex or working capital requirement.

Outlook Stable

Crisil Ratings believes SEL will sustain its steady business performance supported by healthy demand for existing products, such as switchgears and cables, and better contribution from new products, including smart meters. The financial risk profile will remain adequate over the medium term supported by prudently funded capex.

Rating sensitivity factors

Upward factors

• Steady revenue growth and stable operating margin of 11-12% leading to higher cash accrual
• Sustenance of healthy debt metrics through prudent funding of capex and improved working capital cycle

 

Downward factors

• Decline in revenue and fall in operating margin to 8-9% leading to lower cash accrual
• Large, debt-funded capex or acquisition or further stretch in the working capital cycle weakening the key debt metrics

About the Company

Incorporated in 1985, SEL manufactures cam-operated rotary switches, toroidal transformers, cable ducts, isolators, modular switches, relays and automotive products. It has five manufacturing units in Coimbatore and one unit in Hosur (both in Tamil Nadu). The company has a longstanding relationship with SEIPL (the erstwhile electrical and automation division of L&T, which remains the largest customer for SEL's cables). SEL also has marketing association with SEIPL for sale and distribution of its electrical installation products in India and overseas markets. SEL sells products overseas through associate company, Salzer Exports Ltd.

 

In May 2019, SEL entered into a share purchase agreement to acquire 74.91% stake in Kaycee, a Mumbai-based company, from its erstwhile principal promoter, Universal Trust Pvt Ltd, for cash consideration of Rs 18 crore, which was funded through internal accrual. Subsequently, SEL divested 3% stake, reducing its holding to 71.91%. Kaycee manufactures rotary cam switches, weather tight switches and breaker control switches.

Key Financial Indicators (combined)*

As on / for the period ended March 31		2025	2024
Revenue	Rs crore	1419	1167
Profit after tax (PAT)	Rs crore	53	47
PAT margin	%	3.7	4.0
Adjusted debt / adjusted networth	Times	0.77	0.66
Interest coverage	Times	3.40	3.47

*Crisil Ratings-adjusted numbers

Any other information: Not applicable