Detailed Rationale

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

 

The ratings continue to reflect the leading market position of SEL 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 in the fragmented wires and cable industry and large working capital requirement.

 

Revenue grew by 22% year-on-year to Rs 1,419 crore in fiscal 2025, driven by strong growth from the industrial switch gear segment at 28.6% and healthy growth of wires & cables division at 14%, also the revenue growth was modestly supported by sale of smart meters with revenue of Rs 16 crore during the fiscal. Increasing push by the ministry of power under its Revamped Distribution Sector Scheme (RDSS) to replace all the existing energy meters with smart meters will drive revenue growth in the smart meter division. Export segment, which is majorly driven by industrial switch gear segment, grew by 24% and contributed 27.4% to the sales in fiscal 2025, supported by high sales from Middle East, African and Asian countries. Over the medium term, revenue of SEL is expected at 10-15%, driven by offtake from the smart meter division supported by healthy demand from switch gear segment and sales of wire and cable products on account of uptick in industrial demand, healthy growth in building products segment and anticipated improvement in exports.

 

The operating margin largely remained stable at 9.9% in fiscal 2025 compared with 10% in fiscal 2024, primarily on account of increase in raw material prices, especially copper and silver, along with moderate fall in exports during the fourth quarter of fiscal 2025. Over the medium term, the operating margin is expected to improve to 10.2-10.4% and increase further on the expectation of stable input prices and steady increase in revenue share of smart meters division, which has higher margin relative to SEL’s other products.

 

The ratings also factor in the company’s healthy financial risk profile, including stable debt protection metrics. Gearing remained at 0.77 time as on March 31, 2025, despite increase in working capital debt over the past two fiscals. Gearing is expected to improve further with better profitability and nominal debt-funded capital expenditure (capex) of Rs 25-30 crore expected over the medium term. Debt protection metrics such as net cash accrual to adjusted debt and interest coverage ratios remained at 0.18 time and 3.4 times, respectively, in fiscal 2025. These metrics are expected to improve over the medium term with improving profitability, leading to healthy cash accrual of Rs 90-110 crore against modest debt obligation. Besides, the annual cash accrual, liquidity is also supported by cash surplus of over Rs 18 crore as on March 31, 2025, and working capital limit of Rs 475 crore utilised over 83% on average for the nine months ended May 31, 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 operate under a 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 & Detailed Description

Strengths:

Healthy revenue growth from existing and upcoming new products, aided by strong market position in the domestic rotary switches market, healthy relationship 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. The acquisition of the nearest market competitor, Kaycee, in fiscal 2020 (a pioneer in industrial switches) was complimentary and synergistic to the existing business and further stabilised 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. Sustained revenue growth is expected to be driven by 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). Furthermore, revenue offtake from the smart meter business, which is expected from the current fiscal will be a key driver for the company’s growth in the long term. Continued focus on research and development and technology tie-ups with global majors should help maintain competitiveness.

 

Comfortable financial risk profile: Networth increased from Rs 469 crore as on March 31, 2024, to Rs 542 crore a year later owing to steady accretion to reserve, which limited the gearing at 0.77 time as on March 31, 2025, despite debt addition of Rs 110 crore to fund the company’s working capital requirement and capex activities. Debt protection metrics were healthy as reflected in estimated net cash accrual to adjusted debt and interest coverage ratios of 0.18 time and 3.40 times, respectively, in fiscal 2025. While the company has largely completed its capex activities 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). The expected higher contribution from smart meters and stable raw material prices for existing products will help improve operating profitability from 9.9% in fiscal 2025 to 10.2-10.5% over the medium term. Along with steady revenue growth, this will lead to stable cash generation, thereby keeping debt metrics healthy.

 

Weaknesses:

Working capital-intensive operations: Gross current assets remained elevated at 215 days as on March 31, 2025, compared with 218 days as on March 31, 2024, because of sizeable inventory as the company manufactures a wide range of products and stocks raw materials (especially copper) when commodity prices are favourable. Receivables remain stretched at over 106 days on account of inherently long payment cycle extended to customers, majority of who are original equipment manufacturers. However, as and when the share of smart meter business increases in the revenue mix, working capital is likely to moderate. Nevertheless, prudent working capital management will remain critical over the medium term.

 

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

Liquidity: Strong

SEL is expected to benefit from its healthy cash accrual of Rs 90-110 crore against debt obligation of Rs 10-15 crore and capex plans of Rs 25-30 crore over the medium term. The company also had liquid surplus of ~Rs 18 crore as on March 31, 2025, besides fund-based bank limit of Rs 475 crore utilised over 83% on average for the nine months ended May 31, 2025. Healthy gearing of ~0.77 time as on March 31, 2025, allows the company with sufficient headroom to raise additional debt to meet capex or incremental working capital requirement.

Outlook: Stable

Crisil Ratings believes SEL will continue to sustain its steady business performance, supported by healthy demand for existing products such as switchgears and cables as well as better contribution from new products, including smart meters. Better operating leverage and continued control of costs, along with stable raw material prices, will enable a gradual improvement in the operating margin, also benefiting cash generation. The financial risk profile is also expected to remain at adequate level over the medium term, supported by prudently funded capex plans.

Rating sensitivity factors

Upward factors

• Sustained revenue growth, including from new products, and operating margin in the range of 11-12%, also benefitting cash generation
• Sustenance of healthy debt metrics, through prudent funding of capex and improved working capital levels

 

Downward Factors

• Sustained decline in revenue and fall in operating margin to below 8-9% also impacting cash generation.
• 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 a marketing association with SEIPL for sale and distribution of its electrical installation products in India and a few overseas markets. SEL sells products overseas through associate company, Salzer Exports Ltd.

 

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

Key Financial Indicators (Consolidated)*

As on / for the period ended March 31		2025	2024
Revenue	Rs crore	1419	1167
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