Salzer Electronics Limited (517059) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Salzer Electronics Limited Q2 and H1 FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on belief, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rajesh Doraiswamy, Joint Managing Director of Salzer Limited. Thank you, and over to you, sir.

Thank you very much. Good afternoon, everyone, and thank you all for joining us today to discuss the unaudited financial results for the second quarter and half year ended September 30, 2021. A pleasure speaking to you all again this quarter. I hope you all have been staying safe. I have with me Mr. Baskarasubramanian, Director, Corporate Affairs and Company Secretary; Mr. Murugesh, Assistant Company Secretary; and Bridge IR, our Investor Relations team. We have already shared our results update presentation, and I hope you all must have received it and gone through the same. Before we discuss the financial performance of the second quarter, I would like to share some of the recent developments and market scenario with all of you. COVID-19 pandemic has declined to some extent, and we have started to see recovery in demand from various sectors that we cater to. Even though a large part of the first quarter of the current fiscal year went in lockdown, our team has been working hard and are in constant engagement with our esteemed clients and tracking the changing situation at various levels. During end of first quarter onwards, operations gradually resumed to full capacity as the restrictions were eased in a staged manner by the authorities. However, as we have demonstrated during the previous year, even in such trying times, Salzer continues to show resilience and registered a good decent performance. On the safety front, we have conducted 4 vaccination camps across all of our plants, for all our employees. And you can say that at present, 95% of our employees are vaccinated. We continue to follow all safety protocols during these trying times. On a more upbeat note, as you might have -- might be aware, we have recently forayed into electric vehicles vertical, in line with one of our growth strategies of adding new products and entering new and promising business verticals. In July - August 2021, we entered into 2 new joint ventures, one with an Austrian company called Kostad and with another -- with an Indo-Austrian start up E-March LLP. Through our JV with Kostad, we will be manufacturing fast chargers for electric vehicles and related equipment and software. Kostad is a specialist in DC fast charging stations in Europe and is a renowned brand across Europe. With their technical [ note ] , we shall be manufacturing EV charges for Indian and Southeast Asian markets. Through our JV with E-March LLP, we will manufacture electric conversion kits for auto rickshaws, buses. We foresee a definite shift in the automotive industry towards EVs, especially in the public transport. Stringent emission norms and government support for EVs are going to boost this sector in the coming years. With these ventures, we are positioning ourselves to be a step ahead in the market as demand picks up. The joint ventures have already been incorporated and necessary procedures are on track. Operations for both the JVs is expected to begin from Q4 of this year. Coming to our existing product portfolio. The domestic dealer and retail market is recovering very well post COVID, which especially reflects in our Switchgear business, where we are witnessing robust demand. We are optimistic that the demand for these products will continue to gain momentum in the coming quarters. In fact, almost all our products in the Switchgear segment have had volume growth across all sectors by about 20%. This quarter, we have actually recorded our highest ever sales for 1 quarter. As forecasted, prices of raw materials such as copper, plastics, steel, et cetera, continue to rise through this quarter. We are gradually passing on this price hike. In some of our product lines, we have already increased prices by about 10% in the last 6 months. However, the margins have been impacted to some extent due to the lag in passing on the price increase. We are aiming for another price increase in the third quarter. And if that happens, we should see our EBITDA margins back to about 11% to 12% by Q4 in this year. Our export markets have also recovered very well with significant demand coming in as the impacts of the pandemic subsides slowly in the global markets. Export demand is likely to be stable and positive. As the industry reopens fully, our growing export market will complement the domestic market to help us grow at a much faster rate, giving an optimistic view for the second half of this fiscal. The near-term market situation is still a little uncertain due to the speculation of a third wave. However, based on the demand we are witnessing at present and indications from various OEMs and customers, we are optimistic both the medium term and the long term. We are expecting strong growth in volumes at over 20% in the coming quarters of this fiscal. The company is well positioned to cater to higher demand from our customers and poised to take up new opportunities that comes our way. Now coming to our quarterly financial and business performance. During the second quarter, our revenues increased by 30.04% year-on-year to INR 194.81 crore from 149.8 crore INR in the previous corresponding period, mainly due to industry's Switchgear products growing and also export markets growing, mainly to the U.S. market. Out of the 30% growth in this quarter, 25% will be the volume growth and 5% will be the price growth. The EBITDA for this quarter stood at INR 18.41 crores as compared to INR 18.76 crores in the corresponding previous period, a year-on-year decline of 1.84%. EBITDA margin was impacted by volatility in raw material prices. Q2 FY '22 EBITDA margin stood at 9.45%, a decline of 307 basis points, mainly due to continuous rise in input material price increase, which is not stable. And passing of input cost to customers is very difficult. It has impacted margins slightly. The profit after tax was at INR 7.46 crores in Q2 FY '22 period as against INR 6.58 crores in the corresponding previous period. Now coming to the half yearly results, H1 FY '22. In the 6 months ended September 2021, revenues increased 40% year-on-year to INR 343.78 crore. This was primarily due to strong recovery in demand linked to higher volumes across several products under Switchgear segment. Increase in product prices also supported revenue growth. So the volume to price growth will be 25% and 15%, respectively, for the half year. EBITDA during this period was at INR 33.21 crore, growing 17.18% year-on-year. EBITDA margin stood at 9.66%. The lag in passing on the rise and raw material prices impacted the margins. PAT during this period grew 56.85% year-on-year to INR 11.41 crore, while PAT margins were at 3.33%. Moving on to the breakup of revenues as to the business divisions. The Industrial Switchgear division contributed 54.18% of the total revenues in this quarter and 52.09% during 6 months. This division's EBITDA margin stood at 11.79% in Q2 FY '22 and 12.17% for half year FY '22. This is a reduction of approximately 250 to 300 basis points compared to the previous year's quarters, mainly due to the input material price increase. All products under this division grew in this quarter, particularly the new products, wire harness and 3 phase transformers grew at 74.3% and 15%, respectively, year-on-year in Q2 FY '22. The Wire & Cable division contributed 39.37% to our revenues this quarter and 42% during the half year. This is a 8.9% year-on-year revenue growth in this division during the quarter. The entire growth has come only from price rise, and we have not had much volume growth in this division for this quarter. This division's EBITDA margin has been steady at 7.2% in Q2 FY '22 and 7.84% for H1 FY '22. Now coming to the Building Products division. This division has contributed 6.45% in this quarter and 5.84% in 6 months at INR 12.58 crore for Q2 FY '22 revenue, the division has grown by 58% year-on-year. The EBITDA margin stood at 2.86%. The fourth is Energy Management division. During the quarter, we did not receive any new orders from the government as there were no tenders issued during this period. We are hopeful that in the coming quarters, we'll be able to back some new projects. Hence, we are not showing any revenues under this division. On the export front, except the initial fluctuation due to the lockdown, we are seeing steady growth, especially from the U.S. and the European markets. Exports to Americas grew at 78% year-on-year in this quarter. Exports to Europe grew close to 50% year-on-year in this quarter, while that to the rest of the Asian countries increased 92% year-on-year. For this quarter, the export share of the total revenue was at 27%. We are seeing strong demand coming in from U.S., Europe and Asia as well as from other domestic OEMs, which should help boost recovery post the second wave of COVID. The situation has become quite stable as of now. However, on short term, we are cautious given the speculation of the third wave of COVID-19. In this quarter, we have seen improvement in inventory and data cycle, leading to improved working capital cycle by about 25 days. Our focus is on maintaining and improving margins and ROCE, while improving working capital cycle and remain competitive to capitalize on the opportunities arising in the future. Our JVs in the EV space reflect this vision to innovate and diversify our product portfolio and stay ahead of the market trends. On behalf of the company, I thank all the stakeholders of Salzer Electronics for their continued support and faith in our company, and wish all of you very good health. This is all from our side for now. I would once again like to thank everyone for your time and attention. We can now take questions.

[Operator Instructions] The first question is from the line of [ Anirudh ] from [ Nagoba ] Capital.

Very good set of numbers. My question was on this composition of exports, I would want to know what constitutes? Is it standard products? How much is it customized in terms of percentage, if you can just give me a broad idea?

Okay. We do export -- 2 types of exports that the company does. One is our standard products to various dealers and distributors across the world. And we also make -- we also sell standard and customized products to OEMs in the export market. Our OEMs include Schneider, ABB and GE. These are the 3 major OEMs that we have in the export market. To all of them, I think we are preferred source, and we export them to U.S., Europe and Asia. If you look at the breakup, I would say, this quarter, we are close to -- this half year, let us take, we are close to 26% of the revenues are exported, out of which, I would say, around 8% to 10% will be customized and 15% to 17% will be our standard products to the dealers and distributors.

Okay. Okay. Okay. Okay. And the other thing, these OEM customers, are these white labeled products or these branded Salzer?

Actually, these are Salzer labeled products, but they are not going to be sold as such in the market. The OEMs will buy these components, use them in their product and sell their product. So whatever is their solution in the market, ours will be an internal component.

So the growth that you're seeing is in these OEMs or in the dealer and distributor network?

I think this quarter, we have seen growth coming from both OEMs as well as dealer market. But going forward, we see higher growth coming from the dealer market in exports.

Very nice, very nice. Okay. And second thing, I wanted to know, what are the payment terms for these export orders? And how would it affect the working capital? Assuming there is fast growth and that would be constituting a larger and larger portion of our total revenue. So just give me a…

Yes. Most of the OEM payment terms are between 90 and 120 days in the export markets. And most of -- all the dealer payments are between -- I mean, 0 days to 60 days max.

Okay. And if the operator can allow, maybe I can ask another question?

Yes, sir, I think you can always come back in the queue, yes.

The next question is from the line of [ Aniket Redkar ], an investor.

And congratulations for the good set of numbers. Yes. Sir, I have a couple of questions. Basically, first question basically, in terms of revenue, if you can see, it's contributing most to the 30.25% Y-o-Y. So what factor basically contributing most for this growth?

I think that there are multiple things that has come up. I think even sometimes we are also surprised on the kind of demand that we are seeing from OEMs and in general market. Our Switchgear products have actually seen significant demand growth. The Switchgear product alone this quarter, we have done around INR 105 crores, which is the highest ever related compared to previous quarters. Mainly because of, I would say -- as I said already, 10% to 15% is the price growth we have had out of -- in this quarter, we had a 5% price growth and 25% revenue -- volume growth. The main volume growth for this Switchgear parts have come from across sectors, particularly on the renewable sector and OEMs operating under the renewable sectors and the Machine Tool division has grown very well. And we are also seeing growth coming from the power industry.

So sir, as you can see, the raw material prices are continuously rising from last quarter. So what kind of measures have been taken for this? I mean has these costs not yet been passed to the end customer?

Yes. I think without the price increase, I think our EBITDA margin from Industrial Switchgear products would have been between 13% and 15%. I think whereas we are today at around 11.8%. So I would say, clearly, there is a 2% to 3% price increase in the input costs has affected our margins. Even our gross profit margin, if you see last year Q2 was at 25.7%. This dropped down to around 21%. So we were -- to mitigate this price increase in raw material, we have been doing price increase since January 2021. We have done price increases 3x. Even though we have agreements with various OEMs, we have still negotiated and increased prices. But still, we are not able to fully pass on the input price increase because the raw material prices have been fluctuating quite often in the last, I would say, 6 months has been continuously going up. So we are not really able to forecast what is the price increase and do our price pass on.

So we are not be able to pass this price to customer directly? I mean, we are not able be to pick up the exact price of the [indiscernible]?

Exactly. That's because we are not seeing where this input price increase is going to stop. They, [ of course ], they're continuously increasing. But we are planning for another price increase, as I have said in my call, in this third quarter. So hopefully, the input prices stabilizes, and we will see a more stable business environment going forward, hopefully. But what we normally do is we pass on the price increase. This kind of a price increase happens, we normally pass it on, though there is a lag in the price and we could be passing on.

Yes. You're right. So sir, our major 2 segments have been doubled. I mean, the Switchgear and the business segment -- Building segment, if you can see, have been doubled in revenue Y-o-Y during this quarter. So what is driving the…

No, I think this one is mainly because of a low base, I would say, in the last year because of the COVID. And secondly, we really see good demand coming from the various sectors, as we said earlier.

Okay. Helpful. Yes. As we can see recoveries coming up in the market, so Switchgear and the Building segment, where do you see these 2 segments in the coming quarters in terms of the growth?

I think, again, I mentioned this in the call, we definitely expect a minimum of 20% volume growth in both these segments.

Okay. Okay. Sir, can you give a brief about this JV announcement and the entry into the EV market? I mean the -- basically, what was the reason to enter this new sector? And what kind of returns can we expected from this segment?

I think it will be a little bit too early for me to talk about the returns. But the concept, that idea was to enter the EV markets, EV space. So what we could do for an EV -- in the EV is a lot of thinking and deliberation and discussions went on. And we decided, okay, we will -- we already have certain products that we sell into the EV, like wire harness is one thing that we are -- we have started selling into the EV space. Apart from that, what we thought we could do is something that we are looking at. And charging space was something that is very connected with electrical and the components that we produce and we started. We wanted to build an EV charger. And that's why we got into the charging space. And then this conversion kit opportunity came to us, and we thought, okay, this is another space that we would be able to get into because it's a very unique and novel product idea of converting the existing fuel engine into an electric engine. So these are the 2 joint ventures that we have done. And the idea is we want to be in the electric space, electric -- yes, vehicle space.

Okay. So how much CapEx is the company is going to invest in this venture?

For the charging, it will be a total investment of EUR 2 million, out of which our share will be 26%, EUR 2 million, and ours will be 26%. The conversion kit, Salzer's investment will be INR 3 crores.

Okay. Okay. And who will be the key customer for this EV business?

It's going to be open market. We are looking at multiple channels of selling this product. It's not a OEM product. It's going to be open market.

Okay. Okay. Sir, my last question. What kind of synergy are we seeing with Kaycee Industries now? Has there, I mean, tangible benefit in terms of revenue?

Yes, I think Kaycee Industries, this quarter also has done reasonably well compared to previous quarters. The company has grown by about 20% in volumes. And on the intangible benefits, I would say, Salzer and Kaycee, both are benefiting in terms of the pricing and the profitability, which we will see, -- I think this real intangible benefit of increased profitability is not being seen in the books is because of various other disruptions like the material price increases. Once things stabilizes, we will see a profitability jump for Kaycee as well as Salzer in the particular segment, in the Switchgear segment by at least 1 to 1.5 percentage points in terms of EBITDA.

So is there any specific target in terms of the market share or revenue that we can expect to come from this acquisition?

Actually, Kaycee, when we acquired was doing a business of around INR 22 crores, INR 23 crores. And within 6 months of our acquisition came the lockdown and disruptions of this COVID. 1 year was gone. And during the COVID year, we were able to do a revenue of only around INR 22 crores, which was down compared to the previous year. However, this year, we are seeing -- we are expecting the year to close with a 25% growth compared to the previous years. So our target -- immediate target is double Kaycee's revenue from where we took over, at least in the next year.

The next question is from the line of Neha Jain, an investor.

Sir, for Kaycee, debtor working cycle is improving, the debtor days are reduced. So are we taking any specific measures for the same?

Ma'am, definitely. I think we are -- we have been continuously taking measures to improve our debtor cycles and reduce inventory. I think these are 2 things that we have been constantly doing for the last few years. Unfortunately, we were not very successful in that, but things have been better. So we were able to reduce our debtor days to maybe 85 to 87 days this half year. And I think this will remain like this or can go down by another 3, 4 days.

Okay. Sir, [ my second ] question is related to P&L. So there has been increase of 14% Y-o-Y in the 3 phase transformer. So I mean, what exactly led to this increase?

In my opinion, I think 14% increase is not sufficient. Actually, we are looking at much faster growth in this because this is a new product for us. So we expect this product, the 3 phase transformer to grow at 30%, 35% in the coming quarters compared to the previous year's quarters. Mainly because of the new product, and we are approaching various new customers. So it is natural that the growth is going to be faster. Right. If you get the other…

Right. Sir, can you expect 2023 to…

Sorry, sorry, go ahead, ma'am.

No. I was just saying can you expect 2023 to be like for it to perform better?

Yes, definitely. If you look at our other new product, I think it has been growing at -- as I think, you have seen, it has grown at 74% year-on-year this quarter. And even for half year, I think it is almost doubled, 50% growth we have seen in the wire harness. So this is quite natural because it's a new product, and we're approaching various new customers towards this product, and we are gaining business in that product.

All right. So we can expect next year to be roughly around 35%, 40%?

For these few products?

Right. For the dry transformer?

Yes.

Okay. Okay. And sir, what are your views about the dry transformer business? How do we see that growing?

I think we spoke about that, know, 3 phase dry-type transformer.

Right, right. Sir, basically, that is going to be next couple of years, 2, 3 years, we can see like 50%, 70% growth in that, right?

Correct, ma'am. At least next year, definitely, we will see growth between 30% and 35% for that product.

Okay. Okay. Sure, sir. And sir, EBITDA margin on Switchgear segment has dropped like in this quarter. So what could be the reason for that?

Our input material costs have increased by 5%. Raw material consumption has increased by 5% compared to the previous quarter. This is mainly because of the price increase. So in spite of a 5% raw material price increase, our EBITDA margins have dropped only by around 3%. So that means we have actually saved costs by around 2% in other areas. So if we fully get the benefit of all the price hike that we have done to our customers, in the next 2 quarters, I think we will see our Industrial Switchgear products EBITDA margin going back to around 14% to 15% levels.

Okay. Sure, sir. And sir, my last question is regarding exports. So how much more of margins could we get from exports vis-a-vis the domestic sales? And what would be the share of exports on our revenue for this half year?

This half year, we have done 26% export. And export margins are always 2% to 3% higher, depending on the product and the country that we sell.

Okay. [ Got you ]. Sir, what were your top-selling countries, top exporting countries?

This year, I think our maximum sale has come from Europe. Europe has been the top most country with 7% for this half year. The second has been U.S., not U.S., I would say, the entire Americas, North and South America at 6%. And we have the others contributing the rest.

[Operator Instructions] The next question is from the line of [ Anirudh ] from [ Nagoba ] Capital.

I just wanted to know if you have explored or -- I mean, if you've already implemented tender financing, so that this particular thing can reduce the amount of debt. We can take it off your balance sheet. Like what are your thoughts on that?

Which -- what financing is that you said?

I'm saying supply chain financing that banks offer for your -- we are using, call it dealer financing. That kind of…

Okay. Okay. On the dealer financing front, yes, we do have started this program with certain banks, for our dealers. But unfortunately, it is yet to pick up from our side. And even if it picks up, I think most of our dealer business will get converted, but not the OEM business.

That will take the debt of your balance sheet, right?

Yes, yes. That will remove the dealer revenues. Dealer outstanding will get reduced.

Right. So that will make your working capital very efficient, right? So what's the -- like over the next 2, 3 years, what's the road map there that you foresee in terms of adoption of using these facilities for dealers and things like that?

Okay. I think recently they have already started a program for our dealers, and we are working on that with the dealers to bringing all the dealers into this program. So we expect that over the next 1, 1.5 years, I think we should have majority of our dealer business coming through this channel financing, which will help reduce our working capital on this business.

Okay. And these OEM businesses, whether it is in India or outside, these are our open credits or they're backed by some kind of [ HDE ] or something like that?

No, most of the OEM business is open place.

Okay. Can you do some amount of discounting? And have you figured out what's the cost of discounting these invoices? And what would be the interest outgo if you do that?

Yes, I think we have done. I think it's a constant process. We keep exploring various opportunities. We discount wherever we have better cost with the customers, customers' limits. So wherever this is possible, we are doing that. Wherever it is not, then we are not doing it.

Okay. So all in all put together, over the next 2, 3 years, you definitely see the amount of working capital base, I mean, becoming more efficient, right?

Yes. I think our only challenge right now is the higher inventory days. We are at around 95 inventory -- inventory is at 95 days of the annual sale. So if we can bring this down to around 60, 65, I think that is where our -- the crux of better working capital [indiscernible]. Yes. So that will bring in at least INR 50 crores, INR 60 crores of additional capital…

These inventory days is primarily because of the amount of uncertainty that we are going through right now? Or is that like…

It is also because of the growth that we have had and the different customers that we have added, new products that we have added. So that's -- it's a combination of all this that has pushed this inventory up.

Okay. And what is the amount of effect that you've had on all this semiconductor shortage if at all it has affected you?

It has not affected us directly because we are not using that much of electronic or semiconductor based products. But it has definitely affected many of our customers with whom we have been dealing. So they have actually slowed down or pushed out the deliveries to some extent. I would say, not major so far. But if this continues for 6 more months, then we will definitely see some impact on our revenues.

The next question is from the line of Sanjeev Goswami from Fractal Capital.

Mr. Doraiswamy, I had some query on this Industrial Switchgear business across. Probably this question is probably [indiscernible] me. But can you give some idea in terms of what exactly the Industrial Switchgear business is in terms of the size, industry segments, whom do you compete with? Just some flavor in terms of how exactly the business works, the dynamics, the size of the business?

No, I think it's a very, very broad question. I won't be able to fully answer you, but I can briefly tell you. Our Industrial Switchgear itself is a very wide broad name. Whereas we manufacture around 15 to 16 products under that, okay. So that -- the top selling products for us under the Industrial Switchgear segment is the transformers. I would say, the single phase toroidal transformers, when we make rotary switches, when we make wiring ducts, wire harness. We make isolators, we make thermal blocks. So these are the top 5 or 6 top selling products under the Switchgear division. For you to make it simple, most of products that we make will be used in a panel, electric panel. They are basically called panel component. [ Star ] companies like Siemens or ABB or L&T will buy these products to be used in their equipment or in their panel. Apart from that, these products or components also find use in various other sectors' recognition tools like a backup power industry, most of the power generation transmission distributions. Entire cycle uses all our products, either in a new project or for a maintenance. Similarly, all kinds of industries, for maintenance or a new industry. So this is the application of the product, and this is the product that we make. And to coming to your next question, on who is the competition for this? There are various competitors for each individual product. If you take transformers, there are different competitors in India, in west, in the north, and in the south. And if you take other products, like I mentioned, the rotary switches, we have different competitors. But I cannot say one company which makes all of these products. That is very difficult for me to -- nobody making all these products under one brand. There are different companies making these products. And I don't see any listed company as a competitor to us as of now. And the market size, again, it is too wide for us to tell. But all our products put together, I think , we will be addressing a market of, say, INR 2,000 crores, at least.

Okay. So do you think it's in the competition, we are also very, very fragmented. So very difficult to say who is the one competition that we can benchmark as you said?

Yes, sir, correct. A few names, I can tell are Connectwell Industries, Trinity Touch. They are from Delhi and Bombay. I think C&S also to some extent is a competition, control and switchgear company. These are some of the companies I can mention.

Okay. What is the sale of electric in a much bigger company, it's almost INR 1,000 crores plus?

C&S is close to INR 2,000 crores. [indiscernible] brought over by C&S. They have -- apart from those products that we make, they also have many other products that they're selling.

Okay. And last question is, is most of our business, dealer and distribution driven or we do also have [ institutional ] one on one sales and OEM sales, like we could be working with L&T [indiscernible]?

We do have a lot of OEM sales also.

In the domestic businesses, right?

Yes, yes. Yes.

Okay. Approximately, how much will be OEM sale?

The domestic OEM sales will be little lower because most of the domestic sale happens through the distributors. Domestic OEM sale percentage -- of the total revenue, around 15% will be domestic OEM sales.

The next question is from the line of [ Aniket Redkar ], an investor.

Yes. Sir, I have 2 questions. One is related to the EV-related products. So would we use the existing facility or expanding production capacity?

Right now, we are planning to use our existing facility. But as and when the business picks up and improves, I think then we will be shifting or setting up the separate facility for manufacturing unit.

So is there any impact of -- impact on the production capacity of existing products?

Not because of adding EV, we are not impacting any of our production capacity.

Okay. Okay. And sir, second question. As far as Energy Management business is concerned, we are not getting any orders from the government till yet. So is there any new product addition? Or is there any R&D -- I mean, the -- from research or why we are not getting order or any upgradation in this segment?

No. Actually, this Energy Management division is a division that we created to do business with the government sector in terms of street light management.

Energy savers and these street light management?

Energy saver. Basically street light management. So that is a segment that we have not got any orders from. But that doesn't mean that we have not done any R&D or development of new products. We have done quite a lot of development, new product addition and things like that. But then those things have actually gone into our Switchgear division. We -- only when we do something with the government, we bring the revenues into Energy Management division.

[Operator Instructions] The next question is from the line of Jay from Progressive Shares.

Actually, it's Rohit. It's not Jay from Progressive Shares. So congrats on highest ever sales number, a good job done by you and your team, your guidance and the way you are all managing things quite commendable, sir. There are few questions, which are slightly critical as well. When you see the numbers, you've done very well in the Switchgear business. And traditionally, the margins are higher, but due to certain issues related to raw material, we are compromising on the margins. But do you think going forward as well, you will try to catch more volumes? Or will you be compromising margins to get the top line?

Sir, I think maybe it's understanding, maybe I didn't communicate it properly. There is definitely no compromise on margin to get the volumes here. I think the volumes are coming to us. But the problem or the challenge that we are facing is, is the price increase in the input cost, which is eventually going to be passed on to the customer, but there is always a lag. Normally, this happens once in a year. Now we'd be do a price increase in the next quarter, everything is normal. But this has become a very unprecedented abnormal situation because the prices have been rising since January or even before that. So we are not able to see where it is going to stop. So we do a price rise every quarter, but then the input cost again goes up. So again, we do a price increase, the input cost goes up again. So this has happened almost now 3x in this year. So we are again doing the price rise. That means we are passing on the input cost increase. And the reduction in EBITDA margin on the Switchgear division is only because of the input material price increase, not because of any reduction in the price rise. So I'm very confident that in the next I think, let's give Q3. Definitely, by Q4, we will definitely see improvement in margins because the full effect of whatever price increase we have done will start coming in Q3, Q4. So Q4, we will see definitely improvement in EBITDA margin percentage.

In terms of months, what is the lag phase for replenishing this possibility of touching the margins again?

Sir, at least 2 to 3 months is a lag normally.

Okay. Okay. Sir, in the previous con calls, you mentioned that you were looking at getting the old clients back, and one of them was Value and the other one was Eaton. So have you been able to get them on board? And are they contributing to the exports revenue now?

Value is a domestic customer. Yes, we have Value with us and Value has been a consistent customer in -- except for the pandemic time, the sale dropped significantly, but they are back to normal levels. Eaton is an export customer with whom we have been developing certain new products, which we have already done, completed, and we have started getting revenues, and that's also one of the reason why our revenues to U.S. have increased considerably.

Okay. Understood. So when the exports are currently 27%, what is your ambitious target over the next 2 to 3 years to make export as what ratios?

Sir, with the kind of growth that we are seeing, if we can reach 30% of our revenues from the exports in the next 1 year, I think that's the immediate target that we have. That should be good enough for us with a -- for a company like us because we were at around 20% earlier. So we have already increased this to around 24%, 25% stable. So in my opinion, this year, I think it will continue at 26%, 27%. And our aim is to get to around 30% of the increased revenues next year.

Okay. Sir, the export order book like, how is it in terms of numbers, if you can share that?

Actually, our business doesn't really depend on order book. So we don't pick up orders for full year. It's always month-on-month orders and maximum delivery period is 4 to 6 weeks right now. But we have forecasts from our export customers and domestic OEM. So based on that, we give the guidance.

All right. So let me reframe it then. In terms of the visibility, you are having visibility for the export orders for the next 2 quarters, is it fair to assume that?

Yes.

Okay. And in terms of the business, which is related to the Wire & Cable, do you think that generally, because of the seasonality, the second half will be slightly more stronger as compared to the first half?

Yes, you're right, sir. Correct. The second quarter is always slow. But I think this year, second quarter has been much, much slower even compared to our previous year second quarter. I would attribute that the slow demand mainly because of the very high price of copper. I think the demand has actually dropped because the copper has increased, the finished goods price and the consumption has actually dropped. But as you said, I think Q3 and Q4 are relatively stronger quarters for Wire & Cable.

Okay. Okay. And sir, in terms of the total land bank that we have at all the plants, what is the total increase that we have? And if there is any scope for further expansion, if at all, in the EV segment?

The total land bank that we have is around close to 30 acres in all plants put together. And we have still sufficient land for expansion of our existing product portfolios. And for EV space, right now, we are utilizing our own space. I think for at least next 1 year, we should be able to manage. But beyond that, I think the EV space definitely needs its own space or building.

And this 30 acres that we have, that will not suffice for the expansion of the one of [indiscernible].

We don't really plan to utilize that space for the EV because it's a separate joint venture, so we utilize [ EV ] separate outside, and we will use this space for our existing growth.

Okay. Sir, the run rate at which you're moving right now, on a consolidated basis, is it fair to assume you closed the year at around 750 to 800 or such?

By my expectation is that, but informatively, I would say we will reach around 730, 740 on the next level. But on the gross sales, yes, we should definitely cross 780.

So, isn't your commentary slightly cautiously bullish?

Yes. I would say yes. The market has been very good. I think the demand has been quite strong, really unexpected, but it's quite strong. And I'm confident that it looks like it is not a pent-up demand. It is sustainable.

So the [ green shoots ] in the CapEx be indirectly affecting us and it is kind of getting us more demand from the situation is what you are saying, sir?

Correct. Yes.

Okay. So one last question is, any thoughts on increasing the promoter share holdings?

Yes, I think there's definitely a plan in the mind of all the promoters to increase it. And as you will soon -- should soon hear the news.

The next question is from the line of [ Sunil ], an individual investor.

Mr. Rajesh, congratulations for excellent [indiscernible] numbers. So my question, Rajesh, is I think, I was just following our call for last couple of quarters. I think the way we are going with the INR 200 crore quarter and H2, we are more bullish than H1 of this year. So with that, as you already guided in the past, 20% to 25% growth, plus we have new 2 ventures, which you mentioned that should contribute around INR 100 crore of revenue in FY '23. So with that, I see that we can touch our target of INR 1,000 crore the next year. And if that happens, that's one question. And related to that, and if that happens with the operating leverage and the economics of scale, can we go back to around 12% of EBITDA, assuming that the material prices do not go up [indiscernible]

I really hope that there is no customer listening to this call. I'm very confident this -- the material price increase that has happened in the last several quarters is definitely temporary. I think this is going to subside, and it is going to start to go down. Maybe if not this fiscal, I think definitely for next fiscal year, it will definitely start dropping down. I think that is when we will see a big impact on our profitability increasing because we will definitely not pass on the entire reduction to our customer. That's not happened in particular -- in the Switchgear products, that has not happened in the past, and it will not happen in the future. So I think to answer your question straight, yes, I think the EBITDA margins will definitely get back to between 11% and 12%, depending on the share of revenues of Industrial Switchgear and copper or Wire & Cable business. Definitely, it will be back to 11% and 12% next year. And to answer your another question of reaching INR 1,000 crores next year, yes, I'm optimistic, but we will have to tread cautiously as of now, at least for the next 3 to 6 months to see how the pandemic situation is evolving. If things are all under control, I think, yes, that is a real possibility that we should be able to reach that goal.

Okay. My second question is related to the new 2 ventures. I think you touched based on that during past calls as well. But again, just to reconfirm again here. So these new businesses, which you're entering into for manufacturing of chargers and the conversion kits. So are they accretive to our current EBITDA margin? They're substantially higher or same margins in that business line?

I think looking at it right now, I would say the EBITDA margins are definitely much, much higher than what our businesses are getting right now. We are looking at what, I think, on an average, between 11% and 12% on a standard quarter for our business. I think the new businesses that we are looking at should give us at least between 20% and 25% EBITDA margins or even more.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Rajesh Doraiswamy for his closing comments.

Thank you very much, and I thank you all once again for your time and attention and your interest in the company. Looking forward to speaking to you the next quarter on the next quarter results. Until then, wish you all a very happy Diwali. Happy holidays. Thank you.

Ladies and gentlemen, on behalf of Salzer Electronics Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines.