Salzer Electronics Limited (517059) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 months FY '22 Earnings Conference Call of Salzer Electronics Limited. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks 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, Salzer Electronics 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 performance for the third quarter and 9 months ended December 31, 2021. It's always a pleasure to speak to you all again this quarter. I hope you all are happy, safe and well. I have with me here today Mr. Baskarasubramanian, Director of Corporate Affairs and Company Secretary; Mr. Murugesh, Assistant Company Secretary; and Bridge IR, our Investor Relations team. We have 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, I would like to share some recent developments and market scenario with you. As you all know, Salzer is a Capital Group's engineering company, manufacturing a wide array of customized electrical equipment, with a strong focus on technology and innovation. We have 5 manufacturing facilities, and a strong R&D team wherein we are constantly looking to innovate new and efficient products, which has resulted in nearly 80% of our components being made in house in Coimbatore. Despite the COVID-19 pandemic, we have started to see the 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 into lockdown, our team has been working hard and are in constant engagement with our clients and tracking the changing situation at various levels. During the end of the first quarter onwards, operations gradually resumed to full capacity as the restrictions were eased in a staggered manner by authorities. However, as we have demonstrated during the previous year, even in such trying times, Salzer continues to show resilience and registered a good performance. On a more upbeat note, as you 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 a nutshell, in July 2021, we entered into 2 joint ventures, one with an Austrian company, Kostad, and another with Indo-Austrian start up E-March LLP. Through our JV with Kostad, we'll be manufacturing DC fast-chargers for EVs and related equipment and software. Kostad is a specialist in DC charging stations and equipment and is renowned brand across Europe. They are located in Austria. With their technical know-how, we shall be manufacturing EV chargers for the Indian and the Southeast Asian markets. Through our JV with E-March LLP, we will be manufacturing electric conversion kits for auto rickshaws now and for buses in future. We foresee a definitive shift in automotive industry towards EVs, especially in public transport. The joint ventures have already been incorporated, and necessary procedures are on track. Operations in both JVs is expected to begin very soon. Coming to our existing product portfolio. The domestic dealer and retail market is recovering 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. Actually, in fact, almost all of our products in such switchgear segment have had a volume growth by about 20%. As forecasted, prices of raw materials, such as copper, plastics, steel, et cetera, continue to be volatile through this quarter. We are gradually passing on this price hike to the customers. In some of our product lines, we have already increased prices. However, the margins have been impacted to some extent due to the lag in passing on the price. The lag in passing the price hike this quarter was mainly due to the competitive reasons. However, for the full year, we should see our EBITDA margins increasing by about 1% to 2%. Our export markets have also recovered very well with significant demand coming in, as impacts of pandemic subsides slowly in the global markets. Export demand is likely to be stable and positive in the near future. As the industry reopens fully, our growing export market will complement the domestic market to help us grow at a faster rate. The near-term market situation is still a little uncertain as a third wave subsides. But based on the demand we are witnessing today and indications from various OEMs and customers, we're optimistic for the medium term and definitely optimistic about profitable growth in the long term. Though Q4 might be somewhat stable, we expect very good growth in volumes in the coming year. The company is well positioned to cater a higher demand from our customers and poised to take up new opportunities. Now coming to our quarterly financial and business performance. During the third quarter, our revenues increased by 24.28% year-on-year to INR 211.82 crores from INR 170.44 crore in the previous corresponding period. Growth was on account of rise in key businesses, mainly due to very good order inflow across sectors for all switchgear products, especially wire harness. The EBITDA for the quarter stood at 78 -- INR 17.68 crores as compared to INR 17.28 crore in the corresponding previous period, which is a year-on-year growth of 2.34%. The EBITDA margin stood at 8.35%, which is a decline of 179 basis points, mainly due to raw material price continuing to increase coupled with very high freight costs. However, the company is gradually passing on the price increase to end customers. The profit after tax is at INR 7.25 crore in Q3 FY '22 as against INR 6.4 crores in Q3 FY '21, which is a year-on-year growth of 13.21%. Now coming to 9 months results. 9 months ended December 2021, the revenues increased to 33.58% year-on-year to increase to INR 555.61 crore, driven by strong demand for industrial switchgear products, particularly wire harness. EBITDA, excluding other income, stood at INR 50.9 crore in 9 months FY '22 as against INR 45.62 crore in 9 months FY '21, which is a year-on-year growth of 11.57%. 9 months FY '22 EBITDA margin is at 9.16%, which is a year-on-year decrease of 180 basis points, mainly again on account of volatile raw material prices and increase in other costs. Profit after tax stood at INR 18.67 crore in 9 months FY '22 as against INR 13.68 crore in 9 months FY '21, which is a year-on-year growth of 36.49%. Now moving on to the breakup of revenues as per the business divisions. The Industrial Switchgear division contributed 49.55% to the total revenues in this quarter and 51.12% during 9 months. Switchgear division's EBITDA margin stood at 10.05% in Q3 and 11.38% for 9 month FY '22. All products grew in this quarter, particularly with new products. Wire harness and 3-phase transformers grew at 92% and 40%, respectively, year-on-year. The Wire & Cable division contributed 43.62% to our revenues this quarter and 42.6% during 9 months, there was a decline of 3% year-on-year in this division during the quarter. This division's EBITDA margin has been steady at 7.3% in Q3 FY '22 and 7.63% for 9 months. The Building Products division has contributed 6.83% in this quarter and 6.22% in 9 months. At INR 14.43 crore for Q3 FY '22, the division has grown by 59% year-on-year in Q3 FY '22. The EBITDA margin for this division stood at 2.98%. On export front, despite slight headwinds due to lockdowns, we are seeing steady growth, especially from U.S., Middle East, Africa and European markets. Exports to Americas grew at 61% year-on-year in this quarter. Exports to Middle East and Africa also grew at 143% year-on-year, which was mainly due to the low base last year. Exports to Europe grew at 81% year-on-year in this quarter. For this quarter, the export share of the revenue was 22%. 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 a very good health. This is all from our side right now. I would once again like to thank everyone for your time and attention. We can now open the forum for questions.

[Operator Instructions] The first question is from the line of [Zaki Nasir], an individual investor.

Mr. Rajesh, congrats on a decent set of numbers for Q3. Sir, going forward, I think this year, we could -- do you think we could end nearing the INR 800 crore top line? And going forward next year, would it be within striking distance of the INR 1,000 crore, sir? And I think the last quarter, last con call, we had discussed about the promoters increasing their holding in the company, sir. What is the status on that, Mr. Rajesh? And could you briefly give us an overview of how your EV foray is going sir. Going forward, are you looking at any other products also? Because I think there is endless need for EV infra.

Thank you, sir. Thank you for your encouragement. On your first question, I think we will end up, in my opinion, between INR 750 crore, INR 760 crores in this year is what I would say, because Q4 normally is a good quarter. But since Q2 and Q3 has been a good quarter for us, we expect the Q4 might be a little stable like Q3. So we can -- we're definitely not going near INR 800 crores. But as we said in the beginning of the year, we might end up at INR 720 crores, was what we projected earlier, but we might end...

Is it consolidated, you are talking of, sir?

No, no. Standalone, standalone. Consolidated, yes, I think we will be close to INR 780 crores, INR 790 crores, yes. And your other question was about the EVs, I think, technology absorption is happening right now. People are trying to make -- to build the prototypes and test the prototypes in-house. Once in-house testing is over, I think we have to go for external testing. So only when this is complete, I think we will be ready for the market. So in our opinion, I think this might take at least another 6 months before we are ready with product for sale in the market. So that's the status on the EV. On the promoters front, I think there's definitely a plan underway to increase the stake, and you will hear something soon.

And Sir Rajesh, if you could just give us an understanding of -- say EV is happening from several fronts. Would the -- in India, do you think there is already a standard authority on maybe the chargers or the wires or whatever? I mean, because several people are doing it. We don't know how it will pan out. So what's the -- because you are sitting in the center of the entire thing. So could you give us how the standards will pan out, and what will happen on that front, sir?

There's -- I think there's already an organization for automotive testing in Pune. I think it's called ARAI. So all the conversion kits have to be tested there. And I think for chargers also, there is the better BS standard. So we have to do the product as per BS standard and again test it with the ARAI. So there are very specific standards already available.

Okay. And one last question, sir, if I may add. What is your outlook on the debt, Mr. Rajesh? Would it be around the current levels? Or could there be a slight decrease in it?

Either it will be at the current level or I would see a slight increase because I think our growth for next year will be much higher, in my opinion. So as you said, next year, we want to be very close to INR 1,000 crores is what we are planning. So if that is going to happen, it will be at least a 20% growth from these current levels. So if it can stay at this level, that's what our target is, if not, it will be a slight increase, I would say.

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

This is [Amit]. Congratulations, first of all, for the good set of numbers as far in terms of [indiscernible].

[Operator Instructions]

Is it any better now? Okay. Okay. So Mr. Rajesh, I think thanks and congratulations for the good set of numbers to you and the whole team. So I think my question for, again, on the same line which the previous person asked, the previous person asked. One is if you can share the road map in terms of EV. So how are you planning to go into the market in terms of the chargers? Would it be like some kind of a lease operating model? Or will it be a sell and move out kind of a model? And what's the road map for the next few years, '23 and '24? So what are we targeting? If you can share that, that's one. Second, I think, sir, my concern has been on the debt levels. So I understand there is growth coming in. And next, again, you're saying the debt, either can you maintain the same level or it can grow up. What are your thoughts in terms of reducing the interest cost? Are you also evaluating other options in terms of optimizing the working capital instead of just taking more debt? Any thoughts on that line, sir?

On the EV, the chargers, I think, the whole business is actually evolving across the country right now. So there are multiple opportunities or multiple ways that you can approach the market. I think our idea is to manufacture chargers, sell it to customers who are willing to buy and install them, either in a private parking lots or there are the government tenders coming in. So that's one area of business that we are targeting. But there will be also on other business that will happen is the lease model, as you said. Either we lease the equipment or there are companies like Tata Power, for example, I think, is the most prominent player in the country today, who are buying chargers and then they are installing it at their cost and they are doing the service. So I think to target those companies is our idea. But going forward, I think maybe 2, 3 years down the line, we will see whether we can do the servicing business ourselves. But that's the last step that we will be taking. So that's how this business is evolving at this moment. But we have to watch to see how this can evolve in the future. So we are ready to cater to whatever kind of demand from wherever it is coming to. But the main point is, I think we have to have Indian-made charger at a reasonable cost from India. I think that's our first game right now, one. Second, on the debt levels, yes, I think what we are trying to do is we are trying to optimize working capital. Unfortunately, that's happening slowly. So our target has been to reduce the net working capital levels to less than 150, 140 days. However, that's still at around 160 days as of now. Hopefully, by end of this year, I think, we will slightly come down, and we are trying to optimize this. But as you know, like last 1.5 years, due to the pandemic, there has been a lot of turbulence across the markets in terms of price of materials, availability of raw materials and also a threat of third wave coming in. So we had to be ready to face all these things. So we had to order materials upfront, stock a little bit. So all this turbulence actually has made us a little bit inefficient. So we are coming back to it. And I'm hopeful that we will become a very efficient company where our net working capital days will come below 140 days. I think that's the target that we have, and we will be able to do that.

Okay. That's a good to know, sir. Sir, just one follow-up question on the first part in terms of EV. So are there any government tenders also now or in the pipeline that the government is shooting for the EV chargers?

We had some tenders coming in from the Delhi Government and Maharashtra Government for small quantities. And we have a dedicated company under EESL. The company called EESL has promoted a subsidiary called CECL, which is, I think, fully dedicated for the EV infra development. So they have been coming on and off with tenders. And we expect that a lot of state governments will start coming up with tenders because the state governments have to promote this. Unless they promote it, I don't think this will really come up in a fast way. So the support from government will definitely be there, and we expect various state governments to come out with something there.

Correct. Yes. I think I totally agree. So unless the government kind takes the first step, I think it's become a little difficult for the private players to come in and invest that much initially. Okay. So we think like, but time is all these state tenders start coming in the bigger volumes, our products will be ready to market?

Yes.

Are there any targets in case?

I think for the chargers, we want to be ready with an Indian made charger in 6 months from now.

[Operator Instructions] The next question is from the line of [Neha Jain], an individual investor.

Congratulations on the good set of numbers. I have some follow-up questions related to EV infra. So how much is the CapEx that the company is planning to invest? And will our existing capacity be enough? Are we planning to do any CapEx over there for manufacturing plant?

Both JVs, Salzer will be holding to start with a 26% stake in both the JVs. And the Salzer investment into the JV, for the chargers, it will be INR 4 crores, and for the conversion kit manufacturing unit, it will be INR 2 crores. So overall investment at 26% right now is INR 6 crores, is a commitment that we have made right now. Going forward, if further investment is required, then we will increase our stake and invest further. But right now, it is INR 6 crores. And in Salzer, I think there's no major CapEx planned as of now. So it's just the regular maintenance CapEx that we are doing, which this year will end up at around INR 11 crores, INR 12 crores.

Okay. So sir, could you share some future projections in terms of revenue or returns that can be generated from this business...

For the EV business or the charger business?

Right, right. Yes.

Charger business, I think we are looking at 3 years. In 3 years, we want to make at least 2,000 chargers, 200 chargers a month is what we're looking at, which will be close to, in my opinion, the revenues will be close to around INR 100 crores, INR 150 crores. So that's what we are targeting, but that's too pessimistic in my opinion because the demand can be much more. But right now, this is the capacity that we are planning.

Okay. So 200 chargers a month, right? So about INR 150 crores a month revenue that can be generated? Am I correct.

You're right.

Okay. Okay. And do we have any existing peers? Like any competition in the market for the same?

Competition, of course. In chargers, we have companies like Delta. We have even ABB making it. And there are a lot of imported chargers available in India.

Okay. And sir, with the real estate segment, so now that there's some recovery in that segment, are we targeting any new clients for the same? Or are we continuing with the old clients? And how do we see the next few quarters in that segment?

In the real estate business, right?

Yes.

Building segment.

Yes, yes. Building segment, yes.

In the Building segment business, we are seeing a very, very good uptick in business. Every quarter, we used to do around INR 9 crores, INR 10 crores. But I think in this year, starting Q2, we have been doing around INR 14 crores, INR 15 crores in the quarter, which is quite good. And we expect that this growth will continue faster. And as -- the way that we are growing is we're supplying to existing clients as well as we are trying to garner new clients, new builders. And on the recovery front, I think it's been much better than what it was in the beginning of the year.

Okay. So sir, do we have any targeted revenue in mind? How much do we target in the next couple of years from this segment?

This year, we will end up -- in my opinion, we will end up at around INR 50 crores of revenue in this segment compared to last year's INR 30 crores, INR 32 crores. Next year, we are looking at INR 100 crores in this segment.

[Operator Instructions] The next question is from the line of Krishna Kumar from Lion Hill Capital.

And congratulations on a good performance during tough times. Sir, I just want to understand, on the wireless segment, Wire & Cable use, we used to also do enamel copper wires et cetera. So we have the capability. So when you look at the electric vehicles and the need for more motors and copper winding, so do we have a play there? Would we be able to supply insulated or enameled copper wires, for motors, EV motors et cetera? Can you share some thoughts on that sir?

Yes. I think definitely, that's the new market that will be coming our way. We do produce enamel wire, and we have the capability to produce enamel wires. We're already supplying our enamel wires to automotive companies, like IFB Auto and a couple of other auto motor manufacturers in the country. Right now, the business volumes are too small. But I'm sure that this new EV push will bring in additional growth in that segment. And we are capable of supplying enamel wires to that business.

Sir, any capacity that you can talk about, sir, like in terms of -- are -- do we need to add capacity for those products? Are they different from the normal motor winding or can you share some color there?

Right now, our capacity for enamel wires manufacturing is 200 tons a month. But we are producing close to 160 tons right now. So we still have some room. But once the real demand comes in, maybe we should start adding a few more machines and increase the capacity.

Is there any need for additional technology, sir or...

It's not required. Already that technology -- we have the capability to produce the wires.

Okay, sir. So second question, in terms of the EV conversion kits. Can you give some perspective here in terms of when you would be launching the product? I probably missed your initial comment on that, if you can.

Yes. Conversion kits, I think we are doing the trials with auto rickshaws right now. We have already converted a couple of auto rickshaws. And our people are doing the trial in house, and we have also given it a field trial. So we are just waiting for the feedback. Once things settle down and we improve on the product, I think we will have to go to ARAI testing. We have to submit the products for them for testing. And once the testing is complete, then we should be ready for the market. So again, from -- in my opinion, I think, it will be a 6-month time line for the product to be ready.

Okay, sir. So sir, here again, both in the EV charger and the electric, what kind of branding will be also for branding we will do, will we use Salzer for EV brand or something else?

We will be branding it jointly with our partners also. So we use their names as well as Salzer name.

Okay? Joint branded product. Okay. And what will be the kind of market opportunity, sir, for the 3-wheeler kits, sir? And what kind of elevation roughly you can look at, sir, basically?

So I think, we -- as per our survey, what we did, there are about INR 10 crore auto rickshaws that's running in the country which are -- which have sold in the last 10 years. So if you calculate, if you go back a little bit, take the last 15 years, there are more number of autos still. So I think that's the size of the market. But then it's not easy to go and capture this business across the country in such a quick time. So our idea is to go state by state, use the automotive start part dealers as our channel and also the workshops as our channel and sell those kits. So here, again, we estimate the realization price will be approximately INR 1 lakhs to INR 1.2 lakhs per kit. We originally wanted to sell this around 60,000, 70,000, but because of the cost of the battery and the motor, I think, the cost of the kit is increasing. So it will be around 1, 1 point, between 1 point and INR 1 lakh and INR 1.2 lakh would be the cost of the kit. So to start with, I think, in the second year, we should be able to get a market of around INR 90 crores to INR 120 crores is what we are expecting.

Sure, sir. Sir, just look at the feasibility, you have new electric vehicles 3-wheelers that have been launched by various players at slightly higher prices than what you are now talking about conversion. So Mahindra also comes at INR 1.5 lakh, somewhere there. And some other companies also launched products. So the new product with government subsidy, et cetera, you probably are getting it very close to what is expected price you're talking about for our old vehicle. So do you think such a market exists? I mean potentially would we be impacted by decision to go for a fresh vehicles than to retrofit, sir?

It's a good point. I think as soon as Mahindra announced this, I was also a little bit worried. So I went and checked the specs. What is the vehicle that they are giving it around INR 1.5 lakhs. I think there's a lot of difference between Mahindra's INR 1.5 lakh new electric vehicle and the conversion kit that we're doing. One is the range. Second is the payload. I think the payload that Mahindra truck, the new electric vehicle is giving is only 300 kilos payload and at a max speed of 30 kilometers per hour. So this is -- I think that vehicle is only for a very specific use. It can't be taken out for a normal use or normal transportation, one. Secondly, what we are trying to do is we are trying to convert the existing petrol, diesel auto rickshaws. So existing owner of a petrol, diesel auto rickshaw, it is better for them to convert them and sell this and buy a new electric vehicle. New electric auto with the same capacity with, I don't know, with 500 kg payload and a max speed of 60 or 70 kilometers per hour will definitely cost more. And also, the range. I think, we are promising a range of 120 kilometers in 1 charge, with the max speed of around 70 kilometers per hour. And the payload is the same as the existing petrol autos. So there's a wide difference between this auto rickshaw that you are talking about and the conversion kit. So I'm confident that this will definitely be marketable in the market.

[Operator Instructions] The next question is from the line of [Sanjay Awatramani] from Envision Capital.

Yes. Sir, I just wanted to ask you the -- can you highlight the color on this margins front from EV side and the overall margin of this business you are running right now?

I think the conversion kit margin, we expect this to be anywhere between 20% and 25% on EBITDA level. On the charger front, I think it should be around 17% to 20% is what we expect. To start with, it may be a little lower, but it can go up between 17% and 20% on the chargers at the EBITDA level. This is our estimation as of now.

Okay. And the rest of the business, which plays in all the consolidated part?

If you see, I think, this quarter, I think we have dropped down to 8.5%, 9 months to 9%. I think once the -- the main reason that this quarter has dropped is because of very huge freight costs that have come in that we are unable to pass on. Otherwise, I think we would have been at normal 10% EBITDA level, which I expect will come back in Q4. So going forward, I think, 11% is a figure that we should expect on EBITDA.

Okay. So 11% you're expecting in Q4, sir?

In Q4, we will be back at 10%.

Okay. So 11% will be from FY -- Q1 FY '23?

That's right.

The next question is from the line of [Harshit Sehgal] from [New York Investment].

Sir, a few questions. Firstly, you mentioned for next year, you're targeting a 25% growth. So I mean, I'm just trying to understand what is driving this kind of a growth because the industry is not going at that way, right? And if you can also split the growth between the 2 verticals, cables and wires and switchgear?

I think the revenue share this in so far in this 9 months, the industry switchgear is around 51%, and the Wire & Cable is at 43%, the building segment is around 6%. This is the revenue share that been in this 9 months. And we think that this revenue share will continue for this year also at 51% and 42% between the 2 top segments. Going forward, for next year, I think the Wire & Cable can grow a little bit, because this year, the Wire & Cable market has been very subdued. Because of the very high copper prices, the market has been very slow. And that's one of the reason we are also not able to grow in that segment. So FY '23, I think, it will be at 48% and 44% share between Industrial Switchgear and Wire & Cable. That's what I expect. And on the growth front, why we are growing is -- because if you look at the Industrial Switchgear business, our normal business per quarter used to be around INR 70 crores, between INR 60 crores, INR 70 crores, INR 75 crores is what we were doing until FY '21. So right now, we are seeing a business of close to around INR 100 crores, INR 105 crores in a quarter starting with Q2 FY '22. The main reason for this growth is there will be new clients that we have been working on for the last 1, 1.5 years. and also the addition of new products in the last 2 years like the wire harness and the 3-phase transformers. So this additional business and also the new clients that we have been pursuing has given us this growth in this year. And we expect that the coming year also, whatever we are working on now with the clients, will all translate into business. And that's why that we expect kind of 20%, 25% growth for next year in the switchgear business.

Understood. And sir, 2 more questions. One, what is the sustainable margin for this business? I mean, obviously, margins currently are lower because of RM inflation. But let's say, towards the end of FY '23 or FY '24, what can be the sustainable margins which we can achieve?

I think our switchgear margins used to be between 15% and 17% in FY '21. FY '21, we closed at 15% EBITDA in switchgear business. But I think going back to 15% might be a little difficult because there's also some inflated costs. So that we can't expect the EBITDA margin to rise and continue to be at that level. But currently, it is around 11.5%. We can expect the stable margins to be anywhere between 13% and 15%.

Understood. And last one -- sorry?

For FY '23, I'm talking about.

Sure. And last one, sir, what are the measures which we are taking to reduce the working capital?

I think there are only 2 things that we've had to do, collect quickly and reduce the inventory. I think these are the 2 things that's under our control, which we are trying to do. Reducing the inventory, and wherever possible, we are discounting with customers facilities. And these are 2 things that we're doing.

Sir, this 140-day working capital that is for the next year, which you are giving the target?

Yes, sir. Yes, sir.

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

I have a few questions with regards to our new product development and also the government issue for the evaluated infra which they announced in the budget. Like there was a battery swapping policy they announced. So like there is one company called Infinity, is into 2-wheeler scooters, they offer such product. So how our charger will get benefited out of such a product offering? And also, going forward, the government also planning at massive level with the municipalities to install public -- publicly available -- this charging infra. So how we are placed putting the advantage of this tailwind?

Yes. There are 2 types of chargers that will come into play. One is the AC chargers for the 2-wheelers. And other one is the DC chargers for the 4-wheelers because 2-wheelers is charging, you don't need a very powerful charger, it can charge quickly even in an AC charger. So the battery swapping again, I think, will happen only for 2 or 3-wheelers at the max. I don't think that battery swapping is a possibility for cars because of the phase of the battery and the waste of the battery. So maximum, it can happen for 3-wheeler, 2-wheelers. So where the charger can come into play is all the battery swapping stations has to use multiple AC and DC chargers. So that's a market that we have to address to. And on the DC chargers, as I already told in this call earlier, as and when the government starts pushing the EV infra, I think, they will start buying a lot of EV chargers, mostly, in my opinion, DC chargers. And that's what we are making. And we should be able to be one of the first players for DC chargers in India.

Okay. Sir, my second question is regarding -- particularly, you gave like the 10 crore auto rickshaws have been sold in the last 10 years. And so these are majority is by guys like Bajaj and TVS. So do we have any plan to tie up with them for OEM-related business opportunity or service-related tie-up for that to cater to the existing vehicles which are on road.

Majority of the auto rickshaws, I think 65% market share is with Bajaj currently in the country today. And the second, I think, is Piaggio and TVS, come second. So around 58% auto rickshaws are with Bajaj. For conversion kits, we are not planning to tie up with OEMs. I don't think that's a possibility because OEMs won't be interested to take a conversion kit. Their business is to sell their product. So I don't think that that's a possibility. But on the other front, I think, we are talking to various 2-wheeler electric vehicle OEMs to supply wire harness and also motor controllers. So these are the 2 products that has -- that we have that we can sell to the leading electric 2-wheelers manufacturers.

So sir, just as an entrepreneur, how do you see your revenue going to be reported after 5 year down the line? Let's say, there will be a separate division for this renewable and EV segment or will you be clubbing it together with normal?

We actually already floated a 100% subsidiary for the electric vehicle business. So I think all the electric vehicle business will come under the subsidiary and get consolidated with the parent company.

The next question is from the line of Anirudh from Nomura Capital.

I had some clarification. Now in your business, from whatever I understand, can be broadly categorized into domestic OEMs, export OEMs, domestic dealer business and export dealer business. So assuming these are the 4 categories, what -- how is the -- like your price passed on to your customers, how much are you able to pass on to these 4 customers? Like is it easier to pass on to export and less to domestic? Is it easier to pass it on to OEMs and interested dealers? Just a broad understanding I wanted.

Passing on the price increase, whether domestic or exported, is difficult, because nobody wants the price increase the...

No. The propensity to absorb where is I'm asking.

I think this -- the beginning of the year and end of last year, I think we were able to pass on. I think people agreed, accepted quickly and we were able to pass on. But in the last 6 months, I think people, have been tired because we have done like 2, 3 price increases. And also, the customers are a little frustrated. Of course, all of us are frustrated because of this. But they are not ready to quickly take a decision and then give a price increase. And also, there is competitive pressure now, because we have done 2, 3 increases now to do another 3%, 4% increase, there's always a pressure, the last increase. In my opinion, I think the export, it is difficult to increase compared to the domestic OEMs.

Okay. Is that because generally, the margins are higher or the competitive intensity is far higher there or longevity is there?

No. I think the export OEMs normally don't see an inflation. They don't see an inflation. They don't give a price increase normally. Yes, we have an inflation, and we go for a price increase every year. The export markets, very, very difficult to ask for a price increase every year. So we always do once in 2 years, once in 3 years price increase on export market. But then export market is much better than the domestic market.

Okay. Okay. So in that case, if your export business keeps growing and the raw material also keeps -- price pressure sustains, so that may not necessarily immediately translate into higher margins as we see. Is my understanding correct? If the raw material prices in the domestic market increase.

If the raw material price continues to increase, then yes, what you say is correct. But in my opinion, I think the raw material prices more or less stabilized, even the freight costs have more or less stabilized. So we hope, I think, things from here on will be better.

Okay. Okay, right. My next question is just an understanding. Now this whole wire harness business is -- the revenue recognition is considered under the switchgear business or in the wires business.

Switchgear business.

So the wire is only just basic wire like that you sell is considered a wire business. Correct?

Correct. Correct. Correct. And in wire harness, we do a lot of value addition. Between 60% and 70% of the wire harness.

[Operator Instructions] The next question is from the line of [Prashant] from [Inventors Securities]. [Operator Instructions] As there is no response from the current participant, we move to the next question from the line of Rohit from Progressive Shares.

2 questions. First is related to the freight. Which of the 2 are we following? Are we following CIF or FOB?

We have both. We have -- on the export front, we have both CIF. Sometimes, we also do DAP. We also deliver duty unpaid. So all kinds of contracts are there. Mainly the freight cost increases because of the ocean freight as well as the domestic freight road transport price increase.

Okay. So how do we decide if we wish to go with CIF or FOB or DAP then?

It depends on the clients. Some clients want us to deliver the duty paid actually. Some clients are FOB. Some of them even take ex-works. So it depends on the client and their connections in India with their freight forwarders. If they have a good connection, they use their freight forwarders, otherwise, they ask us to deliver.

Okay. Second question is related to Kaycee. If you can keep us through the development. And any directional growth that you would like to share for Kaycee? Because Kaycee's top line is increasing, but on the same line as what Salzer margins have taken a slight bit -- a dip of 100, 200 bps. So any directional growth for KC for the next year or times to come if we've been able to solve the puzzle and show the growth path of Kaycee.

The Kaycee's growth this year has been quite good. So far, in 9 months, the company has grown around 26% on the top line and also the bottom line has almost tripled, I would say, close to. But mainly because maybe last year was a low base. But otherwise, I think, we are seeing growth coming in. This year, we will end up doing around INR 28 crores, INR 29 crores compared to INR 23 crores last year. Our plan for Kaycee for next year is to do INR 50 crores with the existing products that Kaycee has. If that happens, then I think from there on, we will see a lot of upward momentum.

No new products planned for Kaycee, is it?

Right now, no. We are not adding any new products, but we are cross-selling a lot of Salzer products in Kaycee. The brand and through Kaycee dealers.

The next question is a follow-up from the line of Anirudh from Nomura Capital.

Now in the EV segment, what are the backward integration possibilities, like ground components is one thing, PCB assemblies is another thing? So what are the synergies that you're trying to bring in terms of -- wire harness is another thing? So broadly, if you can give me an idea about what are the straightforward integrations that are possible?

On the -- I think it's a good point. I think we have also been thinking on those lines. On the conversion kits, I think we are using a lot of our wire harness. I think that's the backward integration or a product that we have that can go into the conversion kits.

So the motor winding wire, nothing as of now.

No. We have the winding wire, but we don't make the motor. So maybe we can -- we are buying the motor, so we can ask our seller to use our wire. So that's a possibility, but that's kind of a product in systems can happen only when we have volumes. Right. On the chargers, I think we have more backward integration products. I think a lot of electrical switchgears that go into the chargers, like contactors, circuit breakers. We have switches coming in again, wire harness coming in. So there are a lot of switchgear components that we manufacturer that goes into a charger. So that's something that we can -- we are looking at. And we're estimating, I think, as of now, I think close to around 15% to 20% of the cost of the DC charger will be the product that Salzer makes.

Sir, magnetics is not something that you are very strong with as we speak right now.

No, actually, magnetics is -- I think 3-phase transformer is a part of magnetics for us. We also make single-phase transformer, which is a part of the switchgear business. So all this is coupled under the Switchgear business. And magnetics is one of the products under Switchgear along with wire harness that is growing quite fast.

Okay. Okay. Okay. And the other thing, what is the closure time that you are seeing in the building segment? Because you said it has slowed down drastically in the last 2-odd years. So what -- like has it increased the pace in terms of the people completing their projects? Just generally asking.

I think in the last 2 quarters, things have definitely picked up quite fast, I would say. I think a lot of people are rushing to complete projects. And I think a lot of the negatives that I see is it is not happening across the front, I think it is happening in selective cities. Mostly, I think class C -- B and C -- B-class cities is happening faster. I think cities like Bangalore, Chennai, major cities are still slow. I think except -- one exception is Hyderabad. Hyderabad is growing quite fast -- we are only present in the South -- South 5 states. So I can't only comment about these 5 southern states.

And the inquiries are looking very strong as we speak, correct?

Yes, yes. There are lot of...

Conversion from inquiries to order and order to execution is where I think the delay lies is what you are trying to tell. Correct?

Yes. I think there was a delay. FY '20, '21 was very slow. I think after Q2, things have definitely changed and picked up very well.

Understood. And the pricing power in this particular segment, is it there? Or is it still very tough right now?

Actually, this product is high gross margin product, in my opinion. So if we get to the critical level of sale value, then we have 13%, 14% EBITDA levels in this product.

So operational efficiency, once it kicks in, the margins will keep it current.

Correct.

Ladies and gentlemen, as there are no further questions, I now hand the conference over to Mr. Rajesh Doraiswamy for his closing comments. Over to you, sir.

So thank you all once again. I think it's been very interesting questions, and happy to answer you always. Looking forward to interact with you again next quarter. Thank you.

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