Salzer Electronics Limited (517059) Earnings Call Transcript & Summary

Ladies and gentlemen. Good day, and welcome to Salzer Electronics Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to from Poonam Sanghavi from Progressive Shares. Please, go ahead.

Good afternoon, everyone. On behalf of Progressive Shares, I welcome you all to the Q1 FY '25 Post-Earnings Conference Call of Salzer Electronics Limited. This conference call many contain forward-looking statements, which are based on the beliefs, opinions and expectations of the company as of the date of this call. These statements are not guarantee of future performance and may involve risks and uncertainties that are difficult to predict. I now invite Mr. Savli Mangle for the opening remarks to be followed by a question-and-answer session. Over to you, ma'am.

Good afternoon, everyone, and thank you for joining us today to discuss the unaudited financial performance for the quarter ended 30th June 2024. I have with me Mr. Rajesh Doraiswamy, Joint Managing Director; Mr. P. Sivakumar, Assistant Vice President, Marketing; Mr. S. Venkatachalam, General Manager, Commercial; Mr. R. Menaka, General Manager Accounts; Mr. K.M. Murugesh, Company Secretary; Mr. Jitendra Vakharia, Director, Kaycee Industries; and Mr. Raman, COO, Kaycee Industries. I shall now take you through the consolidated unaudited financial performance for the quarter ended June 30, 2024. During the quarter, our revenues increased by 24% year-on-year to INR 357 crores from INR 289 crores in the previous corresponding period. This growth was mainly driven by higher demand for Industrial Switchgear and Wire & Cable businesses due to better market conditions. On the export front, our share of revenue was nearly 26%, demonstrating a year-on-year growth of nearly 37%. The EBITDA, excluding other income, was INR 33 crores in Q1 FY '25 as against the INR 26 crores in Q1 FY '24, a Y-o-Y growth of 28%, mainly on account of increased sales in higher margin Switchgear products and Wire & Cable businesses. The EBITDA margin for the quarter increased by 34 basis points to 9%. The profit after tax grew nearly by 45% to INR 15 crores in Q1 FY '25. Moving on to the breakup of revenue as per business division. The investments in Switchgear division contributed to 52% of the total revenues in this quarter. This business grew 26% year-on-year in the quarter, and the EBITDA margin increased nearly -- to nearly 13% in Q1 FY '25, an improvement of 160 basis points. 2 of our high demand and high margin products, the 3 phase dry-type transformer products grew 6% year-on-year and the Wire Harness product grew 13% year-on-year during the quarter. The Wires & Cables business contributed to nearly 43% of our revenues in this quarter, with nearly a 31% increase year-on-year and the EBITDA margin business stood at 5%. The Buildings Products division has contributed nearly 5% to our revenues in this quarter. This business is the only B2C business that we have, wherein we sell many electrical products for the Buildings sector. Due to higher sales outstanding, we have been slowing down sales with specific distributor. We've also been doing some reorganization in teams and channels, which we expect going forward, will improve the growth trend in the coming quarters and help us increase our contribution from this segment. I would like to now hand over to Rajesh, who will take us through the business developments and the way ahead. Thank you.

Thank you very much, Savli. Good afternoon, and a very warm welcome to Salzer Electronics Limited's Earnings Conference Call for the First Quarter Ended 30th June 2024. I would like to thank you all for taking the time today to join us for this call. We have already shared our results update presentation and the media release. I hope you all must have received it and gone through the same. I would like to share some recent developments and outlook for the future. In general, the market outlook, as far as the Indian Switchgear market is concerned, it's projected to grow by USD 4.14 billion with a CAGR of 7.5% -- close to 7.5% from 2023 to 2028 for the next 5 years. This growth will be mainly driven by increasing renewable energy generation, the rise in residential and commercial building projects, the expansion of transmission and distribution networks. The rapid development in power distribution sector and the rising demand for renewable energy provides significant opportunities for all the market players in the industry. As the Indian government invests more in renewable power to combat environmental pollution and global warming, the Switchgear market will benefit from the expansion of power grid and increased adoption of renewable energy, which is actually becoming more cost effective. Additionally, smart Switchgears, which enhances energy distribution efficiency and reduces cost, is expected to drive the market growth. The integration of digital technologies and intelligent power management solution will further support market expansion, ensuring safer, more sustainable and efficient energy management practices across the various industries in India. Similarly, the global Switchgear market is projected to experience robust growth reaching $117 billion by 2028 with a CAGR of 6.5%. This growth is also driven by increasing electricity demand, expanded use in transportation, renewable energy investments, rising electricity needs from manufacturing and the replacement of old Switchgears. Furthermore, India's ambitious renewable energy targets, expansion of power transmission and distribution and increasing investment in real estate and transportation sector are driving positive developments in the Wire & Cable industry, promising a bright future. We are, at Salzer, ready and determined to adapt swiftly to these changing circumstances and embrace a proactive approach to steer our business towards growth and resilience. At Salzer, we view challenges as opportunities to innovate and evolve, and we strategically positioned ourselves to pivot from the economic scenario. As we expand our product portfolio and explore new growth opportunities, we are very confident in our ability to meet our strategic goals and provide value to all our stakeholders. I would also like to now talk about some of the key developments on the business performance of Salzer. I'm pleased to announce that the installation of machinery and testing equipment at our Smart Meter factory is now fully complete. Additionally, our factory TEST LAB has also received certification from NABL and IAS certification bodies. Currently, those smart meters are being evaluated by at least 7 AMISPs in India, and we are in advanced discussion with these customers to secure orders for our Smart Meters. However, having entered into the market, the company also acknowledges several challenges along with the opportunities. There is resistance to Smart Meters in some areas due to perceived various charges and an anticipated shakeout in the Smart Meter industry with new entrants and potential quality issues. Furthermore, potential delays in installation by the AMISPs could also arise from difficulties in integrating the meters with existing software and ensuring consistent service levels. Apart from Smart Meter, we are also planning to establish a wholly-owned subsidiary in Saudi Arabia, where we will be manufacturing a few of our fast-moving products. Currently, we are exporting to a few major OEMs in Saudi Arabia as Saudi government regulates and insists of increased local content rule, this will in turn enhance the demand for Saudi locally made products. Setting up a facility in Saudi Arabia will also meet the local demand and also provide duty-free access to other GCC countries. Looking ahead, the company remains cautiously optimistic about the growth opportunities in the global market. Salzer is focusing on revenue and margin expansion to navigate challenges and capitalize on emerging trends. The positive market outlook is bolstered by the strong demand in India and the significant infrastructure investments that's being made in India. Additionally, the company is also exploring markets such as Australia, New Zealand and the Middle East to fuel its growth ambitions. There are also geopolitical challenges that -- which we have to keep in mind, which may reduce the demand from the western markets, particularly. Now with respect to our subsidiary Kaycee industries, Kaycee Industries Limited, the sales have been growing well, and the EBITDA margins are also getting better. Kaycee's top line grew 11.5% to INR 12.6 crores from INR 11.3 crores last year first quarter. EBITDA grew 48% to INR 2.2 crores from INR 1.5 crores last year. PAT is INR 1.5 crore in Q1 FY '25 compared to INR 0.9 crores in Q1 FY '24. PAT margins also improved substantially to 11.93% this quarter from 7.7% last year Q1. For FY '25, Salzer Electronics provides a positive revenue growth guidance of 18% to 23% for this year. The Industrial Switchgear business is expected to grow by around 22% to 23%, Wire & Cable business will be growing approximately between 18% and 20%. The Building segment products, we expect to grow by around 40%. The company is also targeting an improvement in EBITDA margins by close to 100 basis points, aiming for a margin range of 10% to 10.5%. I thank the entire team at Salzer Electronics for their untiring efforts and all of our stakeholders for their continued support and faith in our company. This is all from our side for now. I would like to thank you all once again for your time and attention. We can now take questions.

[Operator Instructions] The first question is from the line of [ Balamurali Krishnan ] from Oman Investment Advisors.

I would like to have any update on the EV Charger manufacturing. Last time we have one test for our product [indiscernible]. So further any update on that one? And are we in any discussions with customers regarding this supply of EV Chargers?

As of now, I don't -- I don't think there is any significant improvement in the status of what we were during the last quarter. So that's why I think there is no update. We haven't put any update on that as of now. So it's still on the development and testing stage as far as Salzer Kostad EV Chargers are concerned. However, I would also like to update you. I think you all also must have seen from the media release of the Kaycee Industries that our subsidiary, Kaycee Industries, has actually invested and taken 30% stake in a fast charger manufacturing company in Hyderabad. That's a development that has happened in this quarter.

Okay. And regarding some Smart Meter, we were trying to supply to the customers who already won the tender from the government, who also has an idea to participate in the tender directly. So is there any plan -- update on plan for this one?

As I mentioned in the last call, yes, we are not closing down any opportunities. All opportunities are open for us. But however, our focus right now is to secure orders for our Smart Meter factory and get the Smart Meter factory up and running and also to prove to the customers that our meters are high quality, and we will be a reliable supplier and partner to the customers. So that's the first focus. However, we are definitely open to see if there is an opportunity to participate in tender, we will be doing so.

Okay. And is it possible to name any of your customers, on which you are in discussion and not in discussion?

There are multiple customers that we are talking to. The large AMISPs including Adani's, GMR's, NCC and a few others. As I mentioned, there are 7 of the customers that we are talking to.

Okay. And lastly, on this Saudi Arabia plant. So basically, our stock manufacturing would be slightly higher considering the manpower cost everything. So do you think that it will affect the margins going forward?

The idea is that we are trying and testing the markets, testing the waters is what I can say. Testing the cost of manufacturing will be a bit higher compared to what it is in India. But there are regulations in Saudi Arabia for increase [indiscernible]. May I request the people to be on mute if -- those are all who were not on mute because there are a lot of disturbance coming. I'm sorry. So there are increased local content regulations that's in Saudi Arabia is coming, like everywhere, India is also insisting on local content. So now Saudi also is insisting on a 40% local content for all their projects and OEMs. So in turn, they are looking at locally manufactured products, even though it's more expensive. So that's why we are trying to see whether we can have some kind of a first mover advantage in the products that we are manufacturing.

The next question is from the line of [indiscernible] from DS Fund Managers.

Yes. We try to complete the Smart Meter business [indiscernible] using this concrete cash flow. We wanted to ask what will be the working capital requirements for the business, working capital days for the sales?

If I understand your question right, you're asking what will be the working capital requirement and working capital days for Smart Meter...

Yes, yes, correct.

Yes. Okay. Before that, I would also like to give an update on the working capital days on Salzer for the current quarter of how it is working. We have actually considerably reduced the number of days from around 150 to around 130 days in this quarter. So that's why it's [indiscernible]. And on the, what you call Smart Meter, we expect that the net working capital days will be much, much lower compared to what our current business is. The reason being, I think we expect a very low data days, not more than 45 days at the max. And also since the product SKUs are also limited, so we also expect that the inventory to be not very high because it's going to be a constant moving product. So the inventory also, we don't expect it to more than around 60 days at the max. So if you put together the net working capital should not be more than around 70, 75 days.

[indiscernible] same like in this product, there'll be subsidiaries from the government. There is some payable will be from the government. You will directly get paid from the government or from the AMISPs, like because the government may delay...

Our business is only with the AMISPs.

Okay. So you will not be affected by any delays of payments from the government, right?

No, that will get effective only if we go and do a direct tender business, direct business with the [ DISCOMs ].

Okay. And also I checked the working capital requirements of the competitor, Genus Capital, that is extremely high, like close to 200, 250. Is it some difference with the...

Yes, we agree. I think the model of Genus is a little different because Genus does business with the DISCOMs directly.

Okay. Got it, got it, got it. And my second question is related to the [indiscernible]. What will be the projected growth after 5 years? And also like we will be getting only 26% benefit, right, from that because of JV. Am I correct?

Yes. No, currently, we own 60% in the JV.

60%?

Yes.

Along with that like new investing you made, right?

Yes, yes, yes.

Okay. Can [indiscernible] projected like phase after 5 years, any rough idea?

I think it will be very, very futuristic to say what will be the business beyond 5 years because the entire EV market itself is still evolving because we see news of declining electric vehicle sales in Western countries right now. So that -- there are a lot of things that is happening around electric vehicle market. However, in the Indian market, we see a lot of potential, and that's why we are continuing to be involved in this business, and we are also continuing to invest in this business through our subsidiaries. However, to give a figure, 5 years from now will be highly difficult.

Any rough 5 years, 2 years numerical idea?

That's what I'm saying it is still evolving. But if you look at our competition, then we will be able to add some kind of an idea. So we can look at some listed competition of electric vehicle charger manufacturers like Servotech or -- what's the other name of the other company. There's also another listed company in electric vehicles charger space. So these are -- there are 2 companies who are making chargers. And if you see they are close to around INR 200 crores of revenue in electrical vehicle chargers today.

Okay. So you're projecting based on that [indiscernible] comparable.

Yes.

[Operator Instructions] The next question is from the line of [ Hemanth Saraf ] from Saraf and Associates.

Congratulations for a good set of numbers. I'd like to know, sir, what I see from last quarter results, there is closing inventory of INR 10 crores. So is it because of smart inventory bases or something else?

Say that again. I didn't understand your questions.

Sir, change in inventory is of approx INR 10 crores. Sir, I want to know whether it is Smart Meter inventory buildup or something else?

What inventory INR 10 crores you're talking? Where is that figure from?

Change in inventory?

P&L inventory?

Stock adjustment, like...

Okay. Changes in inventory. Okay, okay, okay. Yes. Okay. Understood. This quarter, you were talking, the changes in inventory for INR 10 crores. Yes, it's a stock increase by INR 10 crores.

Is it related to Smart Meter or...

It is not related to -- EV related to Smart Meter. It also includes Smart Meter, but it's not fully related to Smart Meter. Mainly related to the regular business.

And sir, what is expected CapEx from the wholly owned subsidiary which you are planning for Saudi Arabia in Saudi Arabia?

We are planning for an investment of around INR 10 crores in total to start with.

[Operator Instructions] The next question is from the line of Deepak Poddar from Sapphire Capital.

So I just wanted to check, I mean, on the smart meter front. So when is the -- I think we have already in discussion for securing orders, but so when we expect the revenue to start from Smart Meter and accordingly, this year and next year, what sort of revenue build up we are looking to garner in smart meter and what margins?

I think the revenue should start definitely this year. But what kind of a revenue? I'm hopeful that in the second half of this year, we should be having revenues coming in from the Smart Meter. We expect at least INR 200 crores of revenues from Smart Meter this year. And next year, it will be a full capacity run, which then we will be able to do close to around INR 1,000 crores for next full financial year. That's just over plan, and that's what we are expecting.

Understood. And at what margins?

We are looking at an EBITDA margin of around 14% there.

At full utilization?

Yes.

And so FY '25 margins here will be much lower, right, because of your lower utilization.

Not very much lower, but should be at around 11%.

11%, understood. And this is over a number of what you have mentioned in terms of your guidance of 18% to 23% kind of a revenue growth.

Yes.

Okay. Fair enough. I think that would be from my side. All the way best to you.

The next question is from the line of Prathamesh Dhiwar, Tiger Assets.

Sir, just a couple of questions on acquisition side. So what are the -- as I am new to the company, what are the recent acquisitions that we have done? And in coming time, are we planning for any acquisitions? So this is my first question.

No, we haven't -- Salzer has not done any acquisition in the recent past after Kaycee Industries in 2019. We haven't done any acquisition. And -- of course, there are a lot of opportunities that keep coming to our table, and we keep discussing opportunities, but there's nothing significant as of now.

Okay. And sir, what is the total CapEx outlay for FY ' 25?

For current year?

Yes, FY '25, current year.

FY '25, our total CapEx will be close to around INR 50 crores because we have invested close to around INR 25 crores in the Smart Meter factory. So apart from that, we will be doing another INR 20 crores for CapEx for this year.

Okay. And so just -- I missed it earlier, how much margins are we seeing on Smart Meter side? EBITDA margins?

We are looking at 14% EBITDA for Smart Meters.

[Operator Instructions] The next question is from the line of [ Praneeth ].

Yes. I was wondering about the current mix and how we are going forward with -- how do we want to see our production going forward? Till now we've did 55% of Switchgears and the 30%, 40% in Wires & Cables. Are we expecting it to improve -- are we expecting an improvement in product mix from Switchgears a little bit more and the Smart Meters taking up the extra incremental revenue? How are we planning on looking at the product mix going forward?

Going forward in this year, we expect that between industrial Switchgears and the Wire & Cable, the product mix will be between 53%, 55% for Industrial Switchgears and around 40%, 43% for the Wire & Cables. That's the mix that we are looking at, and the rest going for the Building segment. Any Smart Meter that will be coming in extra, which we will have to see how the business comes around this year, and then we can give out a figure for that. But for next full year, then the Smart Meter definitely will take up close to around 30%, 40% of our revenues.

Okay. And for the Building segment, you've been trying to make sure the revenue contribution reaches somewhere around 10%. But we have not been able to do it for the last few years. What is the specific reason? Or do you think it's going to sustain at this level for the foreseeable future because we've been trying to reach...

Multiple challenges that we are facing when we go into the retail market. One, I think we are still confined to southern 5 states. So that's one regional constraint that we have. Second, I think there's a lot of collection issues also that comes along with the retail business that we are doing. Still, we are not a very large brand like an Havels, V-Guard or PolyCab. So we are still pushing our products -- in stock market pulling our products. So because of that, there are collection issues than the regional constraints. So we are going slow, not burning away cash too much and taking the revenues up. So that is one of the reasons that we are seeing that the sales is not going up as expected. But nowadays we are doing our best, trying it out to see how we can make this at least INR 100 crore revenue segment as soon as possible.

So -- so we wanted to -- are we planning on investing further into the Building segment? Do we need to do CapEx? Or is it only you need to put working capital CapEx for increasing the distribution going forward?

It is only marketing, until that we have continue to do. There's no CapEx that we're doing so.

Okay. And one more thing with the [ white ] settlement. We started with the white label, right? So what is the split between white label and around that? I think in between ventured into selling Salzer's branded cables also. So how is the split between both these settlements?

The Salzer-branded Cables, we are selling through our Building segment division and White labeling, we are doing it for the Wire & Cable for companies like L&T and a few others. I don't understand what is the question that you're asking. How is it growing? Or...

No, no, I was curious. I thought in the 40%, the Salzer Wires & Cables is also included. So I was just curious in that way, whether did we increase our -- are we actively marketing Salzer branded cables in other distribution channels or...

Yes. We are marketing the Salzer -- the 43% Wire & Cable, includes Salzer-branded cables for the Industrial segment. And it also includes the white-labeled products for L&T. And the dependency on the white label, which used to be around 80% earlier from L&T and other OEMs, have come down to close to around 60% or even less in the last year and the current quarter.

So where has the dependence reduced? We've been onboarding more customers, which are not OEMs or however you will be doing it?

We are onboarding more customers, where we are selling Salzer wires.

Okay. So the margins and background Salzer branded products than the white label products, right? What is the difference in margin?

Not yet. I think, hopefully, it will get better.

Okay. One more question regarding the Kaycee Industries acquisition. So we did that acquisition a long time ago, and you were expecting synergies to between both the companies because together, you will be market -- you were already a market leader, and we'll have an increase in market share in the segment. So how are the synergies being going forward? Are you seeing active -- are we seeing incremental synergies going to happen? Or we have stagnated it in terms of the increment -- benefits through acquisition?

Yes. I think most of the synergies have been taken care, and you see the tremendous margin improvements in Kaycee, and we can also see the same improvements in Salzer's Rotary Switch business. So it's a continuous process, but we have achieved to an extent what we wanted to.

Okay. And one more reason earlier you mentioned the fact that you invested in Hyderabad-based [indiscernible] company through Kaycee industries. What is the rationale behind it? Because since you already have a JV for manufacturing fast chargers, why are we going to investing another company through our like subsidiary? What is the rationale behind it?

It's a startup company in Hyderabad, and it's different technology to than what we are making. That is one of the reasons that we thought we should be in this business. Secondly, I think as I have mentioned that we are -- at Salzer, we are still struggling to get the technology right and get it tested. There's also issues with the collaborator giving us the technology and then getting this tested for the Indian standard. So we thought maybe this is an opportunity that we should be in the business with other partners also. So that's one of the rationale that we have invested in this company in the other words, a start-up for making chargers.

So what is the company's name and what valuation did you invest in this particular amount then?

The name of the company is Ultrafast Chargers Private Limited. And the investment that we have made -- we are making, going to be at least around INR 8 crores for 30% stake.

So 30% stake. Understood. Are we also planning on lending any of support also, or is it just a money investment?

To start with, we're going to be an investor. We will be the single largest shareholder in the company. Going forward, any support -- because it's a start-up. So definitely, they will need a lot of support from companies with experience for manufacturing and marketing, et cetera. In that case, I think we will definitely step in and do what is required for them.

Understood. One more thing. We had a transformer division, right? So how is that going right now?

What is that sorry?

Sorry, I must have mistaken. Sorry. Yes, I was curious the maintenance CapEx going forward. How is it going to be?

I already mentioned that I think we are going to do around INR 25 crores this year, including the Smart Meter CapEx -- balance CapEx.

No, no. I'm curious about the incremental CapEx, the maintenance. So to sustain -- like we'll probably need to do maintenance CapEx for existing [indiscernible]. What would that be, not the incremental CapEx.

I don't have a split on how much maintenance, how much new CapEx that we're making because there's no major CapEx that we are making as of now. There's no major CapEx other than Smart Meters in the Saudi Arabia plant. We are not going to make any major CapEx as of now. So whatever we are making will be for maintenance.

Understood. And one more thing...

I think you should -- too many questions -- we can let others also have a chance.

Yes, sir. Can we please request you to come back in the queue for the follow-up questions. The next question is from the line of Gunit Singh from Countercycle PMS.

Sir, you mentioned INR 1,000 crores revenues from Smart Meter in FY '26. I just want to understand, do we have the order pipeline for that? I mean, what gives us the confidence that we will be able to reach full utilization? That's the first question.

As I mentioned, I think we are in discussion with the customers, the AMISPs, and we see the potential and see what kind of orders they have with them, which they ultimately have to give it to meter manufacturers. So based on that, I think we are confident that we will be able to get the 4 million meter order for next financial year. So that's the confidence that we have, one. Secondly, I think we also see that there are -- as I mentioned in my call, there will be a lot of fallouts. There will be a lot of integration issues with meters and software. So there will be a lot of struggle for the AMISPs also on the installation side. So we are seeing all these things already and we're getting prepared to how to overcome all these challenges that the customers are already facing. So based on these technological advantages that we have and also the business with the customers, we are confident of this for next year.

Sir, according to current market dynamics in Smart Meters, I mean what would be the demand? And what would be the overall industry supplier, in Smart Meter segment in India, if you can throw some light?

The known demand is around 25 crore meters, and the supply today should be around 3 crore meters a year. Yes, it is -- the capacity is 3 crores, but it is still not supplied, still not -- the supplies are not going still.

With the new line -- with this commercializing, what kind of depreciation can we expect, I mean, overall for the company in FY '26?

Yes, you mean to say because of the Smart Meter investment.

Yes.

I don't think there will be significant change in depreciation because of Smart Meter, because Smart Meter, I think we have invested -- investing around INR 25 crores to be depreciated over a period of 15 years or even 10 years, it's going to be INR 2 crores per year extra.

All right. And sir, do we plan to -- do we plan to raise any debt? Or do we plan to pay down any debt in this financial year? What is the guidance in that regard?

We have already taken debt for our Smart Meter factory, which is around INR 25 crores, but we have availed only around 10 out of that. So there is no other new debt that we are -- long-term debt that we are planning to take.

The next question is from the line of Amit Agicha from HG Hawa.

Congratulations, Mr. Doraiswamy, for the good set of numbers. My question was with respect to the -- is the company planning any bonus because in last 1995 company had given 1:1. The reserves are samples for shareholders will be [indiscernible].

Thank you for suggesting this. We'll definitely look into this possibility. We haven't so far thought about the bonus issue as of now. And for you all of your information, I think in Kaycee, we just did the split in the bonus in our subsidiary.

The next question is from the line of Rohit Ohri, Progressive Shares.

Two or 3 questions from my side. First one being on the copper pricing been fluctuating a lot over the last 3 or 5 months. How are we coping up with that and the inventory management, if you would like to share that?

It's definitely challenging because a very smooth upward or downward movement is easy to manage, but anything -- any spikes are very, very difficult to manage, and that's one of the reasons that our EBITDA margin on the Wire & Cable industry has gone down by close to around 2% this quarter. So they're definitely affected because of sudden spike of up and down. That is one reason. And we continue to buy and sell on a monthly average -- that's one of the reasons that we are also insulated to some extent. However, said that it is -- but you cannot really control the customer placing an order or not placing an order. It's always a customer will place more orders when the copper prices are spiking up suddenly. So that's when I think we are caught in a place where we don't have copper old price, but we have to sell. So that is why that the margins are getting strength. So the balance of that, I think, is still being worked out, but it's quite challenging.

Do you think that there's still more pain left in the upcoming quarter as well?

No. I think even in the month of end of June and beginning of July, I think it started stabilizing. So it looks like, I think it's more stable in the last 2 months now.

Okay. So second question is related to this plan to establish subsidiary in Saudi Arabia. Sir, I just needed some more clarity on that. Are we going to go there and manufacture? Or are we setting up sales or service department over there probably you might make most of the 80% of the products here in India and then send it across to Saudi and then probably do the packaging and finishing final touches over there and then sell it across to probably Europe or U.S.?

We are -- actually, it's a combination of both. There are certain products, which we cannot do anything here and take it there because it has to be value added in Saudi Arabia to get 40% value addition certificate. So that's why I think certain products will be manufactured in Saudi. But there are certain products that we will produce here in India, take it on a CKD condition and then do the finishing in Saudi Arabia. So it's a combination of both that we are doing. And to answer your question, yes, it's the manufacturing plan, not just the sales and marketing.

Sir, going in international frontiers, the employee cost will be something that will hit us a lot. We have this lovely strategy here in Coimbatore, where we have employed got a lot of female staff and they do the job perfectly, sir. Just on the employee cost going forward with the Saudi arrangement, you would like to share something?

I think to start with the Saudi plant is going to be a very small plant to be set up there for Saudi Arabian market to start within the Phase I, and then we will be looking at the other GCC countries from that plant. So that's the idea. Definitely, the cost of employment in Saudi plant will be more as a percentage of sales when compared to what the Indian plant is. But then there are inherent advantages when you go there because the price can be a little higher, which can cover the increased employment cost. And there will be a demand for the Saudi met product in Saudi Arabia. So that's the advantage. And I think we are just testing the water. And of course, there are a lot of risks involved in going to a new country, in Saudi Arabia, how the political stability will be, how the policy stability will be. There are a lot of questions. We expect things will be good because we see a lot of other foreign OEMs setting up plants there and started manufacturing, who are all our customers also. So looking at them, I think we are trying to test the market and see how it goes forward.

Sir, last question on any corporate development that we should expect from your side to split because if you just check that the spreads between the ask and bid is slightly higher. Do you think that there should be stocks that should come through for Salzer Electronics?

I didn't get you. Asking me of any corporate announcements or...

So the stock split, is the Board contemplating, anything...

No, no. Right now, we are not thinking about that.

The next question is from the line of Praneeth. Are you able to hear us? Sir, your line is unmuted. You can go ahead with your question. Should we go ahead with the next question since Mr. Praneeth is unable to...

Yes, please.

Sorry, sir, the participant has got disconnected. The next question is from the line of Hemal, Individual Investor.

Congrats on the...

You are not audible, sir. Can you repeat the question?

Am I audible now?

You are audible, sir.

Congrats on the good set of numbers. I am new to this company. I just -- I heard everything. I just may have missed out on queue. I just want to confirm 2 things. What's your net debt position as of today and what is your best EBITDA margin outlook because you said Smart Meters is something, which you have not accounted for, what is the EBITDA margin outlook for the year that you think that we should look at?

The net borrowings on working capital is around INR 281 crores. And long-term debt is around INR 16 crores, INR 15.85 crores. That's the debt level that we have. More or less, it's very similar to what it was in the March balance sheet. There's not much changes in that. On the EBITDA margin position, I think I already mentioned in the call, I think we expect to close this year at around 10% or a little more than 10% is what we expect to close. This is without considering the Smart Meter factory. Because of the Smart Meter, we are yet to see an order inflow. And then once we start that, then we will be able to give some kind of guidance on that. But we expect on a full capacity utilization, Smart Meter can generate 14% EBITDA.

And sir, on Smart Meter only 1 question. Also [indiscernible] article, which has 7 crore Smart Meter manufacturing capacity [indiscernible] 3 crores. So...

Which company you're talking about?

[indiscernible] 7 crores.

Sorry. Your voice is breaking. That's why I'm not able to clear it.

Sir, now? Is it better?

It is better now.

I was saying that I was reading an article which said that Smart Meter production facility capacity in India is around 7 crores. But if I'm correct, you said it's around 3 crores, right?

Yes. I mean there might be a lot of small manufacturers, medium-sized companies. I'm talking about the large companies. If you see, if you consider all of them, I think it won't be more than 3 crores, 3.5 crores.

So what is our advantage relative to them? Like what do we bring to the table that is differentiated from all these smaller or larger payers.

The first thing is I think there is a large demand supply gap because there are companies who have taken crores and crores of meter orders a couple of years ago and then still struggling to install the meters because there is no supply of meters. So that means there's a large demand supply gap. That is first. Second, I think we have been into the manufacturing -- engineering manufacturing for the last close to 40 years now. And we are completely backward integrated, which is a big advantage for us compared to many other meter manufacturers. And we have the logistics completely set on the procurement side, both for the raw materials, components, and we have a good team that we have established now we will be able to take this to the level that we are looking at. One, a lot of companies have been into meter manufacturing for a long time, but then the Smart Meter is a new thing. So they're all changing their regular digital meters into Smart Meters. Out of this, I think the top companies have been quick enough to change over and start making the meters. And the other small and medium-sized companies are still struggling to get the Smart Meter perfect because it has to work in an environment, an unknown environment outside where we don't know what the temperatures are, what the environmental conditions are, rain, dust and so many other things. In these conditions, how this product is going to work is something that's unknown. So that's where I think you need a bit of experience working in various products, how this product can work in such conditions. What we have done is we have made a product that has been tested at very, very severe conditions. We have proved that to the customers who have been talking to us, and they have all appreciated the way in which this is being made and tested in our factory. So definitely, we can -- we are bringing high-quality product to the table. At the same time, we are assuring that there is supply, consistent supply that can come to these customers for them to finish their project on time.

So would the warranty liability of the Smart Meter be on power itself? Or would it be just a pass-through? Like would you have any warranty...

We need to give an 8-year warranty for the meter.

So you would have some liability on that, right?

Yes, yes, yes.

How much is it typically, like 2% of sales or 5% of the sales?

We expect that it's not going to be more than 0.5% of the sale. But the worst-case scenario can be 1.5%, 2%.

Okay. So 0.5% to 2%, we have to account on our books still at least for 8 years potentially.

Yes. Yes.

And absolute final question. So because you said backward integration in your technology, if you take -- is that one of the reasons why you would have a better cost advantage relative to larger -- other larger players? Or is it like a rice business and everybody who is in this large-scale business, everyone has the same technology and everyone can have this robust testing done in the large one, not the smaller one...

Yes, I think the other large ones definitely have this because they also will have the volume. They also have been experienced in making the meters. But my point is that we will -- we are a new entrant, but we will be on par with these large manufacturers. That's the point I'm trying to tell my customers also.

The next question is from the line of Praneeth.

So I was curious about the toroidal transformer facility. So how is it scaling up? And how have you been doing sales in the transformer department? And how is the capacity utilization after the investment?

Which one? Which company?

Transformers, toroidal transformers.

Transformers has been growing very well. I think it was one of the fastest growing product for us. It still continues to be. And then the capacity utilization in the transformer division is close to around 75%.

Okay. So what is the exact sales number for that particular segment? The transformer segment.

I don't have a breakup of my Switchgear sales as of now, but I can share it with you through the team.

Okay. That would be great if you would share it after the call. And so one more thing is, we have done INR 37 crores worth of related party sales. So which institutions could we actually do the sales to? Why do we do it?

There are a lot of exports that we do on a consolidated basis to our customers. So that takes the majority of the sales. It's the only sale that we do.

Understood. So one more reason I wanted to ask in the EV, we did a further investment in the EV charging manufacturing subsidiary. What is the reason for the further investment? And why didn't the other party also invest in equal amount to maintain their ownership? What are the terms of the deal?

The original terms of the deal itself was that as the investment requirement is coming, I think Salzer will invest and others will dilute themselves, except the foreign collaborator, who will continue to 120%. So that the original deal. So that's why I think we continue to invest and then our stake goes up.

So how much investment are we expecting to further the dilution of the...

So far, we have invested only around -- close to around INR 1 crore. And we are not expecting any major investment as of now until the testing is completed and the product is proven.

But last 6 months ago, you mentioned that it has been already tested in Pune. It's almost at the end of its testing and quality standard phase. So what has been taking extra time?

I think I mentioned in my last call clearly that we have completed all testing, except for one last test, which has failed. And that communication is a software change that we have to do. And we are now working with our collaborator to do that software change because software change is a major change. That's what we see right now, which needs a lot of resources to be invested, to change that software to meet Indian standards, which is what our collaborator is trying to do, and we are trying to make them do because that is their propriety technology.

Understood.

And until that is done, this testing won't be complete.

Okay. So -- and like as you alluded to in the previous calls, you wanted like our EBITDA margin to reach 5% to 12% like what we have done in 2017 at times. So can we expect that in the further 2, 3 years? Or is it going to remain in the 10% range?

As of now, I think this year, we are trying to get to the 10% level, whether the business without the Smart Meter, the existing core business, whether it will go to 12%, 12.5% next 2 years. I think in next 2 years, we can expect this to be around 11%, 11.5% if the same revenue ratio remains 55% and 43% of Switchgear and Wire & Cable.

And we wanted to reach an ROCE of 18%, right? And like a few calls, you mentioned that. So do you think we reach that level? Or is it going to be in the subdued levels what we are right now?

No, I think with the addition of Smart Meter, I'm sure that in FY '26, '27, we should be able to reach that level. Okay.

Okay. That's all from my side. And it will be great if you can give the transformer details.

Thank you very much. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Rajesh Doraiswamy for closing comments.

Thank you very much for all the participants who have been here today and shown so much interest in the company. Looking forward to interact with you again in the next conference call. Thank you, all of you.

Thank you. On behalf of Progressive Shares, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.