Markets
This small cap electronics stock has surged past ₹1,000. Should you buy?
Summary
- The stock has gained 188.4% from its 52-week low of ₹361 to touch ₹1,041 on 23 August. But is it worth buying?
Most stock market investors fall into one of two categories. The first uses fundamental analysis to invest in companies based on their financials. The second believes in making short-term trades based on seasonal momentum or technical analysis.
Irrespective of which type of investor you are, a multiyear breakout of any stock is something to keep an eye on as it could be a sign of significant potential in the security. A stock breaching the three-figure mark for the first time, for instance, represents a massive breakout.
Today, we bring you a stock that recently broke out of its multi-year resistance level of ₹1,000 and could make for a good addition to your watchlist.
Salzer Electronics
The largest manufacturer of cam-operated rotary switches & wire ducts in India, Salzer Electronics Limited provides customised electrical solutions in the switchgears, wires & cables, and energy management sectors.
It has six manufacturing units in Tamil Nadu and a wide distribution network, both in India and abroad. It exports to more than 50 countries through 40 international distributors.
In the first quarter of FY25 Salzer Electronics saw its revenue increase by 24% to ₹360 crore from ₹290 crore in the corresponding period last year.
This growth was mainly driven by the industrial switchgear and wires & cables businesses, which enjoyed relatively better market conditions. The industrial switchgear division contributed 52% of total revenue, growing 26% year-on-year with an operating margin of nearly 13%.
The wire & cable business accounted for 43% of revenue, up 31% year-on-year with an operating margin of 5%. The building products division, which contributed 5% of revenue, is facing challenges due to higher sales outstanding and distributor reorganisation.
The total operating profit (excluding other income) rose to ₹33 crore in Q1FY25, up 28% from ₹26 crore in Q1FY24. The operating margin increased to 9% and profit after tax (PAT) grew nearly 45% to ₹15 crore.
Salzer Electronics has planned capex of ₹500 crore for FY25, with ₹250 crore of this allocated to the smart meter factory.
It also plans to invest ₹8 crore for a 30% stake in Ultrafast Chargers Private Limited, an EV charger manufacturing startup.
Revenue from smart meters is expected to start flowing in the second half of FY25. The company expects ₹2,000 crore in revenue from the business this year and about ₹10,000 crore next year. The Ebitda margin for smart meters is projected to be around 14% at full capacity, with FY25 margins estimated at around 11%.
Salzer Electronics is guiding for revenue growth of 18-23% for FY25, with the industrial switchgear business expected to grow by 22-23%, the wire & cable business by 18-20%, and the building segment products by around 40%. The company also aims to improve its Ebitda margin to 10-10.5%.
How has the stock performed recently?
The stock is up 3.8% in the past six days and 15% over the past month. It gained 188.4% from its 52-week low of ₹361 to touch ₹1,041 on 23 August.
Here's how Salzer Electronics compares with its peers.
What’s next?
Salzer Electronics expects to maintain a strong growth trajectory, driven by its robust product offerings and solid brand position.
With a positive outlook on both domestic sales and exports, the company remains cautiously optimistic about its overall performance. It aims to sustain a well-balanced mix of industrial switchgear and wires & cables to improve overall gross margins.
The company plans to establish a wholly owned subsidiary in Saudi Arabia, where it currently exports to major original equipment manufacturers (OEMs). That’s because the Saudi government's local-content rule has increased demand for locally made products, presenting significant growth potential for key products such as cable ducts, terminal connectors, and rotary cam switches.
By setting up a facility in Saudi Arabia, Salzer Electronics will be able to meet local demand and gain duty-free access to other Gulf Cooperation Council (GCC) countries. The company also plans to introduce wires and cables in the second year to expand its market presence.
Management is optimistic about growth opportunities in both domestic and international markets, particularly in Australia, New Zealand and the Middle East.
Conclusion
The recent breakout of this stock above ₹1,000 signals a significant momentum shift, capturing the attention of both long-term fundamental investors and short-term traders. The breakout is testament to the company's potential and also reflects the broader market sentiment, which could propel its stock price higher.
However, it's important to remain cautious. While such a breakout can indicate strong upside potential, it also comes with risks, such as potential overvaluation and unexpected market corrections.
Investors should thoroughly evaluate the sector and the company's fundamentals, considering both growth opportunities and risks, before making any decisions.
Happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
