"We are already practicing ‘Make in India’ for the last 30 years!"
R Doraiswamy Managing Director, Salzer Electronics Ltd
Salzer is one of the most competitive global manufacturers of advanced electrical products. How do you manage to maintain this coveted position in the market?
Thanks for the compliment. The leadership for the last 30 years is the result of the two point philosophy adopted by the company.
First is, we begin with customers. All the products we develop are as per customer needs and hence there is always a good demand for our products. Our marketing and design team closely co-ordinate with customer and end users before developing any new product.
Second is vertical integration. Nearly 70 to 80 % of the parts that go intoany of our products are made in-house. The required R&D, tooling, moulding, manufacturing andtesting facilities are in-house.
This gives competitive edge over others, like flexibility in design, quality control on the entire value chain, cost control of the product, quick introduction of new products, etc.
What is your outlook on industry growth and economic growth in the coming years?
We are expecting the switchgear industry to grow in the next 3 to 5 years at about 7 to 8%. Customers prefer single source, hence consolidation or basket offering will grow.
With GST implementation, we expect all the organised players to get level playing field. Anybody can sell anywhere in India. No forms, no logistic hassles. We expect to see the benefits of GST in the second half of FY17-18.
The economy is expected to accelerate as well. The government investments will be supported with private investments, though not yet started. Infrastructure, water management (like combining of rivers, a multi-billion dollar project expected to be announced soon), housing and electricity for all and defence will be the growth drivers
What percentage of your sales do you invest in R&D?
Around 1.5-2% of sales is invested in R&D every year.
How is 'Make in India' initiative helping your company grow?
As we said above, vertical integration is our strength.
Also, Salzer believes in developing affordable products locally to replace imports. We think we are already practicing ‘Make in India’ for the last 30 years!
Many large multinational OEMS are looking at India as a manufacturing hub and looking for good suppliers to source products for international markets. This has already started to transform into business for us as well as for various other companies. ‘Make In India’ as a policy should ensure that the ease of doing business in India is getting better year-on-year. This will bring in more companies and thereby technology into the country.
What steps are being taken to enhance EBITDA margin by 100 bps and to bring ROCE to around 18% in three years?
The company’s policy is to see that the ROCE is increased year-on-year. For this, EBIDTA margins have to improve. Already we have a mix of products where some of them give us 14-15% margin and some of them like wires &cables give 7-8% EBIDTA margins. On blended basis, we see the company’s EBIDTA margins between 10–12% depending on the revenue mix between these two products mix.
We have initiated various steps to increase EBIDTA,SUCH as:
- Cost reduction through value engineering.
- Process improvement in various factories
– continuous process.
- Growing high margin business faster by introducing new technology products.
What is your product-mix strategy that you think will optimise revenues for Salzer?
New Product Index (NPI),I.E, the sale from new products as a percentage of total sales is the new financial parameter adopted by Salzer. New product means those which are launched in the last 4 years.
We are aiming for 25%-30% NPI every year.
Also we operate in four user verticals, namely, switchgear, magnetics, building and copper. Our product mix from these four verticles is such that the revenue and profitability as a group is maintained as per target. Also 21% of our sales are exported.
We are always looking at growing the more profitable business. We also as a policy ensure that the customer mix, product mix, region mix is very widely spread, so that any impact on any one segment or region does not affect the company largely.