Ventura Securities has initiated coverage on shares of Salzer Electronics with a ‘buy’ rating and has assigned a 24-month target price of Rs 388 which means an upside of 97 percent from Rs 197.
Despite the intense selling pressure in the market, at 13:11 IST, Salzer Electronics' stock was trading 1.8 percent higher at Rs 198.05 on BSE.
The brokerage firm’s bull case scenario implies a target price of Rs 466 which means a 135 percent upside from the current market price of Rs 198.05.
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The stock touched an intraday high of Rs 203 after rising more than 4 percent on Thursday. In the past year, the scrip has gained more than 50 percent.
“Salzer Electronics Ltd is a proxy play on the burgeoning demand given the strong outlook for electricity generation and related infrastructure development,” Ventura Securities in a note.
“The demand for electrical components and switchgear is bound to rise due to the replacement of low KVA transmission lines with high KVA lines, electrification of railways, development of industrial corridors, Metro Rail projects and SMART City development,” added the brokerage firm.
The company has also entered into two strategic Joint Ventures in the Electric Vehicle (EV) space which offers significant business potential.
The company is the largest manufacturer of CAM operated rotary switches with a market share of 20 percent and wire ducts with a 25 percent market share in India. It is also a preferred supplier to marquee capital goods and EPC companies such as Larsen & Toubro, Schneider Electric, BHEL, Nuclear Power Corporation, Indian Railways, ABB, General Electric, Honeywell Automation and Siemens among others.
The switchgears segment contributes 45-50 percent to the overall revenue, copper wires and cables business forms 40-45 percent, while the rest comes from building materials and energy management segments.
Ventura Securities believes that the electrification of railways, development of industrial corridors, Metro Rail projects and SMART City development will boost demand for electrical components and switchgears, which is in turn seen beneficial for Salzer Electronics.
Additionally, the rise in the revenue share of industrial switchgears is expected to boost operating margins and free cash flow, according to the brokerage firm.
The company caters to a wide range of products with five in-house manufacturing facilities located in Coimbatore, Tamil Nadu.
