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Buy Salzer Electronics – HDFC Sec

September 6, 2007

HDFC Securities has put a BUY recommendation on Salzer Electronics Ltd [SZEL] with a price Target of Rs 150. CMP Rs 114.

Electrical equipment industry has been growing at a very rapid pace. SZEL’s products are mainly electrical panel accessories & mostly generate revenues from power segment. L&T Capital, an investment arm of engineering giant L&T recently acquired 14.95% stake in SZEL. Collaborations with German & Canadian companies have helped SZEL to establish a niche position in rotary switches & toroidal transformer business respectively. SZEL has increased focus on its modular switches business, which has a huge potential & has set up a unit at Himachal Pradesh for manufacturing these switches.

SZEL’s revenue & net profits to grow at a CAGR of 38% & 58.3% respectively over the next two years. The EBITDA margins are likely to increase to 16.2% in FY08 & 16.6% in FY09 from 15.2% in FY07. Its PAT margins are expected to improve significantly to 6.7% in FY08 & 7.3% in FY09 from 5.5% in FY07. At the current price, the scrip trades at 13.1xFY08E EPS & 9xFY09E EPS. Investors could look at making a small entry at the current levels & add on dips to Rs.95 with a one-year price target of Rs 150.

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