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Suprajit Engineering (SEL) reported consolidated EBITDA margin of 12.5% (-270bps YoY, +80bps QoQ), 20bps above JMFe led by lower than expected RM costs. Restructuring at LDC has started yeilding results and we expect LDC acquisition to be EPS accretive from FY24. Company expects PLD to reach double-digit margins in FY24 led by synergies from consolidation of its European operations. Easing supply constraints and robust new order wins from global OEMs (gaining market share) is expected to drive strong growth for automotive segment. Growth in non-automotive segment is expected to remain muted owing to slowing demand in the end-market. Benefit of softening inflationary pressure and cost control initiatives are expected to support margin expansion going ahead. We expect revenue/EBITDA CAGR of 11% / 23% over FY23-25E. We maintain BUY with Mar’24 TP of INR 430 (1-yr fwrd PE of 20x). Inability to deliver healthy performance in subsidiaries is the key risk.

* 4QFY23 - broadly in-line: SEL reported consol. net sales stood of INR 7bn (+38% YoY, +1% QoQ), 3% below JMFe. EBITDA stood at INR 871mn (+14% YoY, +8% QoQ). EBIDTA margin stood at 12.5% (-270bps YoY, +80bps QoQ), 20bps above JMFe. Sequential improvement was led by 1) pass-through of inflationary costs to customers and 2) softening RM cost. Adj. PAT came-in at INR 410mn (-16% YoY, +8% QoQ). Gross debt increased by INR 380mn QoQ to INR 6.4bn. Company has guided for capex of INR 1.4bn over next 12-18 months towards capacity addition and restructuring operations.

* Automotive cables division: Automotive cable division revenue stood at INR 3bn (+3% YoY, -4% QoQ). Orderbook remains robust and the company won multiple new orders from European OEMs for their EV platforms. The company indicated that domestic 2W market continues to be under pressure. Domestic cables division performed well despite muted 2W industry growth led by both OE & aftermarket. Margin came in at 15% (- 80bps YoY, -250bps QoQ), 270bps below JMFe owing to lag in cost pass-through. Overall, the company expects healthy traction going ahead led by new order wins and healthy aftermarket demand.

* Phoenix Lamps division (PLD): Revenue stood at INR 929mn (-4% YoY & QoQ). Margin came in at 8.6% (+180bps YoY, -230bps QoQ), 250bps below JMFe. Sequential margin decline was owing to one-off liquidation cost of Trifa Lamps. Restructuring at PLD has started yielding results and the company expects further improvement in operational efficiencies to drive double-digit margins going ahead. The company reiterated its stance to be the last man standing for PLD and expects aftermarket segment to drive growth going ahead.

* Non-automotive cable division (including Wescon): Revenue for 4Q stood at INR 1.2bn (+3% YoY, +17% QoQ). Margin came at 23.6% (+310bps YoY, +14.6ppt QoQ), 960bps above JMFe. QoQ improvement in margin was owing to benefit of cost pass-through received during the Qtr. Growth in 4Q was supported by new order execution. Overall, the company expects muted demand in FY24 owing to slowdown in North America

* Light Duty Cable (LDC): Revenue stood at INR 1.9bn (+3% QoQ) while EBITDAM stood at 4.6% (+90bps QoQ). The company expects to achieve revenue guidance of USD 100mn in FY24 led by new order wins. There will be near-term challenges due to relocation of China plant owing to local government requirement. However, healthy new order wins are expected to drive the growth going ahead. SEL expects LDC to reach double-digit margin in the medium-term led by price revisions on newer contracts, cost control initiatives and benefits of synergies post integration.

* Suprajit Electronics Division and Technology Centre (SED & STC): SED has won new orders for multiple products like Digital Speedometers, Lock Actuators, Rotary Sensors, Throttle Position Sensors, etc. from traditional and new-age OEMs. SEL is working towards changing customer perception for Suprajit to be supplier of components beyond just cables. Company indicated that customer interest is rising for these new products.

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