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Suprajit Engineering (SEL) reported consolidated EBITDA margin of 10.5% (-220bps YoY, +200bps QoQ), 160bps below JMFe due to weak non-auto cables sales and restructuring related costs at Phoenix Lamps. 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 by end of FY24 led by synergies from consolidation of its European operations. New order wins for SCD and SED division continues to remain robust. Growth in non-automotive cables segment is expected to remain muted in the near-term 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 8%/16% over FY23-26E. We maintain BUY with Sept’24 TP of INR 430 (1-yr fwd PE: 20x). Inability to deliver healthy performance at subsidiaries is a key risk.

* 1QFY24 – margin misses estimates: SEL reported consol. net sales stood of INR 6.8bn (+5% YoY, -3% QoQ), 2% below JMFe. EBITDA stood at INR 715mn (+33% YoY, -18% QoQ). EBIDTA margin stood at 10.5% (+220bps YoY, -200bps QoQ), 160bps below JMFe. Sequential decline was due to 1) negative operating leverage (in Wescon and LDC) and 2) Trifa Lamps liquidation related costs/write-offs impacting profitability at Phoenix. Adj. PAT came-in at INR 331mn (+21% YoY, -19% QoQ). Gross debt declined by INR 290mn QoQ to INR 6.1bn. Company has guided for capex of INR 1.4bn over next 12-18 months towards capacity addition and restructuring operations.

* Suprajit Controls Division (SCD): Revenue for 1Q stood at INR 3.5bn (+8% YoY). EBITDA margin improved 240bps YoY to 7.2%. SAL, SEU and automotive business at LDC grew in double-digits YoY led by new business wins. However, non-automotive cables business (Wescon and Shangai Lonestar) witnessed slowdown due to macro headwinds. The company indicated that integration of all the division within SCD (i.e. SAL, SEU, Wescon, LDC entities) is progressing well. And, the strategy of ‘One Suprajit’ as a global platform has led to significant new business wins (across both Auto and non-Auto cables and Actuators) and is expected to drive healthy growth in the coming quarters.

* Domestic cable division (DCD): Revenue for 1Q stood at INR 2.4bn (flattish YoY). Margin came at 17.7% (+230bps YoY). The company indicated that while domestic PV segment reported strong growth, domestic 2W market continues to be weak. Aftermarket segment had a seasonally weak quarter but is expected to improve from 2Q. DCD has started winning new ‘non-cable’ businesses that are expected to go into production in the coming quarters.

* Phoenix Lamps division (PLD): Revenue stood at INR 877mn (+5% YoY, -6% QoQ). Margin came in at 8% (+250bps YoY, -60bps QoQ), 100bps 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 by FY24 end. The company reiterated its stance to be the last man standing for PLD and expects aftermarket segment to drive growth. The LED retrofit launched in India and internationally (via. Luxlite) has been received well.

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