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Robust Q2; ICE diversification on track; valuation attractive

SPRL reported an in-line Q2, with consolidated revenue/EBITDA up 16%/16.5% YoY to Rs10.2bn/Rs2.1bn, respectively, and a robust 20.4% EBITDAM, outpacing auto industry’s production growth of 10% YoY (PVs+2Ws+CVs) despite some impact on the mix due to GST cut-led transition. The standalone performance was also healthy, with 10% YoY revenue/EBITDA growth and 20% EBITDAM. Subsidiaries (C-S) accounted for 14% of consolidated revenue (9%/13% in Q2FY25/Q1FY26), with 17% EBITDAM (13.5/15% in Q2FY25/Q1FY26). SPRL is rapidly scaling through major businesses won across legacy and emerging (EV) products over the past 2 quarters; the management reiterated its confidence in sustaining industry-beating growth, led by a diversified portfolio across powertrains and a higher focus on emerging ICE tech (including alternative fuels), exports (global piston capacities are being vacated on EV fears, creating supply gaps for SPRL to fill), non-auto (marine, industrial, snow mobiles, lawn mowers, etc), and aftermarket (some impact in Q2 on GST cut-led transition). We continue to prefer SPRL within auto ancillaries, given its dominant positioning in core segments, even as it is strategically diversifying into emerging/non-ICE parts. We increase our FY27E/28E EPS by 3-5% and retain BUY, while raising our TP by 11.5% to Rs3,400, at 20x Sep-27E PER (rolled forward). SPRL trades at 15x Sep-27E PER.

In-line performance, with sustained >20% EBITDAM

Consolidated revenue grew 16% YoY to Rs10.2bn, with consolidated EBITDA up 16.5% YoY to Rs2.1bn and EBITDAM flattish at 20.4% (owing to 180bps QoQ higher RM cost offset by lower staff cost and other expenses). Consolidated PAT rose 13% YoY to Rs1.4bn. Standalone revenue also grew 10% YoY, with EBITDA up 10% YoY and EBITDAM stable QoQ/YoY at 21%. Standalone PAT grew 7.5% YoY to Rs1.3bn.

Earnings call KTAs

1) The mgmt delivered broad-based double-digit growth and guided to sustaining its outperformance across legacy and new businesses vs the industry, aided by its inherent moat of diverse presence across end-user segments, powertrains, coupled with rising presence in EV components and high-precision injection via subsidiaries. 2) The mgmt expects ICE engine demand to see 6-7% CAGR, with EV penetration rising to 15-20% over 5Y; it believes all powertrains will coexist amid enhanced focus on cleaner/alternative fuel technologies like hydrogen, biofuel, etc. SPRL would benefit, given its diversified presence and offerings across powertrains. 3) It has onboarded new customers for EV motors/controllers and highlighted that rare-earth-free ferrite motor development is under process. 4) The Coimbatore plant (for EV components) is ready and will commence operations in Q3. Being one of the top 3 motor manufacturers and the only player offering both motors and controllers, SPRL is well placed to emerge as a leading player here. 5) Global OEMs are reducing piston capacity due to EV fears, creating supply gaps that SPRL is well placed to fill, especially in off-highway, marine, and industrial applications. 6) SPRL is exploring synergistic M&A opportunities (domestic/overseas) in existing domains.

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