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WIP Qtr; Robust order wins / restructuring to drive performance

Suprajit Engineering (SEL) reported consolidated EBITDAM margin of 9.8% (+110bps YoY, -70bps QoQ), 100bps below JMFe due to weak non-auto cables sales and restructuring related costs for Controls Division. Restructuring at PLD has started yeilding results. Company indicated that new order wins for SCD and SED division continues to remain robust. However, growth in non-automotive cables segment is expected to remain muted in the near-term owing to slowing demand in the end-market. Near-term margin performance is expected to be muted owing to on-going restructuring. Benefit of softening inflationary pressure and cost control initiatives (via restructuring operations) are expected to support margin expansion during FY25/26. We expect revenue/EBITDA CAGR of 8%/14% over FY23-26E. We maintain BUY with Sept’24 TP of INR 420 (1-yr fwd PE: 20x). Inability to deliver healthy performance at subsidiaries is a key risk.

* 2QFY24 – margin misses estimates: SEL reported consol. net sales stood of INR 7bn (-1% YoY, +4% QoQ), 3% above JMFe. EBITDA stood at INR 698mn (-11% YoY, -2% QoQ). EBIDTA margin stood at 9.8% (+110bps YoY, -70bps QoQ), 100bps below JMFe. Sequential decline was due to 1) negative operating leverage (in Wescon and LDC) and 2) China plant relocation and restructuring related costs impacting profitability of SCD. Adj. PAT came-in at INR 348mn (-24% YoY, +5% QoQ). Gross debt declined by INR 129mn during 1H to INR 6.28bn. 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 2Q stood at INR 3.2bn (flat YoY; -7% QoQ). EBITDA margin declined 130bps YoY to 3.4%. Automotive business performance was affected by UAW strike in North America. Non-automotive cables business (Wescon and Shangai Lonestar) witnessed slowdown due to macro headwinds. The company indicated that China plant relocation / restructuring and integration of all divisions within SCD (i.e. SAL, SEU, Wescon, LDC) 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 2Q stood at INR 2.8bn (+17.5% YoY; +16.5% QoQ). Margin came at 16.6% (+120bps YoY). The company indicated that while domestic PV segment reported strong growth, domestic 2W market was muted during 2Q. However, 2W demand is picking up in 3Q led by festive season. Aftermarket segment continued to remain sluggish. DCD has started winning new ‘non-cable’ businesses some of which are commercialsed and expected to ramp-up in the coming quarters.

* Phoenix Lamps division (PLD): Revenue stood at INR 980mn (+8% YoY, +12% QoQ). Margin came in at 12.3% (+480bps YoY, +430bps QoQ), 330bps above JMFe. Restructuring at PLD has started yielding results and the company expects further improvement in operational efficiencies. The company reiterated its stance to be the last man standing for PLD and expects aftermarket segment to drive growth. The LED retrofit for both 2W and PV has been received well in the aftermarket segment.

* Suprajit Electronics Division and Technology Centre (SED & STC): The segment has started ramping up and turned EBITDA positive during 2Q. SED has won new orders (annual value INR 1.5bn) for multiple products like Digital Clusters, Electro Mechanical Actuators, Rotary Sensors, Throttle Position Sensors, etc. from traditional and new-age OEMs. The company has started deliveries of actuators for two marquee E2W OEMs where the content is significant higher than ICE business. SEL continues to receive significant customer interest and these products are at different levels of approval with prospective customers.

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SEBI Registration Number is INM000010361