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Upgrade to BUY; tide turning in overseas business

Suprajit Engineering Limited's (SEL) Q4 performance was strong with 12% growth in revenues and ~5% beat in EBITDA (stable margins QoQ). Growth outlook has improved at global-facing Suprajit Controls Division (4% rev. growth in Q4; 47% of FY24 rev. mix; with worst now behind as per Mgmt.), with overall consol. FY25 guidance being of double-digit growth and margins. We upgrade our FY25E/26E EPS by ~4%/7% resp., led by improved growth outlook. We now build-in 14%/43% revenue/EPS CAGR over FY24-26E amid: i) market-share gains on industry consolidation, ii) higher content per vehicle (led by new products), iii) healthy order wins, and iv) continued domestic 2W recovery. We also raise target FY26E multiple to ~22x (in line with LTA) from 18x, and upgrade the stock to BUY with TP of Rs540/sh (ADD, Rs420 earlier).

Healthy revenue growth with QoQ margin improvement across businesses

Consol. revenue grew 12% YoY to ~Rs7.8bn (above est.), led by ~15% YoY growth in Domestic Cables Division (DCD); Suprajit Controls Division (SCD; houses international business and exports from India) reported ~4% YoY growth after two quarters of decline. Consol. EBITDA grew 8% YoY to Rs944mn (~4% beat), with margin stable QoQ at 12.1%; DCD margins were lower by 113bps QoQ at 17.3%, while SCD margins improved by 111bps QoQ to 7.3%, and Phoenix Lamps (PLD) margins grew strongly by 271bps to 15.4%. Suprajit Electronics Division’s (SED) margins rose by 172bps QoQ to 12.8%. Reported PAT was up ~44% YoY to Rs591mn.

Earnings Call KTAs

1) SCD: Mgmt. believes the worst is now behind; outlook has improved (expects doubledigit growth in FY25) amid multiple contract wins (incl. the recent single-largest win from a US-based customer pursuant to ‘China Plus One’); on-shoring/near-shoring and lowcost manufacturing expertise is helping it become a preferred supplier. Non-auto business in the US dropped 30% last year and is stabilizing at lower levels, with growth seen this year in cables and ‘beyond cables’ (e.g., gearboxes, rotary sensors, etc.); several competitors are under financial pressure and Company continues to evaluate M&A opportunities based on geographic/customer mix, etc. SCD margins are seen crossing 8% in FY25E, with the gradual double-digit ambition intact. 2) DCD: Expects double-digit growth in FY25 (vs. single-digit growth for Indian automotive industry) amid rising traction for newer products like brakes (already working with 3 customers; advanced braking solutions could enter production in a couple of quarters) and growth in aftermarket (struggled in FY24, impacted by the spike in sale of spurious/knock-off products from unorganized sector). 3) PLD: Positioning continues to improve as part of ‘last man standing’ strategy; it expects double-digit growth and margins in FY25. 4) SED: Growth is driven by new products like actuators, digital clusters, and throttle position sensors; Company expects strong growth to continue, with comfortable double-digit margins. 5) Rs1.8bn capex guidance for FY25 (of which 50% is to cater to growth).

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