Buy Suprajit Engineering Ltd For Target Rs.560 by Choice Institutional Equities Ltd
Global restructuring drives sustained margin recovery: SEL delivered a strong Q2FY27 performance, with consolidated revenue growing 20.6% YoY to INR 11.4 Bn, while EBITDA increased 26.7% YoY to INR 1.4 Bn, expanding margin by 160 bps to 12.2%. The key highlight was the continued recovery in Global Cables & Mechatronics (GCM), where revenue grew 24.3% YoY and EBITDA margin improved to 10.1% from 7.4%, driven by completed restructuring, new programme ramp-ups and improved operating efficiencies. Meanwhile, India Cables & Mechatronics (ICM) and Phoenix Lighting & Electricals (PLE) witnessed a meaningful margin recovery to 15.3% and 14.4%, respectively, following pricing corrections and improved operational execution. We expect sustained restructuring benefits and improving profitability across core divisions to support further earnings recovery in H2FY27.
Electronics growth and new product launches strengthen medium-term visibility: Sensors, Electronics & Displays (SED) remained the fastest-growing division, with revenue increasing 50.4% YoY, led by strong traction in digital clusters and electronic throttles. However, EBITDA margin moderated to 8.4% in Q2FY27, due to higher electronic component cost and logistics expenses, with the management working on customer price pass-throughs to restore double-digit margins. The company also launched an advanced TFT cluster jointly developed with Ultraviolette, while its new Japanese technology partnership for gear shifters strengthens its Beyond Cable portfolio. Further, the greenfield Chennai cable facility and SED capacity expansion will support growth. We believe improving GCM profitability, recovery in domestic margins and increasing contribution from higher-value electronics, braking and actuation products will drive sustainable earnings growth
View and Valuation: We lower our FY27/28E EPS estimate by ~19%, respectively, factoring in weaker-than-expected Q2FY27 earnings, particularly margin pressure in SED and subdued profitability in the standalone business. We maintain our valuation multiple at 25x average FY28E/FY29E EPS. Accordingly, we revise our target price to INR 560 (earlier: INR 625) and retain our ‘BUY’ rating, supported by the ongoing SCS turnaround, improving GCM profitability and strong growth momentum in electronics-led products
Q2FY27: Revenue, EBITDA better; PAT lower than our estimate
* Revenue was up 20.6% YoY and 6.1% QoQ to INR 11,351 Mn (vs CIE est. of INR 11,096 Mn)
* EBITDA was up 39.0% YoY and 7.6% QoQ to INR 1,384 Mn (vs CIE est. of INR 1,309 Mn). EBITDA margin was up 161 bps YoY and 16 bps QoQ to 12.2% (vs CIE est. of 11.8%)
* APAT was up 4.7% YoY and 2.2% QoQ to INR 534 Mn (vs CIE est. of INR 631 Mn)
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