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Growth outlook improving on order wins; content increase

Suprajit Engineering (SEL)’s Q1 performance was muted (6% miss on EBITDA estimate); it announced buyback of up to ~1.3% of the current market cap at Rs750/sh. Mgmt reiterated the growth outlook is improving (10% for FY25) on strong order-win traction in the global business and ramp up of new products like brakes. We believe SEL would continue benefiting from market-share gains on industry consolidation (e.g. recent SCS acquisition; refer to our note), higher content (on new products), and domestic 2W industry recovery, even as the global business is starting to improve. We trim FY25E/26E EPS by ~3% on the Q1 miss and introduce FY27 estimates, building in a 23%/41% rev./EPS CAGR for FY24-27E. We retain BUY; raise TP to Rs725/sh at 25x Jun-26E PER (rolledover, multiple upgraded in line with LTA from 22x earlier on improving outlook).

Muted revenue growth in Q1; margins largely sustain

Consolidated revenue grew 8% YoY to Rs7.3bn (a ~3% miss to our estimate); growth was muted across all divisions, with the Domestic Cables Division (DCD) growing 6% and the Suprajit Controls Division (SCD; houses most of the global businesses) growing 3%. Consolidated EBITDA was higher by 21% YoY at Rs864mn (a 6% miss); margins dipped by 30bps QoQ to 11.8%; on QoQ basis, all segments except DCD recorded margin improvement. SEL has announced buyback of up to 1.5mn shares (~1.1% of paid up capital) at Rs750/share; the buyback would be completed before 30-Sep-2024.

Earnings Call KTAs

1) Maintains full-year growth guidance of ~10%; consolidated margins would first improve to ~12% before moving to the 12-14% band. 2) SCD: SEL continues to win new orders across Autos and Non-Autos, amid on-shoring, near-shoring, and off-shoring capabilities despite flat growth in the automotive industry and negative growth in NonAutos; new orders have also been won in exports from India, and at a better margin profile; the weakness in global markets provides further consolidation opportunities; expects clocking double-digit growth by end-year; SEL is working on stabilizing operations at recently acquired SCS, with full-year revenue run-rate seen as stable at the current ~€45mn level; aims achieving 6-10% margins at SCS eventually (in line with other global ancillaries) – clarity would be established in coming quarters; overall SCD margins are seen consolidating at around current levels, and efforts to improve these margins to double-digits are ongoing. 3) DCD: Pickup in the aftermarket from H2 (already visible in Jul-Aug) would aid DCD as well as the Phoenix Lamps division (PLD; ~35%/~70% revenue contribution from the aftermarket to DCD/PLD, which saw decline last year); the Q1 margin dip at DCD was due to higher costs at the Suprajit Tech Centre (STC), due to increase in staff strength as well as pass-through of lower RM costs – SEL expects some pricing increase September onward; DCD margins, excluding STC, are intact. 4) Suprajit Electronics Division (SED): has won orders for its electronic throttle sensor for the E-2W leader; it continues to win multiple orders in brakes.

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