Buy Suprajit Engineering Ltd for the Target Rs.575 By Emkay Global Financial Services Ltd
Robust margin performance; growth outlook improving
SEL logged a steady quarter with consolidated revenue up 13% YoY, largely on the 10% growth in DCD and aided by the first full quarter of consolidation of SCS (ex-SCS growth was 7.6% YoY vs 5.2% in Q1); consolidated EBITDAM rose by 110bps QoQ to 10.6% (ex-SCS: 14%). Also, SA operations saw revenue and EBITDA growth of 8% each, with 190bps QoQ EBITDAM rise to 17.4%. The management is hopeful of outpacing the global auto industry by 5-10% in FY26 on new order wins, and SCS is on track to turn EBITDA-positive by Q4FY26, clocking 6-10% in FY27 led by the ongoing strategic turnaround (completion expected by end Dec-25). The mgmt expects SEL to fare better in H2, with uptick in performance across domestic as well as global operations. Notably, against current valuations, the 19x Sep-27E PER for the standalone (India) business offers healthy upside and downside protection, even as the global business (52% revenue contribution in FY25 and H1FY26) is available almost for free despite the strategic groundwork laid over past 5Y (refer to: Valuations attractive; global business available virtually for free). Our EPS estimates are largely unchanged. Retain BUY with SoTP based TP of Rs575 (rolled forward).
Healthy revenue growth with margin rise in global and domestic operations
Reported consol revenue rose 13% YoY to ~Rs9.4bn, with EBITDA at Rs996mn and EBITDAM up by 110bps QoQ at 10.6%. PAT stood at Rs 509mn, on higher-than-expected other income. SCD (global business) clocked a 4 th consecutive quarter of double-digit margin (11.6%), with EBITDA losses at SCS also declining, to -6%. DCD and SED saw healthy margin expansion too, while PLD faltered owing to a fall in its topline.
Earnings call KTAs
1) The mgmt is hopeful of double-digit growth at SCD, with 12-14% EBITDAM (ex-SCS) despite the ongoing geopolitical challenges, as it continues to outpace the underlying global industry on new order wins; the mgmt expects better performance across divisions in H2FY26. 2) The SCD business is showing a marked improvement in operations (4th consecutive quarter of double-digit EBITDAM), reflecting multiple ongoing restructuring efforts. Most tariff-related costs have been passed-on to customers; SEL aims to sustain double-digit margin in SCD, despite the SCS integration vs 6-10% margins for global peers. 3) SCS is expected to turn EBITDA-positive by Q4FY26, with restructuring activities to be over by Dec-25. FY27 revenue is projected at Rs4.3bn (~4× Q2FY26), alongside a margin rise. 5) DCD is gaining strong traction as SEL remains at the pole position with all OEMs; beyond cables, several product lines are scaling up well and already contributing to revenue; ABS and hydraulics are currently under development. 6) Despite headwinds, PLD is expected to be stronger in H2. SEL is growing and gaining share in a shrinking market, with double-digit margin; after a global competitor’s bankruptcy, PLD saw a surge in inbound enquiries. 7) SED is poised to grow the fastest, driven by order ramp-up from several new customers, including leading E-2W/E-3W players and increasing traction across products. 8) Given the breadth of sensors, actuators space, SEL is focusing on select applications first and building share decisively.
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