Buy Suprajit Engineering Ltd for the Target Rs 625 by Emkay Global Financial Services Ltd
SEL logged strong 1QFY27, with healthy topline (consolidated revenue grew 24% yoy to Rs10.7bn) and profitability (consolidated EBITDA rose 57% yoy to Rs1.3bn). On standalone basis, EBITDA was largely flat, as EBITDAM contracted by 220bps qoq, weighed down by RM inflation and higher wage costs (primarily in the NCR region due to labor migration during election period). The management indicated that RM pass-through mechanisms are in place, with benefits expected to accrue over 2Q/3Q, while discussions on labor cost pass-through are progressing well, with some customers already aligned. The highlight was the GCM business, where benefits from global restructuring, operational efficiency, cost optimization initiatives, and strong new business wins across China and India drove ~336bps sequential margin expansion. ICM and PLE delivered healthy revenue growth, though margins remained under pressure due to lag in price pass-through. SED was the standout, delivering strong revenue and EBITDA growth, led by robust traction in digital clusters and electronic throttle grips, along with healthy order pipeline, leading to capacity expansion. The management reiterated its powertrain-agnostic positioning, with growth being driven by higher content per vehicle across ICE/EV platforms, while maintaining FY27 guidance for all segments. We introduce FY29 estimates; maintain BUY and raise our TP by ~9% to Rs625 from Rs575.
Robust topline and strong EBITDA performance
Consolidated revenue rose 24% yoy to Rs10.7bn, beating our/street estimates. Consolidated EBITDA stood at Rs1.3bn, with EBITDAM improving by 48bps qoq to 12%, led by a sharp 336bps qoq margin expansion in GCM, driven by restructuring benefits and operational efficiencies. Consolidated PAT grew 8.6% yoy to Rs522mn
Earnings call KTAs
1) RM inflation remained a key headwind in 1Q; the management expects pass-through benefits to accrue in 2Q/3Q; it reiterated FY27 guidance of 12-13.5% EBITDAM.
2) Elevated wage costs, driven by election-related labor migration in North India, weighed on margins; SEL expects the impact to ease by 2Q/3Q, as wage cost pass-through discussions progress and internal cost reduction initiatives gather pace.
3) GCM remained the standout, with 28%/175% yoy revenue/EBITDA growth (~23% adjusted for base effect) and 336bps qoq EBITDAM expansion, driven by restructuring benefits, operational efficiencies, and robust business wins across China/India despite RM headwinds; EBITDAM guidance held at 10-12%.
4) ICM and PLE margin softness is a timing issue, impacted by delayed price increases – both segments expect recovery in 2Q/3Q; within ICM, the braking portfolio (CBS, brake shoes/pads) is scaling fast, albeit off a low base; guidance held at ~15%/12% ICM/PLE EBITDAM.
5) SEL aims to gain market share in braking systems across ICE/EV by offering a complete technology stack and system responsibility, rather than just components.
6) SED was the standout segment; strong order pipeline has prompted plans for a new multi-story electronics facility (existing facility to be rebuilt) to accommodate higher business traction. 7) Actuation systems are being showcased to customers in the US and Europe, with 4–5 R&D-stage projects under discussion with Indian seating companies and a leading EV OEM.
8) Order wins remained robust, led by the largest-ever EV cable contract ($5.25mn annual/$37mn lifetime), European and Japanese OEM programs, and ~25 cable projects via Shanghai Lonestar (5–6 already launched)
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