Reduce Suprajit Engineering Ltd For Target Rs.420 By Choice Broking Ltd
High Overhead and Ongoing Acquisition Integration Costs: While the Global
Controls Division has started to see better operational efficiency, SEL’s standalone EBITDA was down, mainly due to higher IT, R&D, and corporate costs.. Furthermore, while the Stahlschmidt Cables (SCS) acquisition saw reduced losses in Q1 due to restructuring, the company still expects SCS to be EBITDA positive only by Q4FY26. Also, the Phoenix Lamps Division and Suprajit Electronics Division (SED) experienced a soft Q1 in terms of revenue and EBITDA and softness is expected to continue in the next few quarters due to uncertain global markets. We believe these substantial ongoing costs for strategic initiatives and acquisition integration could continue to exert pressure on short-term profitability and will remain a key focus point going forward with near-term execution being an important factor amid weak global demand and cost pressures.
View and Valuation: We revise our FY26/27 EPS estimates down by 8.5%/2.8%, and arrive at a target price of INR 420; valuing the company at 20x (maintained) on the average FY27/28E EPS, while we introduce FY28 estimates. We maintain our ‘REDUCE' rating on the stock.
Q1FY26: Revenue in line, EBITDA margin disappoints
* Revenue was up 17.4% YoY and down 1.6% QoQ to INR 8,629Mn (vs consensus est. at INR 8,622Mn).
* EBITDA was down 5.3% YoY and down 6.1% QoQ to INR 817Mn (vs consensus est. at INR 893Mn). EBITDA margin was down 228bps YoY and down 45bps QoQ to 9.5% (vs consensus est. at 10.4%).
* PAT was up 26.1% YoY and up 76.5% QoQ to INR 481Mn (vs consensus est. at INR 368Mn)
Turnaround and Operational Efficiency in the Global Controls Division: The Suprajit Controls Division (SCD), excluding the recent SCS acquisition, delivered a strong quarter with EBITDA margins improving from 8% to 12%. This turnaround is attributed to successful restructuring projects, including rightsizing in Germany, establishing a warehouse in Hungary, and consolidating operations in Mexico. Despite a generally muted automotive industry, the controls division grew 6% YoY.
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