The story so far ………..
Suprajit incorporated in 1985 by Ajit Kumar Rai is the second largest producer of 2-wheeler cables in the world and the largest manufacturer of automotive cables in India with a capacity to produce 125million cables across its 14 manufacturing facilities.
Suprajit has grown its revenues and profits at a CAGR of 28% and 70% over the last 4 years. It derives 60% of its revenues from the 2-wheeler trio of Bajaj-Hero-TVS, 30% of revenues from CV and Car manufacturers which include Mahindra, Tata Motors, Leyland and Volkswagon among others while 10% revenues is from overseas markets to customers like GM,Ford,Suzuki,BMW,Nissan,
The story ahead ………..
Suprajit has spent close to 85crs over the last 5 years and has increased capacities by 2x while revenues have increased by more than 2x. We like its highly capital efficient business model as it has consistently demonstrated its ability to sustain an ROCE of more than 30% over the past few years while maintaining an EBIDTA margin of 15 to 16% and keeping debt equity within manageable levels of just over 0.5x
Suprajit is spending close to 35crs to raise capacity further to 150million cables by putting up its 15th facility exclusively for Honda Motors who presently source from Hilex of Japan. Suprajit is virtually a single source supplier to Bajaj and TVS and supplies more than half the requirements of Hero Moto and Mahindra.
Suprajit has successfully brought down its cash conversion cycle to almost 40days and can easily sustain gross margins of 15-16% due to pricing power and cost advantage. We expect it to be a Rs5bn company this fiscal given its global footprint and comprehensive product range of control cables. We expect net profits of 45crs this fiscal and 57crs next fiscal and the stock trading at 7xFY'13-14E earnings continues to be our preferred small cap auto component play and we re-iterate BUY with a price target of 50
Thanks and Regards
LKP Advisory
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