Suprajit Engineering
Growth continues despite adversities; re-rating justified; Buy
Key takeaways
Strong sales despite slowdown in industry. Suprajit Engineering’s sales are
expected to have risen 23.4% yoy, to `1.4bn, on account of an increased
offtake in the two-wheeler segment (OEM clients) and higher utilisation.
Exports and the after-market would have grown faster on account of the
company’s focused strategy.
Margin set to be firm, at 17%. The EBITDA margin is expected to have
held at the same level of 17.1% yoy. Despite the cost push, the company has
been hiked prices. Ahead, management is hopeful of selling more high-margin
products. With an expected rise in volumes of such products, the margin is
likely ot have held at around 16-17%.
Profits expected to rise 24.3%. On improving sales and a firm margin,
profit is expected to rise 24.3% yoy, to `139m. The 3QFY14 PAT margin is
expected to come at 10% (3QFY13: 9.9%).
Capacity addition, strategic plant location augurs well. Capacity
expansion is on track, and by end-1QFY14 capacity had touched 150m units.
Commercial production at its new unit in the Bommasandra Industrial Area,
Bangalore, began in Mar’13. Land has been allotted in Karnataka for the
company’s proposed cable plant for one of its key two-wheeler customers.
Additional capacities would be of plants to cater to Honda Motors and
Scooters India and to Yamaha, by FY15.
Our take. We believe that there exists upside potential to our estimates on
account of strong resilience to the slowdown, which could yield better profit
consequent on improved asset sweating. Additionally, we believe that ongoing
efforts at Suprajit to further improve its aftermarket business would bear fruit
3-4 quarters down the line. At our target, we value the stock at 13x Mar’15e
PE. At present, it quotes at FY15e EV/EBITDA of 6.3x. Risks. Higher
interest rates, commodity price increases and keener competition.
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Growth continues despite adversities; re-rating justified; Buy
Key takeaways
Strong sales despite slowdown in industry. Suprajit Engineering’s sales are
expected to have risen 23.4% yoy, to `1.4bn, on account of an increased
offtake in the two-wheeler segment (OEM clients) and higher utilisation.
Exports and the after-market would have grown faster on account of the
company’s focused strategy.
Margin set to be firm, at 17%. The EBITDA margin is expected to have
held at the same level of 17.1% yoy. Despite the cost push, the company has
been hiked prices. Ahead, management is hopeful of selling more high-margin
products. With an expected rise in volumes of such products, the margin is
likely ot have held at around 16-17%.
Profits expected to rise 24.3%. On improving sales and a firm margin,
profit is expected to rise 24.3% yoy, to `139m. The 3QFY14 PAT margin is
expected to come at 10% (3QFY13: 9.9%).
Capacity addition, strategic plant location augurs well. Capacity
expansion is on track, and by end-1QFY14 capacity had touched 150m units.
Commercial production at its new unit in the Bommasandra Industrial Area,
Bangalore, began in Mar’13. Land has been allotted in Karnataka for the
company’s proposed cable plant for one of its key two-wheeler customers.
Additional capacities would be of plants to cater to Honda Motors and
Scooters India and to Yamaha, by FY15.
Our take. We believe that there exists upside potential to our estimates on
account of strong resilience to the slowdown, which could yield better profit
consequent on improved asset sweating. Additionally, we believe that ongoing
efforts at Suprajit to further improve its aftermarket business would bear fruit
3-4 quarters down the line. At our target, we value the stock at 13x Mar’15e
PE. At present, it quotes at FY15e EV/EBITDA of 6.3x. Risks. Higher
interest rates, commodity price increases and keener competition.
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