Suprajit Engineering Ltd - Chanting Exports; Initiating Coverage :: Edelweiss PDF link

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Suprajit Engineering Ltd. (SEL) is a market leader in Automotive Control Cables for the 2-wheeler segment with a 60% market share besides holding a 40% market share in the 4-wheeler space. SEL aims for 5-10% above-industry growth rate through new product launches, better after-market penetration and by gaining traction in export markets. In our view, a faster–than-industry growth rate, cost competency versus peers and stable EBITDA margins going forward will result in a higher market share and sustained profitability in the future.

Proximity to customers and cost efficiency leading to high market share

SEL currently has a market share of 60% in domestic 2-wheeler cables and 40% market share in the domestic 4-wheeler cable market. We believe that the company will be able to maintain this high market share going forward, as it has better cost competitiveness vs competitors due to proximity to customers. Over the last decade, SEL has been able to manage costs and expand facility in proximity to its customers. Ramson (competitor) sales were 1.5x SEL sales in FY02 but in FY14 SEL sales were 5x Ramson’s.

Targets faster-than-industry growth led by after-market and exports

SEL’s domestic revenues have grown by 17% CAGR against 10% CAGR growth in 2-wheelers/4- wheeler industry volumes over FY07-FY14, driven by market share gains in both 2-wheelers and 4- wheelers, and higher growth in after-market business (both independent and OES route). From here on, the company plans to grow at 5-10% above domestic industry growth rate through new product launches and better traction in export markets. On the exports front, the company’s ability to offer quality automotive cables at a lower price due to cost advantage (~30% vs global manufacturers) has resulted in exports CAGR of 36% over the last five years, albeit on a low base. The company has also strengthened its presence in the after-market segment with the introduction of new products like CDIs, floats systems, indicator systems and filters, and over time, it has developed strong distribution channel.

Capacity to increase by 50%; Margins to remain stable

SEL has planned INR 65 cr capex over the next two years for its three plants. The post capex capacity is expected to be about 200-225 million cables. In the past, the company has generated sufficient cash flows to be able to cover its capex plans, leading to a healthy balance sheet. EBITDA Margins are expected to remain stable since SEL commands high share of domestic customers’ business and enjoys proximity advantage.

Financials

Financials (INR Crs)	FY13	FY14	FY15E	FY16E	FY17E
Net revenues	463	545	688	860	1,009
EBITDA	78	93	119	139	175
Adjusted profit	47	51	66	79	103
Diluted EPS (Rs.)	3.9	4.2	5.5	6.6	8.6
Diluted P/E (x)	30.6	28.3	21.7	18.2	14.0
EV/EBITDA (x)	3.3	2.8	2.2	1.8	1.5
ROAE (%)	32.0	27.0	29.0	28.0	29.0
ROACE (%)	36.0	44.0	43.0	38.0	39.0

LINK

https://www.edelweiss.in/research/Suprajit-Engineering-Ltd--Chanting-Exports;-Initiating-Coverage/10005275.html