Suprajit Engineering Ltd - Long Term Story Intact; Result Update Q3FY15 ::Edelweiss, report

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

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Suprajit Engineering Growth continues despite adversities; re-rating justified; Buy :: Anand Rathi

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.

Technicals: BHEL, Advanta India, BEML, Kennametal, Suprajit Engineering, Indoco Remedies ::Business Line

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BHEL, Advanta India, BEML, Kennametal, Suprajit Engineering, Indoco Remedies ::Business Line

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LKP Bytes_Suprajit

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,Valeo and John Deere among others.

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

Suprajit Engineering Ltd l Buy --Engineering Growth! :: KM RESEARCH

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Engineering Growth!
Suprajit Engineering promoted by Mr Ajith Kumar Rai manufactures control cables,
speedometer cables, speedometers etc for two wheelers and four wheeler industry. It
also manufactures cables for non automotives and for replacement market. SEL commands
45% market share in the two wheeler segment and 35% market share in the
four wheeler segment. The company’s current installed capacity is 110 Mn cables p.a.
operating at 80% utilization.
Suprajit has grown at a CAGR of 19% during FY09-FY11. We expect it to grow by 20%
and 25% in FY12E and FY13E respectively, on the back of capacity expansion and addition
of new customers in the non automotive space. It is trading at 6.7 and 5.1 times its
FY12 and FY13 estimated EPS. We have valued Suprajit 7.5 times its FY13 EPS arriving
at a fair value of Rs 30 an upside potential of 47% from current levels.
 Strong market share – Suprajit commands 45% market share in two wheeler segment
and 35% in the four wheeler segment. It is a sole supplier to TVS and 80% of
the cable requirements of Bajaj and Hero Moto is met by Suprajit.
 Capacity Expansion to boost revenues – The company’s total current capacity is
around 110 Mn cables p.a. operating at 80% capacity utilization. By Dec 2012, the
company will be adding another 40 Mn cable capacity which will boost its topline
going forward.
 Addition of new customers – Suprajit added new customers like Volkswagen for
Polo in India, BMW for Germany & Europe, Nissan, Palio, Arvin Meritor and Brozer
(Germany). In the non automotive space customers like John Deere, Kubota, Club
Car, JCB etc. will help in the next phase of volume growth.
 Growth in high margin non automotive and replacement market – Suprajit is growing
quite aggressively in the non automotive and replacement market segment
where the margins are also higher as compared to automotive segment. In the non
automotive segment the company commands 18% operating margins and in replacement
market it enjoys 5% higher margins than in automotive space.
 Strategic locations of plants - Suprajit has set up manufacturing facility at 8 different
locations across the country to be close to its main customers in the North, West
and Southern belts. Haridwar plant next to Hero Honda, Pantnagar plant next to
Bajaj, the planned Sanand plant next to Tata Nano, etc. which gives Suprajit a logistic
advantage.
 Elite Clientele – In the two wheeler space the company’s major customers are TVS,
Bajaj Auto and Hero Moto. In the four wheeler segment the company’s customers
are Tata Motors, Mahindra and Mahindra, Hyundai, Ford and General Motors. Major
exports customers are General Motors, Suzuki and Piaggio.

Buy Suprajit Engineering:: “Superior Connection”:: LKP

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Buy Suprajit Engineering “Superior Connection”



Suprajit Engineering (Suprajit) promoted by Ajith Kumar Rai is the largest
automotive cable company in India with a capacity to manufacture 75mn units
of cables. Suprajit has a 45% market share and derives more than 75% of its
`2.5bn revenues from automotive OEMs of which 60% is from the three leading
two wheeler manufacturers in India.