Accumulate Suprajit Engineering; target of Rs 284: Dolat Capital Market

Dolat Capital Market's research report on Suprajit Engineering

Suprajit Engineering(SEL) displayed strong all-round performance in Q3FY21. Revenue grew by 23% YoY Rs. 5bn driven by strong growth in Automotive Cable (26% YoY) and SENA division (29% YoY). EBITDA jumped 72% YoY to Rs. 864mn. Margin expanded by 488bps YoY to 17% led by high aftermarket (+25% YoY) and export revenue along with various cost control initiatives. Management stated that the outlook for the Q4 looks promising with robust business across the Indian OEM and aftermarket along with Automotive and non-Automotive Exports. SEL is negotiating with Indian OEMs to pass on commodity price hike however looks difficult to pass to its international clients. Expect margin to taper off in coming quarter due to commodity inflation. We maintain our positive stance on the stock led by 1) recovery in domestic 2W volume (market share of 65% and accounts for the largest share of 37%) in the company's overall revenue mix, 2) upbeat outlook for 4W export (led by volume recovery of its key clients, GM, BMW, VW and JLR, 3) Revenue and margin revival in SENA division through increasing supply from India and entry into new areas such as agriculture, construction, and power sports vehicles and 4) strong aftermarket both cable and lamp division. We expect Strong cash flows and minimal capex requirements would further strengthen its balance sheet. Board has approved the buyback of share up to 1.5mn share at price of Rs. 320/share.

Outlook

We increase EPS estimates by 16% for FY22/23E. We recommend Accumulate with a target price of Rs 284 (20x FY23E EPS).