Fundamental Radar: Down 20% in a year, 5 factors why this smallcap company is a value pick

The stock which is part of the S&P BSE Smallcap index hit a 52-week high of Rs 456 on 17 January 2022, but it failed to hold on to the momentum.

The stock bounced back after hitting Rs 272 on 7 March 2022 and has rallied more than 20% since then. The smallcap company has the potential to reclaim Rs 400 level in the next 12 months, suggest experts tracking the company.

. () is one of the leading global companies in the automotive cable and halogen bulb industry.

With a competitive manufacturing base in India, the UK, the US, and Mexico, along with technical and logistical support worldwide, the company provides optimal product development and manufacturing solutions to its domestic and international customers.

Suprajit has one of the largest manufacturing capacities in the world with 300+ million cables per year and 110+ million bulbs per year.

Piyush Parag, Deputy Vice President, Fundamental Research at Sharekhan by lists 5 factors that makes Suprajit Engineering an attractive buy:Diversified and de-risked company:
SEL has evolved as a well-diversified and de-risked company through a continuous focus on improving technology, widening product portfolio, enhancing content per vehicle, increasing geographical penetration, and building multiple brands.

Over the last two and half decades, the company’s profile has changed considerably, led by strategic acquisitions in its core expertise areas and successfully integrating various business verticals while gaining market share across segments and geographies.

Domestic and global clients:
SEL continues strengthening its value proposition to its domestic and global clients. The company has a strong foothold in the cable business in the automotive segment, holding a 30-35% market share.

The company has a 60-65% market share in the two-wheeler cables business. As per estimates shared by the company, Suprajit has a 40-45% market share in the cable business in India, including the non-automotive business.

Suprajit’s success is its ability to produce low-cost cables among domestic players, aided by its operational efficiency and dedicated plants for respective clients. Among global peers, the company benefits from its locational cost advantage.

A lean and low-cost employee structure and scale of operations help Suprajit maintain its competitive benefits across its product lines – Automotive cables, non-automotive cables and lamps business division.

Acquisition:
The company has recently acquired Light Duty Cable (LDC) business unit from Kongsberg Automotive ASA, Norway at an enterprise value of the transaction is pegged at US$ 42 million.

Outlook & Capex Plans:
The management remains positive on the outlook, though they have noted the risk of geo-political tensions. The company expects its exports to grow robust going forward, with a share of exports improving to ~55% in FY23E from 40% in FY22.

LDC division is expected to have close to annual revenue of $95 million in revenue with double-digit EBITDA over the next 2-3 years. New launches are expected to enter markets over the next few quarters, focusing on EV markets.

The capex plans remain intact with FY23E capex at ~Rs140 crore, while the LDC division capex is expected to be ~US $ 2-3 million in FY23E.

Valuations:
Suprajit would continue to gain wallet share from customers in the cable segment (domestic PV segment, by higher sourcing by global OEM and acquisition of LDC unit and

(increased sourcing by Osram).

Further, the company would continue to enter new segments in the non-automotive cable division. “We expect FY2023E and FY2024E to be a strong year, driven by the normalisation of economic activity, improving demand, new launches and the acquisition of the LDC division,” says Parag of Sharekhan by BNP Paribas.

“Propelled by a robust business outlook and prudent capital allocation, we expect Suprajit’s earnings to report a 24.3% CAGR during FY2022-FY2024E, driven by a 27.2% revenue CAGR, partially offset by a 50 bps decline in EBITDA margins,” he said.

The stock trades at a P/E multiple of 14.9x and EV/EBITDA multiples of 9.8x its FY25E estimates, trading below its historical average. Sharekhan has a Buy rating on the stock with a 12-month price target (PT) of Rs.403.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)