Emkay Global Financial has given Buy recommendation for Suprajit Engineering with a target price of Rs. 440 in its research report issued on Sep 20, 2022
Emkay Global Financial’s research report on Suprajit Engineering
Founded in 1985, Suprajit Engineering (Suprajit) is among the top-three global manufacturers of control cables and halogen bulbs. Suprajit has a diversified revenue base across segments (Auto Cable: 59%; Non-Auto Cable: 23%; Lamps: 19%) and geographies (India/Overseas: 47%/53%). We forecast revenue CAGR of 25% over FY22-25E, driven by: 1) cyclical recovery in the underlying industry (8% medium-term volume CAGR); 2) market-share gains set to add 3pps outperformance vs. the industry, thanks to decentralized plant locations and competitive pricing owing to scale advantages; 3) growth in content per vehicle (CPV) led by new products (~Rs50,000/unit opportunity). We forecast 28% EPS CAGR over FY22-25E for Suprajit, encouraged by the 25% revenue CAGR and 50bps EBITDA margin expansion. RoIC is likely to improve to 20% in FY25E from 15% in FY22. We estimate average annual FCF generation of Rs2.2bn during FY24E/25E and expect the company’s balance sheet to have net-cash of Rs2.1bn by FY25E vs. net-debt of Rs1bn in FY23E (post acquisition of LDC).
We initiate coverage with a BUY recommendation and Sep-23E TP of Rs440, based on DCF methodology which implies a 20x forward P/E. Downside risks: Slower acceptance of new products (we have modelled-in 25% revenue CAGR through to FY28E), faster EV and LED penetration, and adverse commodity/currency price movement.