Suprajit Engineering Ltd: Colorful lamp
(BSE Code: 532509) (CMP: Rs.233) (FV: Re.1)
Suprajit Engineering Ltd (SEL) is one of the largest manufacturers of automotive cables in India with a capacity of 150+ million cables a year and a turnover of over $160 million. It is a major exporter of non-automotive control cables and push-pull cables to some of the world's leading manufacturers. Currently, it caters to a wide spectrum of automotive and non-automotive cable requirements. It has ~65-70% market share in the two-wheeler segment and so does Phoenix Lamps, which it acquired from the private equity giant Actis in 2015.
SEL is a customer-centric company that takes challenging product development and manufactures a wide range of control cables and instruments that meet international specifications. In 1987, it started manufacturing high quality liner cables for the automotive industry that match Japanese standards. Its recent acquisition of US-based Wescon Controls, a leading manufacturer of control cables in outdoor power equipment space with profitability of $44.4 million, will boost its revenue, increase its presence in USA and provide cross-selling opportunities. SEL continues to focus on growing its original equipment manufacturer (OEM) business, make inroads in the aftermarket businesses, increase its presence in the non-automotive sector and expand its business in the automotive export markets. During Q1FY19, it reported 5% higher income of Rs.361.75 crore with 27% higher PAT of Rs.28.81 crore. Issues of premium car H7 bulbs and its new design and machinery imports have been resolved and its lamps business utilization has ramped up to 40%.
SEL’s strategic acquisitions (Phoenix and Wescon) coupled with its growing and profitable domestic cable business, expansion plans, operational efficiencies and high dividend payout, low equity with low debt-equity ratio, excellent asset turnover ratios, exceptional RoCE, robust sales growth and decent margins makes the stock attractive. Buy on dips for double-digit returns as we expect it to achieve a turnover of Rs.1650 crore in FY19 with profit of over Rs.125 crore.