Buy Suprajit Engineering for Target Price of Rs 433 (32.8% gain): SMIFS

New electronics plant – growth engine to pickup!

Suprajit Engineering upgraded its existing instrument cluster plant to full-fledge electronics facility near Bengaluru. It commenced production of digital clusters, throttle position sensors, rotary sensors & lock actuators. Additionally, developed various braking sub-systems, regenerative braking sensors, EMAs, gearboxes, etc. The company received orders and the majority of it received from EV manufacturers. It has been innovating in cable technologies. All these products are developed in-house & no significant capex incurred to upgrade the facility. We believe the company is putting good efforts to de-risk and grow beyond cables, this would provide additional growth opportunities. The company is moving up the value chain, rediscovering itself for a profitable growth ahead. It is capable to invest in complex & future-ready products. Maintain BUY rating!

Our understanding about new plant, products, orders in hand & how it can win business

▪ Suprajit upgraded the same plant used for clusters in Bangalore. It just launched the PCBA line within that plant and calling it officially as the electronics facility. Not incurred any major capex for the same.

▪ Commenced production for digital instrument cluster, throttle position sensors, rotary sensors and lock actuators. The order book was Rs1.6bn and received some new orders largely from electric vehicle manufacturers.

▪ The company expects to report minimum revenue from new products of Rs800mn in FY23e and Rs1.4bn in FY24e.

▪ Suprajit has been winning new businesses, especially from fast growing two-wheeler player in India. Its key customers are Hero Electric, Ultraviolette, TVS, VST, Escorts, TI Mobility, among others in domestic. While, global customers are CNH, Kubota and few other off-highway customers.

▪ Revenue generating product is the LED retrofit in the aftermarket, followed by the digital instrument cluster. Suprajit started supplying eThrottle cable to one client, and is in discussion with multiple other.

▪ The margins at the product level is fine, however require capacity ramp-up to achieve margins in-line with cables division.

▪ The company will deal with the competition as it has strong relations with its customers and can easily cross sell new products. In addition, it has won new orders from EV customers. Exports is another opportunity where the penetration of the Indian made cluster is less and opportunity is good. Suprajit will also start cross-selling clusters to Wescon’s customers. Hence, overall the opportunity size is large in India and Exports.

Reasonably attractive valuations

▪ Suprajit’s historic year-on-year outperformance is noticeable. We believe apart from strong growth visibility in its traditional business, LDC’s global reach and new products from STC will be the new growth drivers for mid-to-long term.

▪ The stock is trading attractively at 15.8x Sep ’24 estimated EPS of Rs 20.6. Assigned multiple of 21x to Sept ’24 EPS to arrive at a fair value of Rs 433 per share. Recommend Buy!