SUPRAJIT ENGINEERING LTD | Fundamental Analysis | Recommended by Wise Money

By | 1st May 2018

CMP: 275.85          Target Price: 319.00          Upside:16%

Reasons to Invest:

  • Suprajit Engineering Limited is the largest automotive cable maker with a planned annual cable capacity of 225 million cables. Company’s customer list includes most Indian automotive majors. It also exports too many marquee global customers.
  • The company uses its diverse knowledge and experience in manufacturing processes to leverage the best out of all its manufacturing facilities and research centers. You may like this: CYIENT LIMITED – Fundamental Analysis
  • On the development front, the company has bought technology to start supplying CBS (Combined Braking System) module and is working with various OEMs to get it approved.CBS is mandatory from FY19/20 on all newly launched/ manufactured two-wheelers respectively with engine capacity of <125 cc.
  • The company plans to increase its non-automotive cable revenue and the acquisition of “Wescon Controls” is an effort in this direction. The management of the company has implemented new strategy to increase penetration in the US non-automotive segment (agri and construction to begin with). This shall lower the cyclicality of business and improve profitability. It has restated its guidance of 8-10% YoY revenue growth.  You may like this: Take Solutions | Fundamental Analysis
  • It manufactures cables, which caters mostly to the auto industry, has a production capacity of over 150 million automotive cables a year, and is the largest domestic manufacturer of automotive cables. To reduce its dependency on two wheelers, the company plans to increase its sales to four-wheelers—currently 33% of its sales mix. More domestic orders (from Maruti) and export orders (from BMW, Audi, Volkswagen, etc.) would help the company boost its sales in the four wheeler segment. Moreover, Management expects cable to continue to outperform industry.Export revenues to double over next three years from current levels of Rs 120 crore led by new exports orders from existing customers like VW, Ford, BMW, Renault Nissan. Next phase of growth for the company is likely to be driven by gaining share in global auto and non-auto cables; increase in content supplied for CBS/ABS in domestic 2Ws; focus on aftermarket space (both lamps & cables). The company is expanding business in North America.

Valuation

The company is the most preferred manufacturer of cables and meets the demand of virtually every major OEM in the automotive sector. It would more focus on cables in the export market for better positioning. Steady demand from specific OEMs and the shoring up of control-cable growth in the auto and non-auto markets, exports and replacements would guide the further growth to the company. According to the management, its profitability would improve in coming years as its capacity expansion and integration with the acquired companies is almost done. Thus we expect the stock to see a price target of Rs 319 in 8 to 10 month’s time frame on an expected P/E of 28x and FY19 (E) earnings of Rs.11.40.

Face Value Rs.: 1.00
52 Week High/Low 348.50 / 224.50
M.Cap Rs. in Cr.: 3858.38
EPS Rs.: 9.78
P/E Ratio (times) 28.22
P/B Ratio (times) 6.56
Dividend Yield (%) 0.18
Stock Exchange BSE

Above call is recommended with a time horizon of 8 to 10 months.

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Disclaimer:

My descriptions, videos, presentations are only for educational and information purposes and under no circumstances should be used for making investment decisions. I cannot guarantee the accuracy of any information provided.
The stocks picks are based on my own research and personal views and sometimes are from newspapers, tv channel program, magazines, etc. No part of compensation is or will be directly or indirectly related to the views and recommendations of this research. I have not served as an officer director or employee of company and have not been engaged in market – making activity of the company covered in the research report. Consult qualified financial advisor before making any investment decision.

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