Following the quarterly numbers, analysts revised their EPS estimates for the current and next financial years. They see up to 25 per cent potential upside in stock price in the next one year. It has already given 150 per cent returns for the last one year.
The stock is Suprajit Engineering.
Stellar earnings
The company defied the Covid disruption and falling auto sales to deliver on its promise. Suprajit Engineering reported strong numbers for Q4FY21, with revenue improving 31.9 per cent, Ebidta 48.8 per cent and PAT 89.1 per cent.
The Phoenix Lamps division (including Trifa and Luxlite) saw revenue grow 39 per cent YoY, while the SENA (Suprajit non-automotive) and cable division saw a revenue expand 20.4 per cent YoY and 33.9 per cent YoY, respectively. The divisional Ebitda margin for Phoenix Lamp and SENA divisions improved by 230 bps QoQ and 890 bps QoQ to 13.8 per cent and 20.8 per cent respectively in Q4.
The management continues to see good traction for the business in India as well as around the globe, aided by introduction of new products for existing clients and old products to new clients.
New growth paths
Key drivers for Suprajit’s success are its ability to produce low-cost cables among domestic players, aided by its operational efficiency and dedicated plants for respective clients. Analysts said the company is riding on new growth paths.
The company has a strong foothold in the cable business in the automotive segment, where it holds a 30-35 per cent market share. The company has a dominant 60-65 per cent market share in the two-wheelers (2W) cable business.
“Suprajit continues to strengthen its value proposition to its domestic and global clients, aided by a leadership position in the domestic cable business and locational advantage to its global peers. We expect Suprajit to benefit from strong demand witnessed in the domestic as well as export markets. The company will also benefit from its capex plans, which will help it to capitalise further in the next peak season,” said analysts at Sharekhan.
Near-term concerns
Despite multiple growth drivers present for the company, it has certain near-term challenges to deal with. Analysts, however, say they may not impact its earnings substantially.
“Driven by multiple headwinds, plants are currently operating at 60-65 per cent capacity. Rescheduling of orders by customers due to shortage of electronic parts and increasing commodity prices are near-term concerns,” said Nitinn Aggarwala of
.
Technological obsolescence of halogen bulbs in the long term, prolonged Covid-19 disruption and currency movement are among the key risks that may hit earnings adversely.
Analyst calls
Analysts say the stock may gain up to 25 per cent from current levels and it will come on top of 150 per cent rise in the last one year. On Thursday, the stock was trading 1.3 per cent higher Rs 276.
“We are revising up FY22-23 EPS by about 10 per cent each owing to sustained outperformance, improving outlook for Wescon and as most of the margin headwinds are largely behind,” said Chirag Shah of Edelweiss Research. He has target at Rs 313 with ‘buy’ rating.
Sharekhan expects Suprajit’s earnings to report a 26.3 per cent CAGR during FY21-FY23, driven by a 19.2 per cent revenue CAGR and 130 bps improvement in Ebitda margin, with its ROCE improving back to 20 per cent in FY23.
The broker expects the stock to hit Rs 329 in 12 months. JM Financial has a ‘buy’ rating with price target of Rs 320.
