Suprajit Engineering

Stock Opportunities Not-so-Hidden Gems
44

From one of the Q&A:

110mn capacity => ~450 Cr Sales; 150 mn capacity =>600 Cr Sales

Thatâsmore like a 41% CAGR over 2 years??

The data needs some correction. Essentially 150 mn capacity will be ready in phases by Sep 2012 (not Sep 2011) and will be available for the full year the year after. So its spread over 3 years, and not 2 years.

Also if you take FY11 numbers, the rough ball-bark figure is more like Rs.30 per cable. We did What 300 cr sales on roughly 100mn cables capacity.

Does it means that they’ll be able to do topline of around 450 crores by FY14? Isn’t that growth of just 15% CAGR in 3 years?

45

From another part of the interview:

The indications are pretty clear that growth will be atleast 10-15% in FY12 over FY11. Suprajit will manage to grow atleast 5-10% better than Industry. So where does that leave us? Suprajit will easily do 115-120 mn cables then. And that will still be 80-90% capacity utilisation!

Now tell me, how many businesses won’t be ready to take that scenario? I think we are pretty strongly de-risked against any eventuality for the next year atleast -even in a de-growth situation!! We think we are going about it in a very measured way, and capacity will get tweaked/added on nimbly in response to market situation over the next 2 years, rest assured.

Management is indicating that they will add capacities in tandem with market demand/supply. FY12, they are indicating 115-120 Mn capacity will be in place. FY13 & FY14, they will ramp up or slow down as needed.

My understanding is that when pressed on the “aggression” front they preferred to play down the numbers, but they are foreseeing a far better picture ahead and are pretty aggressive internally!

46

India’s Two-Wheeler Sales Up In June

Bajaj Auto

Bajaj posted the highest-ever total two and three-wheeler sales in June, including exports, with 366,657 units, compared to 315,422 units in June last year registering a 16 per cent growth.

For April-June 2011, it recorded the highest-ever quarterly total sales, including exports, at 1,092,815 units, compared with 928,336 units, reflecting a 18 per cent growth.

The company reported total motorcycle sales of 322,827 units last month, up by 14 per cent from the 282,808 units reported last year. Three-wheeler sales were up by 34 per cent to 43,830 units from the 32,614 units an year earlier. Exports during the month were 142,124 units, compared to 114,024 posted in May 2010, an increase of 25 per cent.

Hero Honda

India’s largest two-wheeler maker Hero Honda’s June sales were at 512,244 units, up by 20 per cent from the 426,454 units in the same month of last year.

This is the fourth consecutive month that the company’s monthly sales crossing the half-a-million mark, and the first time it sold 500,000-plus units in each of the three months of quarter.

Cumulative sales for the first three months of the current fiscal was 1,529,577 units, up from the 1,234,039 units for the first three months of last fiscal achieving the highest-ever quarterly sales.

Senior Vice-President (Marketing & Sales) Anil Dua said, “It has been a record-breaking first quarter of FY12 for us. With sales of 500,000-plus units in every month of the quarter and record 1.5 million units’ total sales in the quarter, we have once again set new benchmarks for ourselves.”

TVS Motor

A quantum increase in exports supported by strong domestic sales with robust contributions from all segments enabled TVS Motor Company to increase its total sales by 14 per cent in June 2011.

The Chennai-based company reported June total sales at 182,456 units, up by 14 per cent from the 159,688 units sold in June 2010.

Cumulative sales for the first three months of this fiscal was 494,055 units, up by seven per cent from the 463,840 units in the corresponding period of the previous year.

Total two wheeler sales grew by 14 per cent with sales of 178,633 units last month in comparison with 156,685 units recorded in June 2010, while motorcycle sales increased by five per cent to 69,859 units from 66,452 units sold in the same month in the preceding year.

47

Auto sales review for the month of June: Angel Broking

Angel Broking has come out with its report on automobile sector.

Auto sales in June 2011 remained healthy, driven by strong growth in the two-wheeler segment, which continues to remain insulated from macroeconomic headwinds. However, the impact of higher interest rates and fuel prices has been evident in the passenger car segment, which has seen a significant decline in its growth rate. Among auto majors, Ashok Leyland (ALL), Hero Honda (HH) and Mahindra and Mahindra (M&M) reported better-than-expected volumes, whereas Maruti registered a decline in volumes due to the strike at its Manesar plant. Going ahead, while the two-wheeler segment is expected to sustain its volume momentum, cumulative effects of rising fuel prices, hike in product prices and increasing cost of financing are expected to affect passenger vehicle (PV) and medium and heavy commercial vehicle (M&HCV) demand.

Tata Motors(TML) reported a 2% yoy decline (up 6.5% mom) in total volumes for June 2011. Within the CV space, total volumes jumped by 13.6% yoy (2.6% mom), led by robust 18.5% yoy (1.8% mom) growth in LCV sales and 7.1% yoy (3.8% mom) growth in M&HCV sales. In the PV space, sales continued to disappoint and registered a 23% yoy decline in volumes. However, on mom basis, volumes improved by 15% on account of better Indigo and Indica sales.

**Ashok Leyland**(ALL) reported better-than-expected volume growth with overall sales bouncing back sequentially to report 40% growth; though, on a yoy basis, volumes declined by 4.6%. M&HCV passenger sales grew by 1.8% yoy and 30.2% sequentially to 2,244 units, while M&HCV goods sales declined by 6.3% yoy (though up by 44.2% sequentially) to 5,698 units.

**Maruti**reported lower-than-expected volume numbers as the production was impacted by the workersa strike at the Manesar plant and maintenance shutdown at Gurgaon and Manesar facilities. Total sales declined by 8.8% yoy, led by a 60.4% yoy decline in A3 sales and 32.7% drop in exports. The A2 segment registered modest 2.3% yoy growth during the month, while the C segment continued to witness strong traction with 23% growth.

**M&M**reported better-than-expected 32.1% yoy growth (9.6% mom) in total sales, aided by robust 29.1% and 37% yoy growth in automotive sales and tractor sales, respectively. Growth in the tractors space was driven by strong 40% yoy growth (20% mom) in domestic sales. In the automotive segment, the four-wheeler pick-up segment and exports maintained their strong traction posting 65% (16% mom) and 37% yoy growth, respectively.

**Two-wheelers and three-wheelers:**Bajaj Auto (BAL) posted in-line volume growth of 16.2% yoy (2.2% mom) to 366,657 units on account of 14.2% yoy (1.5% mom) growth in the motorcycle segment and a 34.4% yoy (7.3% mom) increase in the three-wheelers segment. HH led the two-wheeler pack, with better-than-expected 20.1% yoy growth (2.4% mom) to 512,244 units, due to robust performance across all segments. TVS reported in-line 14.3% yoy growth in total volumes to 182,455 units, led by continued growth in the scooters and three-wheelers segments, which grew at a strong pace of 20.5% and 27.3%, respectively.

FIIs holding more than 30% in Indian cos

**Disclaimer:**The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Attachments :AutoSector_Angel_070611.pdf

48

I think we can assume the two wheelers to be a consumer play rather than a cyclical automobile sector play for the next many years. Because the demand for the two wheelers is slated to remain very robust with the two wheelers becoming a necessity rather than any kind of luxury.

And since suprajit’s major chunk of revenues (65%) comes from these, I think it has a bright future if it can manage to meet the increasing demands.

49

Well put Hitesh. Inflation and higher rates have not put brakes on 2-wheeler sales. It can be considered as consumer play, nice to think of it that way.

Suprajit should do well riding on Bajaj, Hero Honda and TVS. So why not ride these 3 directly too? Anyone tracking? Hero Honda should have become cheaper post the Honda disassociation? I tried to have a look, but seems to have recovered ground almost.

50

Suprajit results seem on track. Sales grew by 32% over June Qr Fy10, and PAT grew by 37% over the corresponding quarter.

Needs to be seen if the company can up the ante in the subsequent quarters, or Sales will falter. Q1 operating levels seem to indicate production at similar levels as Q4 FY11 on maximum capacity.

Suprajit

36.83%

Quarterly Results track

32.14%

38.51%

50.29%

44.80%

42.91%

1QFY12

1QFY11

2QFY11

3QFY11

4QFY11

Net Sales

81.26

61.50

76.85

79.96

82.19

Increase/decrease in finished stocks

-3.51

-1.12

-1.62

-1.03

-1.11

Raw Material

56.54

40.18

51.54

53.68

55.37

Employee cost

9.21

7.43

7.96

8.62

8.65

Depreciation

1.35

1.10

1.13

1.26

1.36

Other expenditure

4.74

4.41

5.27

4.89

6.17

Other Income

0.21

0.17

0.83

0.55

1.06

Interest & Finance charges

1.74

1.16

1.59

1.89

1.67

PBT (Post Extra-ord Items)

11.41

8.50

11.82

11.19

11.14

PAT

8.21

6.00

7.82

8.19

8.49

Earnings per share

0.68

0.50

0.65

0.68

0.71

Taxes

3.20

2.50

4.00

3.00

2.65

Tax rate

28.05%

29.42%

33.85%

26.81%

23.81%

PBIDT

14.50

10.76

14.54

14.35

14.18

Operating Profit (PBIDT -other Income)

14.29

10.59

13.70

13.80

13.11

Profit before Interest & Taxes (PBIT)

13.15

9.66

13.41

13.08

12.81

Net Operating Profit after Taxes (NOPAT)

9.95

7.16

9.41

10.08

10.16

Suprajit

1QFY12

1QFY11

2QFY11

3QFY11

4QFY11

PBIDT margin

17.84%

17.49%

18.91%

17.94%

17.25%

Operating Margin

17.59%

17.22%

17.83%

17.26%

15.96%

Raw Material/Sales

66.55%

64.06%

65.59%

66.23%

66.42%

Employee Cost/Sales

11.33%

12.09%

10.36%

10.78%

10.52%

Other Exp/Sales

5.83%

7.18%

6.85%

6.11%

7.50%

Net Margin

10.10%

9.75%

10.17%

10.24%

10.33%

Deprec/Sales

1.66%

1.79%

1.47%

1.58%

1.66%

Fin costs/Sales

2.15%

1.89%

2.07%

2.37%

2.03%
51

The 2-wheeler story remains intact. Suprajit should continue to reap the benefits!


TVS Motor Julysalesrise 14%
Indian Express
India'sthird largesttwo wheeler, TVS Motor Co said on Monday totalsalesin July rose 14 percent to 189962 vehicles from 166214 vehicles a year ago....
Mahindra'stwo-wheeler salesjump 8%
Financial Express
New Delhi: Auto maker Mahindra & Mahindra today reported 8 per cent jump in itstwo-wheeler salesat 13012 units in July, 2011. The cumulativesalesfor the...
Web 3new results for2-wheeler India sales
Mahindra'stwo-wheeler salesjump 8%
Financial express latest business and finance news: Mahindra'stwo-wheeler salesjump 8%...The company sells scooters Rodeo and Duro inIndia....
www.financialexpress.com/news/mahindras...sales.../825581/
TABLE-Hero MotoCorp July2-wheeler salesup 15 pct | Reuters
MUMBAI, Aug 1 (Reuters) -India'sHero MotoCorp Julysalesoftwo-wheelers: July 2011 July 2010 Pct Chg 4,91036 4,27686 14.82 NOTE: Earlier this year,
uk.reuters.com/article/2011/08/.../idUKWNAS322320110801

52

http://automotivehorizon.sulekha.com/indian-two-wheeler-sales-decline-by-13-percent-in_newsitem_2607

While several segments of the automotive sector experienced a slowdown in demand, two-wheelers continued to post better overall sales figures in July with a 13.2 percent growth from four manufacturers, says a BS report.

Hero MotorCorp (formerly known as Hero Honda Motors), the world’s largest two-wheeler manufacturer, reported a 14.8 percent growth at 491,036 units, compared to 427,686 units in July 2010. The market leader suffered production constraints during the reporting month because the company had to close its Haridwar unit for a few days, a release said.

Similarly, India’s third largest two-wheeler maker TVS Motors reported a twelve percent growth in July at 160,348 units in the domestic market, against 143,039 units sold in the same month a year back, noted the report.

Honda Motorcycle and Scooter India, the fourth largest two-wheeler maker, posted an overall growth of ten percent in sales during the reporting month at 152,382 units, in contrast with 138,445 units sold in the same month a year earlier.

Mahindra Two Wheelers (MTWL) posted sales of 13,012 units for the month a up eight percent, compared to 12,033 units sold in the year ago period. Mahindra sells four scooters in the Indian market.

53

I had a talk with a friend who bought honda activa and he had to wait for 3 months before getting delivery of the vehicle. I dont know about other companies but as I mentioned before one has to consider these two wheelers as consumer companies and not cyclicals. Buying a 50000 scooter or bike does not entail too much risk of interest rate or of fuel price hike bcos most of these vehicles give good mileage.

Only problem could come when there is total breakdown of economy in which case we might as well sell all our shares of whatever company and put everything in FDs.

So suprajit seems to be in for good times and a weak quarter due to some raw material or other market related issue should provide good entry point.

54

Yes Hitesh, agree with you. You have made that point before. Good to keep re-inforcing it for everyone to appreciate:)

Any entry level @18+ should be good, and can come anytime!

55

http://www.sharekhan.com/SSKICMT/Upload/Rsh_Upload/Institution_logo_Dec2010.gif

Q1FY2012 post-results conference call

Suprajit Engineering

Hosted by Sharekhan Ltd

On
Friday, August 5, 2011 at 2:00 pm onwards

Management representatives:
Mr. Ajith Kumar Rai,Chairman & MD
Mr.Medappa Gowda,CFO

Dial-in numbers:

Toll free number:

Primary Number: +91-22-3065-0187

USA: 1-866-746-2133

Secondary Number: +91-22-6629-0087

UK: 0-808- 101- 1573

Singapore: 800-101-2045

Hong Kong: 800-964-448

Local access number
6000 1221(For Delhi, Bangalore, Chennai, Hyderabad, Kolkata)
3940 3977(For Gurgaon (NCR), Bangalore, Kolkata, Cochin, Pune, Lucknow, Ahmedabad, Chandigarh)

For further information please contact

Research Analyst
Deepak Jain
Contact: 22-66189571 /9820099283

Head of Research
Gaurav Dua
Contact: 22-66104635/66189620

Sales team
Geeta Dave/Sunder Subramaniam/Deepak Jain
Contact: 22-66189840

56

does anyone have an update on the conference call?

57

Sorry I could not attend this.

Try contacting the contacts available in the Invite for a Transcript of the Concall.

-Donald

58

Mr Sameer Anand has provided the details of Conf Call.

Key Highlights from the Discussion
It expects growth of around 60% in aftermarket sales and 30-40% in non auto exports for FY 2012.
The company has become the new preferred supplier for John Deere. It supplies to half the plants of John Deere in U.S. and is receiving enquiries from John Deere European plants now.
Currently undergoing expansion plan at various plants. The cable capacity would be expanded to 150 million cables by September 2012. It includes a new plant at Bangalore which would commence operations in April 2012.
It expects the auto exports to improve in H2 FY 2012 backed by new orders on hand. As of now, the auto exports are stagnant.
Future focus of the company is on non auto and aftermarket. In FY 2011, the share of aftermarket in total sales was 7% and of non auto exports were 5%.
The company has 225 distributors across India. It has also has distributors in Sri Lanka, Bangladesh and Nepal.
Sold 31 million cables in June 2011 quarter from 26 million cables in June 2010 quarter.
Top five customers constitute 60-65% of its sales. They are Bajaj Auto, TVS Motor, Hero Honda, General Motors and Suzuki. It has marketshare of 70% in two wheelers.
It caters to Maruti indirectly through other Tier 2 suppliers.
Its global business caters 95% to auto.
Its global business constitute 15% of its consolidated revenue.
The cable realizations from car manufacturers is double than from two wheelers.
Capacity utilization was 90-95% in FY 11.
Share of requirement met by the company in various two wheelers are 70% in Hero Honda, 90% in Bajaj Auto and 100% in TVS Motor.

59

Thanks for this. Looks like the company is on track.

60

Suprajit available at ~Rs.17 seems a very good level.

I bought more into the company today.

61

I think the only risk is automotive sales in Europe. Apparently 15% of revenue is export sales. So there could be some slowdown.

But overall, I think the fundamentals are intact; and I prefer this to Gujarat Reclaim.

62

On a consolidated basis, Export Sales are at ~25% levels.

Many of the new contracts are for new programs, and at initial levels. These programs are likely to continue without getting affected.

Suprajit available at ~Rs.17 seems a very good level.

I bought more into the company today.

63

today sundarm MF has sold nearly 3/4 of there holding.