Suprajit Engineering

Stock Opportunities Not-so-Hidden Gems
84

Hi Srinivasan,

Please drop the Sir! I am a fellow learner on the path…miles to go!

The way to think about how much capital to allocate has been detailed in our Capital Allocation Link: …/…/…/forum/valuepickr-scorecard-aug-2011/399834292 framework, quite nicely before. High Conviction and_High Undervaluation_ are the two things that can tell you how dominant your allocation can be. Please read that thread, with the nice examples given. If conviction or undervaluation is middling its better to have a middling allocation.

Suprajit is a quality company with an excellent track record of maintaining margins & returns. With the general gloom in Auto, there was a time in the last 3-4 months itself when Suprajit had corrected to 16+ (from its usual 20+ levels). Some of my friends who did not have positions in Suprajit had loaded up then. Even I had added significantly then.

Look at its track record, look at the dominant market share, and the quality of its customer profile. In 4 wheelers too, it may outstrip the main competition in a few years as competition supply to specific vendor/platforms only and not across platforms like Suprajit.Sometimes we need to track quality companies and wait for a bargain price!

Having said that, we need to get clearer about which businesses enjoy the best economic characteristics. Suprajit while its a quality company is not in the same league as a few others in ValuePickr Portfolio.

85

Hi Srinivasan,

Since you are interested in Suprajit - and wanting to know how good or bad it is vis-a-vis other opportunities - in terms of quality of business, you may like to see the discussion in this RoIC/Capital Turnover thread.

If you want you can also calculate for Suprajit and post in that thread using the excel sheet provided.

That may be useful for you and for others, as an exercise.

86

Dear Donald,

Thanks for your valuable inputs. Actually I’ve read your capital allocation theory and also your NIFTY/Sensex PE theory for selling(quite comprehensive I have to say). Will refresh again for sure.

After putting a query to you, I did my own calculation(usually very incomplete/shoddy stuff). What I found was, like the sales CAGR 2007-11 was 16.31 and EPS CAGR(07-11) of 12.85. During earlier recession of 2008-09, sales growth(2008-09) was 12.95, and eps growth was 18.12. I only thought of a max of 10% allocation, due to lack of pricing power. But doing my own calc, I refrained. Better long term secular growth opportunities exist. I would say the only thing going for Suprajit is the stock is cheapand it can remain cheap due to business dynamics. Iam also mostly not interested in Auto ancilliaries except for balkrishna industries due to big export revenues, exide(consumption story) . Suprajit, if it can scale up exports, then it is sure for rerating, else risk of remaining eternally cheap.

I was also looking at the RoIC/Capital Turnoverthread. I downloaded the model excel sheet. I will try upload it for Suprajit. But Iam no longer keen on suprajit as investment bet. May be as a trade it is good.

Also the Suprajit presentation for investors, has good ROC, ROE calculations for previous years. It also has comparative figures of other auto ancillaries like PRICOL, Lumax Industries, Bharat Forge, Sundaram Fasteners. Would be great for others if the administrator can upload it or provide like for it.

87

Hi,

Have a look at Suprajit over the longer term!

Suprajit Engineering 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002
Revenues 301.05 208.86 163.68 137.97 131.25 118.9 93.34 69.93 47.7 33.06
EBIDT 53.81 42.93 28.19 18.31 24.38 23.15 18.56 14.9 10.41 7.56
Depreciation 4.85 4.49 4.26 3.75 2.88 2.76 2.43 1.59 1.12 0.88
EBIT 48.96 38.44 23.93 14.56 21.50 20.39 16.13 13.31 9.29 6.68
EBIT Margin 16.26% 18.40% 14.62% 10.55% 16.38% 17.15% 17.28% 19.03% 19.48% 20.21%
Working Capital 45.06 36.8 29.48 51.12 47.47 40.2 25.6 16.27 7.75 6.54
Net Fixed Assets 74.49 56.13 53.55 47.27 28.12 26.09 25.11 22.71 13.3 7.27
Net Other Assets









Invested Capital 119.55 92.93 83.03 98.39 75.59 66.29 50.71 38.98 21.05 13.81
Capital Turnover 2.52 2.25 1.97 1.40 1.74 1.79 1.84 1.79 2.27 2.39
EBIT/Invested Capital 40.95% 41.36% 28.82% 14.80% 28.44% 30.76% 31.81% 34.15% 44.13% 48.37%
ROIC 27.44% 27.71% 19.31% 9.91% 19.06% 20.61% 21.31% 22.88% 29.57% 32.41%

The company has always been able to maintain margins over 15%. I also like the fact that the company is back to high capital turnover days - last few years show a nice improving trend.

It also tells me unlike some others like Mayur who have Capital Turnover ratios close to 4x, this company will always need to invest more to grow more.

88

Hi guys, where are we with Suprajit at the moment? If I remember correctly, a review was initiated on whether Suprajit should still be in the lon term portfolio. It seems like growth is intact. Does anyone have any views on this recently?

89

Saw a ‘Wanted Auto Component Company’ ad in ET today! Suprajit wants to acquire a profitable company with good mgt and revenues of 100-250 cr . Interested promoters can apply:))

90

Q3/Fy-13 Results out…

Total Income up 11.9% to 113.43 Cr from 101.34 Cr.
EBIDTA up 20.1% to 19.38 Cr from 16.13 Cr.
Net Profit up 12.8% to 11.22 Cr from 9.95 Cr.

EBIDTA margin is 17.1% v/s 18.6% (SQ-12) and 15.9% (DQ-11)
NET Profit margin is 9.9% v/s 11.2% (SQ-12) and 9.8% (DQ-11)

Total Raw material costs as a %ge to Income is 65.9% v/s 63.8% (SQ-12) and 67.2% (DQ-11)
Employee costs to Income is 11% v/s 11% (SQ-12) and 10.5% (DQ-11)
Other expenses to Income is 6.1% v/s 6.6% (SQ-12) and 6.4% (DQ-11)

Financial costs to EBIT is 13.6% v/s 14% (SQ-12) and 16.7% (DQ-11)

Tax Rate 28.7% v/s 25.4% (SQ-12) and 26.2% (DQ-11)

9M/Fy-13 v/s 9M/Fy-12 (Consolidated)
Total Income up 9% to 339.26 Cr from 311.18 Cr
EBIDTA up 14.2% to 56.76 Cr from 49.68 Cr
Adjusted Net Profit up 11.3% to 32 Cr from 28.75 Cr
(One-time Exceptional income of Rs. 5.18 Cr Adjusted)

Consolidated EBIDTA margin is 16.7%; Interest to EBIT is 14.7% and Tax Rate is 28.5%

Reported 9-month EPS 2.95 v/s 2.4 (Fy/11-12: 3.32)

At 01:05 pm on 30/01/2013, stock on BSE trading flat at Rs. 33.60/-

91

No updates on this stock for a while. Is this still an interesting story?

Donald sir - any plans for a management meet in the near future.

(disc. already invested)

92

Lloyd,

Please call me Donald. No Need for the Sir - undeserved.

Have stopped tracking this one. What do you find of the 2-wheeler market - Is it set for a revival?

-Donald

93

Please see link below for some interesting reading on Suprajit

http://www.sbaer.uca.edu/research/usasbe/2012/paperid185.pdf

http://www.sparkcapital.in/pdf/updates/Suprajit%20Engineering.pdf

My views.

Pros

1). Two wheeler sales - Suprajit has been consistently following their customers and setting up plants right next door to their customers. Recent examples - being land purchased first in Singur and then later in Sanand to cater to the Tata Nano demand. Second example - plant in Bangalore exclusively to cater to Honda’s new 1.2 mn capacity plant. In my view this shows immense commitment to its customers as well literally shutting out competitors who may have a locational advantge.

2). Asia/Africa/Latam - It is quite evident that two wheeler sales in India are quite flat and the market perse is quite saturated as well. Hence the key players in the two-wheeler segments are looking at the overseas market for the next leg of growth. Please see newslink below

Suprajit does have good relationships with these players and my guess is they “may” follow these customers into these territories as well if required. They can always export from India. This could be one of the growth drivers.

3). The latest A/R of the company also talks about a measured approach to Capex. They have pushed back two planned plants to the next year considering the overall slowdown in their industry. The Management has always emphasized on growth with profitability and so far they have demonstrated it.

4). Inorganic growth - This is also one of the stated objectives in the A/R and given by their past acquisition history (Shah Con-Cabs - Vapi & Gills Cables UK) - they are very cautious and have not just gone about buying any company just for the sake of it. If they do acquire or get into a JV - I believe it would be a well-thought out move.

Cons

1). Debt - The current debt on the books is close to 100Cr. Though if one considers teh 45cr lying in current investments - which are mainly liquid MFs/Bond MFs - the net debt would be around 65Cr. Though they are not over-leveraged - but one always needs to monitor the debt levels. We all know the after effects of overleveraging.

2). Aftermarket & New Products - Although the company has been talking about the opportunity in the after market space - we have not seen significant progress in this area so far. Similarly though the company has made a few inroads into the non-automotive space -this still remains about 5% of total sales as on March 2013. If the latter aspect turns around - then this could be an immense growth driver for this company. It will help derisk the business from its overdependence on the two-wheeler industry.

To conclude - at 10x TTM earnings - it is fairly valued and does not have significant undervaluation at current prices - However considering its potential IF (and that’s a big IF)it transforms from a pure two wheeler play to a global cables player - then things could get interesting.

DISC - This is a significant holding in my portfolio and my views would definitely be biased. Looking forward to comments from fellow boarders.

94

Hi Lloyd,

Thanks for your inputs. Appreciate.

Suprajit has a great long term track record and a very capable management. No doubt about that. It also faces cycles in its business, no doubt about that either just like BKT or GRP ltd. So I naturally slot it at a level lower than other businesses with similar track and management - but not the cycles.

My current view

1). Looks to me there are better opportunities in this market - given current valuations - and performance outlook.

2). As you mention, its not a sure thing how Suprajit will make the transition to the next level. There are a few IFs.

However, it will be good to quantify the upside from the additional Honda Sales. Have you/anyone done any work on that? Any projections for the year?

1 Like
95

Transcript of Interview with Suprajit CMD Ajith Rai.

)- 15% growth in q2.

)- 8-9% growth in h1

Expect to close at 5-10% growth for FY14

96

Okay. Thanks. Will have a look.

Prima facie - 10% growth valued at 10x for a auto-ancillary is as good as it gets. Valuations aren’t attractive.

97

Dear sir, I have serious doubts over transparency or sincerity of management in data reporting. share holding pattern contrast filed in nse & annual report is dramatic.

Distribution of shareholding according to size class as on 31st March, 2013:

Description Holders (% of Holders) Holding (% of Holdings)

1 â 500 4,218 57.62 875,003 0.73

501 â 1000 1,058 14.45 957,476 0.80

1001 â 2000 589 8.05 976,024 0.81

2001 â 3000 241 3.29 638,276 0.53

3001 â 4000 148 2.02 551,509 0.46

4001 â 5000 175 2.39 853,095 0.71

5001 â 10000 418 5.71 3,311,340 2.76

10001 & ABOVE 474 6.47 111,857,277 93.20

Total 7,321 100.00 120,020,000 100.00

where as in BSE filing the march 2013 shareholding data reveals that total shareholding below rs 1 lakh

no of shareholders no. of shares % holding

6841 167,08,922 13.92

at Rs 33 the maximum holding to exclude an investor from poor 1 lakh club is 3300 only hence any holding above 4000 shares should be considered exclusive.

now as per annual report total % of shareholding of person below rs 4000 is only 3.6% . whereas BSE filing shows 13.92% .

Is this a fraud or I am missing something in this detail.

my plz, enlighten and unravel this fraud.

rajneesh

98

Rajneesh, it is 1 Lakh share capital… not market capital.

Hence only those who own 1 Lakh shares (face value=1) will be included in more than 1 Lakh category.

99

dear akbar, from where can i get the official confirmation regarding this disclosure.

thanks for ur guidance.

rajneesh

100

Dear Rajneesh, what further confirmation do you need, besides the BSE filing?

101

Suprajit Engineering held a conference call on Thursday, 07 November 2013. Mr Ajith Rai, CMD and Mr Medappa Gowda, VP Finance took the queries of the call.

Key Points by Capital Mkt:

  • Suprajit Engineering has reported a consolidated sales turnover of Rs 123.06 crore and a net profit of Rs 12.86 crore for the quarter ended Sep '13. Topline was up by 13.8% while bottomline was up by 18.3%.
  • After a subdued H1 FY 14, October had seen subtle but steady change in the market. The company is very positive about that.
  • The company’s standalone revenues in Oct 13 stood at Rs 53 crore, a growth of 26%. Exports stood at Rs 5.16 crore, higher by 94%.
  • H1 FY 14 was not good for exports. But H2 FY 14 will gather pace. In Oct 13, automotive and non automotive exports grew handsomely.
  • There was robust offtake from OE customers in October 2013 in automotive sector. So, for November and December 2013, Suprajit’s performnace is going to be robust.
  • On Standalone basis, the company’s 18% H1 EBITDA will continue to be there for the rest of the year.
  • Suprajit’s share of business with HMSI is going to increase definitely.
  • This year, there will be regular capex of Rs 10-15 crore. For next year, the amount is not yet finalized but there will be more capex due to two upcoming plants.
  • The company operated at full capacity utilization last month but the same varies from month to month.
  • Suprajit is definitely going to need to expand capacity in the coming months. 2 plants will be coming up in next two years. One will be in Bangalore due to supplies required to be made to HMSI for which land has been acquired. The other will be in Chennai, mainly due to Yamaha and for that land scouting is going on. Amount needed might be around Rs 25-30 crore for these 2 plants.
  • In H1 FY 14, the company witnessed growth of 10% in 2 wheelers, 8% in overall automotive segment, 21% in non automotive segment and 38% in aftermarket sales.
  • In exports, aftermarket and both auto and non auto segments are gathering momentum.
  • In Q2, there was no change in pricing. So, entire growth came from volumes.
  • The company has recently received two LOIs - one from Enfield for new products, and another from Mahindra two wheelers, both for instrumentation clusters.
  • FY 14-15 will see good growth of 25-30% on the export front.
  • The company has acquisition plans and it has proposals on table but its quite conservative on taking valuations for the acquired company and nothing has been finalised yet.
  • The company will stick to its 25-35% dividend payout policy for every year and acquisitions are not related to that. .
  • In the end market non automotive segment, the company’s sales are steadily growing. It started by supplying to one plant for John Deere and today it supplies to at least 4/5 plants. Its similar for other customers also.
  • Suprajit is certain that it will grow 5-10% higher than the Indian industry in FY 13-14. The industry grew 0% in H1 and will end year at 2-3% growth.
  • Suprajit’s non domestic sales is 15% of total global sales.
  • The company’s best margin is in non automotive business in pure and absolute terms. Because of rupee depreciation, auto export margins have also improved.
  • Against global competitors, in terms of EBITDA the company is as good as its competitors. In terms of size, while the top two are in range of $200 - 300 mln. Suprajit is around $100-110. It stands among top 5 in motorcycle cables. In two wheeler cables, Suprajit is largest in the world. In 4 wheeler cables, it is not in top 5 but in top 10 definitely.
  • The company is confident that it can grow 10-15% annually in cable business in next 2-5 years.
  • Regarding, launching new products, the company is not sure about it in near term. It just received two LOIs and that will take 3-6 months. But Rs 50 crore additional revenue can be generated from new products in next 2-3 years
102

**

Suprajit

** call.Key **

**

Mkt:

103

Suprajit Industries clocks records sale for October and November months about 25% top line growth… Order positions for Dec month is robust and it confident that the Q3 sales will clock all time high in the history of the company.

Pls find corporate announcement :

http://www.bseindia.com/xml-data/corpfiling/AttachLive/Suprajit_Engineering_Ltd_031213.pdf