Suprajit Engineering - Crossing the threshold?

Scuttlebutt - following is a series of Q&A done with 2W industry sources

Q: I read a few news articles, particularly with HMSI saying that they’re fine right now for June sales, but post June they think there’ll be huge supply shocks that might come from tier two tier three suppliers who don’t have enough cash and don’t have strong reserves. What actually is the scenario like?

A: With respect to the cash problem, the problem is universal not just with tier two or tier three, even tier one suppliers are facing cash issues as business has been affected with no business or revenue for several months due to the lockdown in the first quarter. Unfortunately for us, with BS VI implementation, ancillary units had undertaken quite a bit of capacity expansion as well since the last quarter of last financial year. With peak production for most of these capacities happening in February and March, this inventory is basically money that has been blocked which hasn’t converted into sales yet.

However, for us, this particular issue has not resulted in any supply shortage. Considering, we have also been among the first OEMs to release timely payments to our suppliers have definitely helped vendors. But yes, there has been a cash crunch issue with these units but till now, no supply shortages.

Q: Do you think it’s just a cash crunch issue or is it also that the suppliers are facing labor shortages as well?

A: Labour shortage has been a major concern which is again universal to suppliers across the value chain. We engaged with all the suppliers ensuring that we monitored the health of those workers along with protocols in place so that production can be started immediately without facing issues. But subsequently in second and third weeks of May, with different governments deciding that the migration of labour can take place and the labourers can go back to their natives, there was a substantial drop of labour availability. But since then the situation is slowly improving. The other factors are also in play as certain societies where the labour lives, if affected by covid affects their movement.

Q: How are we supporting the tier 2 tier 3 players to get through this issue?

A: First of all, we have been working on guidelines, protocols and putting in checklists in place and arranging for protective and sanitization equipment centrally for all our suppliers so that they are equipped and ready to handle this environment. As far as labour problems are concerned, we help them with identifying labour contractors and helping them bridge the gap.

As far as financial support, directly we are not providing financial assistance to tier 2 or 3 suppliers. However, on tier 1 we have been giving support based on the need and some other guidelines that we have prepared. When we talk about suppliers, we mainly bifurcate into two - proprietary and non-proprietary. When we talk about proprietary players like Lumax, Minda, Bosch, etc who have their own designs and are big players supporting the entire industry - we don’t provide any direct support as these are big players and can manage on their own. Giving timely release of payments is the support which is always given.

Whereas for non-proprietary vendors, who have more dependency on our OEM and have higher material content as part of their pricing, those people involved in forging, casting, sheet metal, etc these kind of people based on their request we are offering them bill discounting or cash discounting facilities which is lower than our regular norms and is offered as additional support, For example, some of the players have put a lot of investment for BS VI but business volumes haven’t supported that, for these people we have been offering the financial support.

Q: Which are the linkages that are the weakest in terms of potential shortages that can arise? Which components are likely to face supply shocks?

A: More than the components affected, the biggest factor in causing the shortages is that of local government state policy which is giving a lot of shocks to most supply chains now. For example, when there was a surge in cases in Ahmedabad, the local govt decided to have a lockdown, so the suppliers supplying from there got disturbed and supply chains got affected. We have also heard that when TN govt announced lockdown in Chennai, suppliers of electronic carburetors from there got disrupted. And same govt announced lockdown in Madurai, so supplies of ores got affected then. So these kind of issues have created a bigger challenge today for most supply chains. So while big chunk of the production might be localized near the plants, some of the parts have to be sourced from outside like with tyres, carburetors, orings, belts, etc which gets manufactured at one location and then gets supplied to various OEMs those are susceptible to supply shocks based on the local conditions.

Q: Because of this corona situation, do we see a scenario emerging where stronger players who are bigger and are in a better position financially begin to get disproportionate share of future business? Either because they can ramp up production quicker or because they are situated in lesser affected areas? Do we see a movement of business towards them?

A: Obviously, this cannot happen for most of proprietary suppliers for various reasons. However, this puts up a challenge to all of us that taking this covid case we are forced to assess each supplier on the basis of their financial health and capabilities; so the weaker players may not get that much opportunities in the future going ahead. Smaller players still have their utility and niche in the supply chain, so unlikely that business will move from smaller players to larger players. But within the smaller players, it’s likely that business will move to the ones who are financially more strong. It gives OEMs an opportunity to relook at the supply chain, so that during the next strategy discussion when we plan the next volume jump or when we put up a new plant, during those cycles, preference will be given to these suppliers.

Q: In the cables space in particular, how many suppliers does an OEM typically have? What are the factors in choosing the suppliers?

A: Generally, the industry works with two or three suppliers. The factors are typically capability in terms of consistent quality performer, cost competitive, and fast response times for development. For example, Suprajit has been a preferred source. So whenever we moved to a new plant, we have given that business to Suprajit and Suprajit puts up a plant wherever our plant is. So automatically, locational advantage is there for both.

Q: With EV coming in, are there risk factors to the cable industry? Or is the cable industry relatively not affected by the transition to EV?

A: With EVs, the number of cables will reduce. Even though it may not become zero, but the number will be lesser. There may not be a throttle cable, clutch cable, etc as it will be driven by sensors. In a normal bike, if there are 4-6 cables, in an EV there may be 1-2 max. So to that extent the business will drop, so that risk is there.

Q: How do you see the transition from halogen lamps to LEDs even in mass premium vehicles? Do you see this extending to lower and middle priced bikes as well?

A: Yes, the transition is happening. The challenge is going to be in terms of pricing. Now the blinkers, speedometers, tail lamps etc have mostly moved to LEDs. Whereas halogen lamps are mostly used in head lamps. Head lamps LED introduction will mostly depend on how the costs will improve. At the moment, some of the people have gone for LED but halogen lamps are still used but as the volumes go up and the technology improves the LED prices will drop further and then it could become mainstream in the next 2-3 years in my view.

Q: How do you see the gears used in Internal Combustion Engine vehicles? How different is it from the gears that are to be used in EV?

A: There is a reduction in requirement. As we see in EV, most affected would be the engine part manufacturers and to some extent, it will affect the transmission parts makers. Whereas chassis side, vehicle side people will still continue unaffected. And obviously the electrical parts makers like sensors will improve the share of business going forward.

Q: For a company making parts like shunt resistors for EVs, how difficult is it for a small company as a Tier 3 supplier to get registered with an OEM? Is this particular supply disruption going to make entry a little easier for some of the smaller companies?

A: The electronics and semiconductor makers are in demand as their share of content in the vehicles have been going up across the vehicle classes. Irrespective of ICE or EV. A couple of years before actually there had been a substantial capacity shortfall in the entire industry and demand went up like crazy along with a capacity crunch. And this is in a high investment, high technology industry. So investments happen at certain intervals and at certain slabs, which has opened the doors for various makers. For example, Vishay wasn’t a supplier for us. But that scenario opened up an opportunity for Vishay to become a Tier 1 supplier for us. Now, one is capacity shortfall and second with demand increase, it’s an opportunity for the newer players to get an entry.

Additional Observations:

Levers that got disrupted:
Two of the biggest disruptions for OEMs due to Covid was in the form of retail finance and outdoor activations, Retail financed vehicles accounts for nearly 70% of overall vehicles sold. Post the corona situation, the lending norms have been tightened. The LTVs have dropped across all financiers and the down payment requirements have gone up. In cases where a leading NBFC, was financing No Income Proof cases with 85% LTV, that has now dropped to 65% LTV. Some other smaller NBFCs have stopped disbursements in select places and have been focussed only on collections. The people who have not been largely affected and haven’t dropped their LTV and have in fact increased their disbursements are HDFC but they have very strict profiling criteria. Overall, these issues have lead to the overall contribution of retail finance to drop to 50-55% in most places leading to volume loss as people postpone the purchase decision due to the high down payment required now.

Second lever that got disrupted was outdoor activations. Basically, dealerships used to do Loan melas and Exchange melas in mandaps and venues once or twice a month and they used to be big drivers for enquiry generation and retail sales. These activities used to account for 15-20% of the retail sales. But the current scenario has virtually put an end to outdoor activations and has dried up this segment for retails and made OEMs dependent only on walk-ins.

Impact of these two levers: Outdoor activations was an important lever to be used in places where the dealer network is not present and these activities used to contribute 15% of volumes which have become nil now. However, 1/3rd of those volumes possibly could be recovered through alternate actions like digital ads, etc. which many dealerships have started deploying post Covid. Retail finance dropping from 70% to 50-55% contribution has been contributing at least 10% potential drop in volumes as more and more people have been postponing the purchase decision.


@MANAN1235 - I am taking up one of the points you captured under “bearish points” and “threats” regarding the acquisitions for a deeper look. The M&A route that Suprajit has chosen will have a lot of bearing on how things play out in the medium term. Unless the acquisitions made thus far turn out to be value accretive, the management is unlikely to go down that route again…

Evaluating the M&A activity

Now to put the acquisitions since 2016 in context, starting with Phoenix Lamps

Phoenix Lamps was the leading player in the automotive halogen lamps segment. From the company financials prior to the acquisition in 2016, it was a patchy ride. From the 2016 annual report –


It is apparent from the annual report language that Phoenix Lamps had some issues with the business before it’s acquisition by Suprajit in 2016. Let us now look deeper into Phoenix Lamps

From the 2014 annual report of Phoenix Lamps

The consideration received for the general lighting lamps division was INR 160 Cr. Once this business was sold off, one can see the stark improvement in gross margins of the company.

Exceptional gain of 42 Cr in 2014 due to sale of a division – general lighting lamps

Now let us see what Suprajit Engineering financials looked like prior to the acquisition of Phoenix Lamps

Suprajit bought out PE firm Actis stake in Phoenx Lamps for approx 155 Cr and then offered a share swap to other investors. Obviously was a loss making for the PE firm but Suprajit effectively bought out Phoenix Lamps for a trailing PE multiple in the range of 10-12.

By no yardstick has Suprajit overpaid for the Phoenix Lamps business, gross margin and EBITDA margin wise too the deal was not very dilutive.

Coming to how the Phoenix Lamps division has fared as of latest available numbers –

Obviously the story has not played out as expected, scale has hardly moved up since the acquisition while the EBITDA margin has fallen sharply over the period.

What went wrong here?

Some insights from the latest conference call in June 2020

In response to a question on evaluating the Phoenix Lamps acquisition

Goes to show how challenging managing cross border complexity is with multiple entities, also what it takes to streamline operations and optimize for future growth.

Once can correlate this with the disparity in employee expenses and other expenses over the period 2019-2020 in the standalone and consolidated numbers.

The subsidiaries have turned negative at the PAT level for FY2020 while being marginally positive at the EBITDA level. This usually happens when utilization falls and negative operating leverage kicks in

The next logical questions are –

  • When can subsidiaries revert to normal profitability, now that the restructuring and optimization exercise has been done to some extent? Is this just a function of revenue picking up or are there more issues at work?
  • What does the prognosis for halogen lamps look like? Is there a risk of technology obsolescence given the preference for LED lamps? If so, was the acquisition a prudent one from a longevity point of view?

Overall indications are that while the Phoenix Lamps acquisition was at a favorable price, management underestimated the integration and complexity issues that can plague international operations. This is expected in businesses that go into territories that they haven’t ventured into before, as is usually the case they underestimate the challenges involved and the management bandwidth it takes to smoothen things out.

@ashkrithik - Scuttlebutt will prove very handy once one gets to forming a view on the pace at which the domestic auto industry may recover from the 2019-2020 slump and then the COVID-19 hit


Let me add more facts/Notes to ponder upon - on the Suprajit puzzle. Many of these have been covered in wonderful Notes from @MANAN1235 and @zygo23554, but many are not. So thought of sharing these together, at one place.

My Takeaways from a relook at Suprajit in 2020.
[Best way to read/view -Click on image and scroll right - through a picture storyline]


Source: Suprajit Concalls and other Material.
All above make me excited from a medium to longer term perspective on Suprajit!
More views invited!

@ashkrithik - Brilliant Scuttlebutt!. Thanks a lot.
Please keep developing these contacts/relationships. We will need a lot of that in coming months, as things will probably get more worse, before they become better.
Disclosure: Not invested. Interested in tracking well


Thanks for initiating this very interesting thread. One data point that is missing (but was covered in @Donald notes) is the management capability to turnaround overseas acquisitions. That has clearly come across as a major threat to the investment thesis. Suprajit acquired CTP Gills Cables in UK in 2006 when it was loss making, profitability came in 2011 when it was renamed as Suprajit Europe on 01-06-2011 (data taken from past annual reports). So management can turnaround businesses, sometimes it takes longer.

Another point was made about family succession. This is a very progressive management as they were talking about succession planning back in 2015 (see this 3-video series by SAP India). Now both sons are part of the business, one of them was recently inducted in the board (if I am not wrong). We now need to see how hungry the next generation is, any management interview planned? @Donald If you plan this, I will be happy to collaborate on management questions.

For me the key monitorables going forward are:

  • Turnaround in the margins of WESCON and Phoenix Lamps
  • Relevance of halogen lamps in the longer term, can management switch to LED lamps in the future?
  • Electric vehicles have less than half the cable requirement. Adoption of 2-wheeler electric vehicles can be a huge problem for the company.

Valuations has not been covered and I will add that aspect. Over the long term, profit margins have varied from 5-10%, with 5% margins in very bad years (2008 industry downturn). The figure below (taken from tikr) shows their gross, operating and net margins from 2004. We can clearly cyclicality in margins.

Cyclicality in margins mostly come from the embedded operating leverage in their business model, where in times of boom margins are high because of better capacity utilization and lower labor cost per unit of goods produced. Market generally values this kind of a business between 1-2.5 times EV/sales. A one time EV/sales implies a normalized P/E ~ 12 and a 3 times EV/sales is generally in times of boom where market extrapolates higher cyclical margins and trailing growth (when we should try to sell). Here is the proof (long term EV/sales for Suprajit taken from tikr)

Other ratios (EV/EBIT, P/E and P/B is also shown below and taken from tikr)

Disclosure: No investments as on date (detailed portfolio here)


Pheonix Lamps Division

Some basic financials pre acquisition are detailed in the previous post. Drilling deeper into this segment

To revisit a very rudimentary observation about auto ancillary businesses, those with a healthy proportion of business derived from replacement revenues tend to trade at higher multiples - predictability and resilience during downturns, higher margins in the replacement segment compared to the OEM segment.

Examples – Battery makers, Tyre makers (Balkrishna Tyres in particular)

Trend of Suprajit replacement revenue since 2012

Consolidated revenue 2012 2013 2014 2015 2016 2017 2018 2019 2020
Replacement Revenue (Cr) 41 46 60 67 331 300 305 334 359
% of Overall Revenue 9% 9% 10% 10% 32% 23% 21% 21% 23%

The boost in proportion of replacement revenue since 2016 is obvious. The fact that this business was acquired at a TTM PE multiple of 11-12 is the clincher here given that that halogen bulbs business isn’t exactly a great one on the face of it.

Other synergies that were at play in the acquisition –

  • The distribution network of Pheonix Lamps in North India and in parts of Europe were complementary to Suprajit’s network
  • Suprajit grew to dominate the automotive cables market through cost leadership, they saw the same ethos in the business they were acquiring – one of the lowest cost players in the segment. There wasn’t going to be a culture mismatch here in terms of how business was being done on the ground and what kind of business segments they were servicing.
  • Existing relationships with Europe based OEM/Tier 1 suppliers that PLD was bringing to the table, PLD was clocking between 90 – 120 Cr annual revenue from exports between the period 2012-16

Possible Concern - Halogen bulbs becoming outdated over time with the market shifting to LED based lighting

Automotive lighting industry worldwide is fragmented with multiple players (Osram, Hella, Koto, Valeo, Philips etc) and multiple technologies (Halogen, Xenon, LED). While LED segment is clearly expected to be the fastest growing segment at 7% growth over the next 5-8 years while the overall market grows at 3.5-4%, halogen continues to be in play at the lower end of the 4W segment and most of the 2W segment. The installed base of this economy lighting segment provides an attractive global replacement market for many years to come. The addressable market size for a low cost producer can be expanded over time provided one has the direct linkages with global OEM’s or by becoming a Tier 2 supplier who feeds into Tier 1 makers.

PLD was getting between 65-70% of revenue from the replacement segment. One does not see too many auto ancillary businesses with this kind of replacement revenue %, the EBITDA margin was healthy 15.5% before the acquisition by Suprajit.

Add to this is Osram India halogen unit acquisition in 2019 (which adds another 130-150 Cr of revenue) and brings to the table the possibility of making in India and becoming part of global supply chain of Osram which is a leading global giant in the lighting business (EUR 4.2 Bn revenue). With this acquisition Suprajit PLD now gets to capacity of 110 Mn bulbs per annum which is among the Top 3 in the world for halogen bulb makers. Osram being a Tier 1 supplier with a global presence can potentially make things much easier for PLD to scale up once the auto situation across the world improves. Cracking into the auto OEM segment is something that takes 2-3 years at the very least but as is the case with most concentrated buying centers, once the empanellment happens volumes can take off big time.

Having made some changes to distribution & logistics in Europe, a good part of the optimization might be done at Suprajit. It may well be a question of these efficiences reflecting in the numbers from here, which is a function of when the global auto situation gets better.

PLD has LED capabilities too and has started supplying to some global players, hence this segment is not a NO SHOW for the company. Scale up here is likely to take time (3-4 years) since the volumes will see an increase only after quality is assured and delivered.

To summarize –

  • PLD has proven capabilities across halogen bulbs and emerging capabilities across LED segment
  • Top 3 player by capacity within the halogen bulbs segment, culture of cost leadership is entrenched in the company which enables it to compete well with Chinese and Korean players
  • Higher share of replacement revenue within this division makes this a good business if not a great business
  • The Osram tie up can work very well given that the deal wasn’t just an asset takeover
  • Tough decision of optimizing Europe operations already behind us
  • There is a large replacement market for halogen bulbs globally that can be tapped into
  • Emerging LED capabilities minimize the risk of technology obsolesence for PLD

Some of these are well covered in Donald’s notes, looks like the PLD acquisition was well calibrated on various fronts -

Higher replacement business
Favorable valuation
Enhanced geographical coverage
Cultural match due to focus on cost leadership
Ability to take tough decisions on optimization post the acquisition


Management interview with CNBC (link) and conference call (link)

  • Seeing demand traction coming back in Q2, will be similar to Q2 last year
  • With higher volumes margins will revert to normal levels
  • Won new contracts from Volkswagen in Europe; from a tier 1 supplier to Ford in US; got new customers in China, Taiwan (seem very bullish on international business)
  • Will see similar sales and EBITDA for the rest of 9 months this fiscal
  • Substantial reduction in employee cost, a lot of it will be retained going forward. Most of the cuts have come from white collar workers
  • One of competitors became customer because of financial problems of competitor
  • Halogen growth : Looking to gain market share because of consolidation and industry shakeout rather than industry tailwinds. Growth will come from greater market share and entry into newer markets (like China). Idea is to become global leader in halogen aftermarket by manufacturing from India.
  • LED : Have started doing in-house manufacturing and also started selling it in the Indian aftermarket under the brand name Phoenix. Also, looking for possible acquisitions if they come.
  • A number of competitors are seeing stress on balance sheet
  • Do not see any change in the number of cables because of EV transition
  • In four wheeler, more sales comes from Mahindra compared to Maruti
  • Consolidated long term growth will be >5% compared to Indian auto sector growth

Latest management interview (link)

  • Strong July and August sales in domestic cable business; This is because supply chain disruption created more demand for Suprajit products along with some pent-up demand; Also last year August was low sales, so growth looks higher because of lower base
  • Exports: Growth is low because OEMs are delaying their launches; Margins will not be impacted because of withdrawal of MEIS scheme as volume uptick will compensate for lower margins
  • Demand looks very robust until the festival season i.e. October. This specially comes from 2-wheeler division where there are also waiting lists. However, they are unsure if it’s pent-up demand or more broader recovery. Need to reevaluate in November if demand recovery is sustainable
  • Halogen division has done very well in July and August registering record sales; Targeting global leadership in after-market sales in international markets
  • In 4 wheelers, the number of cables required is same in electric vehicles

Company issues a quarterly summary, mentioning that Q2 has recorded growth in excess of 15% over Q2 last year (450 cr.+). This is in-line with previous management commentary where they had shared strong visibility until the festival season (and low visibility afterwards). Salaries have been reverted back to normal. The growth has come because all the auto OEMs have pushed a lot of inventory to the dealers (also recorded in strong OEM sales growth to dealers in Aug/Sept) in expectation of demand revival. The low visibility post festive season is because it needs to be seen if the demand can be absorbed by the market. Lets keep an eye out for the auto registration data to see if there is any real demand recovery.


@ Rohit and me have visited one local plant of Suprajit. Sharing notes from the same:

In 2018, started a warehouse for a major customer and later converted into a manufacturing unit for cables. After 6 months of audit by customer, commercial production was started in sept 2019. Even if the customer is the same, quality check ups/audits will happen and it will take 6 months.
Manpower training to maintain quality: we have to employ them for 6 months and give training before actual production.
Production capacity of 35,ooo cables/day.
2 Acre land was allotted in 2013, if the company doesn’t construct it within five yrs land will be taken back by govt. Present plant occupies one acre.Total Plant construction cost is around 20Cr. Further capex in remaining land for next year.
225 -230 no of working force.
Two lines of manufacturing
offline: 16 hrs/day. assembly lines :8hrs/day.
Most of the Machines are from China and more efficient.

Presently doing a good amount of cable sales/month. Target is to increase it by 30-40% by Oct of next year.
Per person we use to make 30 cables/day and now it has increased to 90 cables per day
This particular plant has better operating margins than the company as a whole.

Last 3 months were good. Near term outlook/indication from our customers is positive and confident about better sales.

December every year is annual maintenance shut down for 10 days. Even the customers will close.
Have orders till March 2021.

Major auto player is the single customer for this plant( largest factory in Asia. Producing around 9600 vehicles produced per day… 6,600 scooters and 3,300 bikes) we are supplying to 7 models…3 scooters models our share is 60%. 4 bikes our share is 80%. Customer is particular about quality and even single abrasion there will be inquiry. Quality head has to stay within 3 km of the plant to address any issue in case.Till now never had any issue and rejection is very very low.
Customer will be introducing 2 new models for next year and we have got assurance of 80% business for new models.
Competitor for us is Hilex ltd which supplies from their plant at Perambur(TN) and takes time for delivery. We can deliver the same in a few hours. We have price,quality and short delivery time advantage.

Inventory of finished goods: presently for 14 days( in anticipation of covid disruptions if happens) generally we keep for 7 days.

RM includes steel wire(3 types),rubber,pvc. From local supplier we buy for 4 days . From North India based suppliers we buy 14 days in advance. Upto 60% of supply comes from North India.
RM price increase from our supplier will take 1-2 months. Passing on RM cost from us to Honda takes around 5-6 months.

BS6 : No choke cable is used. Only fuel injector (throttle cable ) is used. Cost of same is much higher compared to choke cable( Rs.35 to 50 vs Rs 100 per cable)

Electrical vehicles: company R&D centre is working on products like ignition coils,gear system …etc. The R & D team will be working on requirements of EV vehicle companies like Ather. Number of cables may go down from 8 to 7 per vehicle depending on model but it will be covered as the cost of cable increases.

All plants have an automated EPR system enabled.

All the lines of plant were busy with active production ongoing (previous two days was leave for factory due to Dussehra festival)
Discl: I am invested and views may be biased


Q3 conference call notes

  • Approved buyback of 15 lakh shares (1.07% of equity) at 320 (payout: 48 cr.) along with dividend of 0.75. Payout will be increased to 35-40% (buyback will be every 2-3 years)
  • Experienced V-shaped recovery registering highest quarterly sales crossing 500 cr. Currently seeing demand traction with good orders lined up in February and March. However January domestic retail sales have dipped
  • Phoenix lamps brand showing very good growth (especially in South India), expanding capacity. Current run rate ~ 8 mn./month (capacity 110 mn./year). Adding a capacity of 80-100 mn
  • After market division of cables market is showing strong growth, setting up an aftermarket fulfillment division
  • Hedges 50-60% of net currency exposure
  • There have been some scheduled changes from European clients with some orders being shifted to future months
  • Current cables margin of 20% is not sustainable because of commodity price inflation. No pass through clause in automotive division
  • Osram is acquiring from both Chennai and Noida facilities

Disclosure: Invested (position size here)


Q4 conference call notes
• Servicing to Wescon USA was challenged due to covid issues in Juarez, Mexico (was declared an orange zone). Non-automotive margins have increased from the low base in the last couple of years. Supplies made from Indian have higher margins (albeit with lower realizations; customer pays a premium for supplies from Juarez and El Paso)
• Europe demand was robust, servicing was a challenge due to logistics issue + Brexit + shortages
• Luxlite + Trifa: Inability to travel + insipid after market conditions
• Phoenix lamp: Doing very well in domestic market, facing headwinds in current quarter (Q1FY22) due to oxygen shortage
• Domestic cable division: Won prestigious awards from Honda, TVS motor and Kubota for being the most preferred supplier
• Break shoes: Secured and supplying to a new OE customer, and also to the after-market. Had some amount of success in the EV segment
• Electronics Instruments cluster (Suprajit Technology): Have a good product roadmap (electronic throttle control, gear shifters for US market, gearbox for Brazil catering to agricultural market, CSB brakes) targeting the EV space. Also working on electronic total control system for some EV customers. Wescon sales were higher due to this. Will have multiple products coming out in the next few years
• Current quarter capacity utilization is 60-65%. Capacity expansion is done with a 2-3 year perspective to ensure efficient capital allocation
• Longer term trends
o Consolidation of suppliers
o Expect to outperform broader industry by 5-10%

Disclosure: Invested (position size here)


From my previous post here…

And many more perspectives to be evaluated

** Are the acquisitions adding value or are they being value dilutive?*
** Are the new categories improving unit economics?*
** How is the company managing the global market complexity since 2016?*
** What kind of investments are needed to become a truly global player than just being a domestic player who also has international operations?*
** Is the management articulating the vision and the path to becoming much stronger than what they currently are?*
** Succession planning and professional management to help them in this journey?*

There is tangible progress on some of the points based on the past few quarters.

The acquisitions have now been stabilized with Trifa, Luxlite shedding unnecessary flab and streamlining operations over the past 2-3 years. Wescon now works at good margins (Q4 came in close to 20%) and there is a possibility that the non automotive manufacturing will be done partly based out of India rather than just the Americas. Today we have more clarity on how these acquisitions can add value going forward.

There have been some hiring decisions over the past 3-4 years where the management layer has been beefed, this is no longer a business that runs on the efforts of a single family. The latest hire is a global professional with 30+ yrs experience and strong relationships with customers in the cables segment. To strike larger and longer time deals with global OEM’s, it is very important to hire someone who has done it in the past and can speak the language that customers understand. Look back at the hiring of Indian IT Services majors through the period starting from 2014, a good bulk of the large IT deals that are materializing today is due to these hiring investments that these businesses made.

The PLD division has proven its credentials by becoming a preferred supplier to the likes of Osram, Bosch and Philips. Scaling up here should be more about capacity and operations than about forging new relationships.

Business has made a small start on product development where they are evaluating electronics components and sensors they can make and sell, they have already gotten into a couple of products like brake shoe and gearbox. These will take time to scale but a strong product development plan depends on the ability to commit capital to research and to structure deals with global makers that have the technology in place. Balance sheet is now cash surplus and funding R&D should not be too much of a challenge from here.

Possibilities look interesting from here since the existing pieces can scale well while they can invest into newer areas like a Minda Industries does.

Disclosure - Invested for self and customers, I am a SEBI registered IA and manage external capital.


Here are my notes from their FY22Q1 concall

  • Non-automotive division (SENA) is doing very well in US, focus is on going beyond cables into mechanisms, gear boxes and motor cables
  • Adding new products like electronics instrument cluster (moving from mechanical to electronic), CBS for electric 2-wheelers, brake shoes, digital speedometer
  • Digital speedometers have been completely developed in-house and currently are servicing 2 clients. Focus is on gaining market share gradually in digital speedometers which can hopefully counter reducing sales from mechanical speedometers
  • Lighting division faced pressure due to sharp increase in prices of gases like krypton (>5x upmoves) and oxygen shortage. Two wheeler sales haven’t recovered to 2019 levels and this is reflected in volumes
  • Maintenance capex is ~2% of sales
  • What is going wrong in Trifa and Luxlite? Lots of pricing pressure especially against players from China and South Korea where manufacturing in Europe along with maintaining a large frontend makes Suprajit uncompetitive price wise. Additionally, a lot of retail sales are moving online. Consequently, have scaled down EU frontend substantially and will take a call on further write-off later this fiscal. Their strategy of supplying to larger players like Osram is doing well
  • Aim to do 14-16% margins on a consolidated level

Disclosure: Invested


Here are some of my notes about Suprajit Technology Centre (STC) and the products they are working on from their AR21

  • A newly formed cell within STC has started to focus on the Automotive Electronics and specifically on Digital Speedometers
  • A project on completely indigenized “Throttle Position Sensor” is underway and the developed product is under testing with the customers
  • As a part of extension beyond Cables, end mechanisms like the seeding Gear box, Combination braking system are also being developed
  • STC successfully developed, tested and established formulae for the brake shoes during the year

Additionally, exposure to Franklin debt funds reduced to 34.785 cr. from 88.97 cr. in FY20 and no new provisions were needed.

Disclosure: Not invested


FY22Q3 concall notes

  • Domestic cable division growth has been driven by after market segment
  • The lamps division was impacted due to severe raw material pressure. Company did not pass on price increase to maintain market share and better penetrate after market segment
  • Booked $1mn cost related to Light Duty Cable acquisition, there will be further costs (smaller than $1mn) as well which are one-time in nature. Transaction should close by April 2022 (slight delay from February 2022)
  • Performance of SENA division has been strongest and this is also the segment where they have managed to pass on maximum price increases
  • Main reduction in cables in EV 2-wheeler is in throttle which can be electronic. That’s why Suprajit has launched its electronic throttle control unit
  • Current EV customer: Hero electric, TVS IQ, Bajaj. Currently in discussion with other EV companies such as Ola and Okinawa
  • Suprajit technology Centre: Focusing on high margin patented products. Looking to increase content per vehicle for digial speedo meter from Rs. 500-700 to 2000

Disclosure: Not invested


FY22Q4 concall notes

  • Aim in LDC is to cross $100mn with double digit EBITDA in next couple of years
  • Facing demand issues in 2-wheelers in India and in EU
  • Have got some price increases from Tier one customers
  • Phoenix lamps division has shifted towards majority sales coming from after-market vs OEMs. Took margin hit as company wanted to maintain market share. Now passing on price increases
  • STC division is positioned towards 2-wheelers, 3-wheelers and non-automotive applications. Not focusing on passenger cars for now. Current order book is 100 cr. Focusing on digital instrument cluster, rotary sensor for e-throttle control and braking system
  • Halogen bulbs market positioning: Philips is #1, Phoenix is #2 and OSRAM is #3
  • Maintain growth guidance of 5-10% over industry

Disclosure: Not invested


Concall notes from the past 2 quarters.


  • Past management of LDC didn’t go to customers for price increase which Suprajit management is now undertaking. Additionally, they gave price increases to their suppliers.
  • Customers will also come back to ask for price reduction if commodity costs keeps softening
  • Phoenix lamps division: Have made price increases in after-market in March 2022. Have also passed on price increase to a majority of OEMs except one. Not everything has kicked in numbers yet. Game remains to be the last man standing and it is still sometime away


  • Phoenix lamps division: Margin challenge continues with difficulty in passing price increase in after market segment
  • Hungarian plant: facing high wage pressure, inflation and currency depreciation
  • Expect profitability in Q3 in LDC and double digit margins by Q4FY24. Cut FY23 revenue guidance to $90mn
  • LDC: 21% (Hungary) + 20% (China) + rest (Mexico)

Disclosure: Not invested (no transactions in last-30 days)


19th June23 : Suprajit Engineering —CNBC Interview with MD & CEO :

–Margins under pressure in FY23 which was at 11% Consolidated EBITDA Margins

–EBITDA margin will go up to 12-14% in FY24 but historically we have talked about 13/15% --that gap of 100Bps is due to our new acquisition LDC & that division will have one more year of consolidation this year which will be in single digits ,hence a drag on consolidated margins for this year. Next year we will be 13/15%

–Demand Trends— earlier Industry was growing at 5/10% and we were growing faster than that and now the trend for FY24 —Newspapers are saying MAY no.s are interesting but the trend for the year will be single digit growth , the PV will have a strong mkt , it will grow well & it will be historic high.
–2W is not out of the woods, there is structural shift here from aspirations & Point of EVs --that will continue to struggle. The aspiration is to buy higher CC and go away from 100/150/200 CC & go higher —so that is where strong growth is happening & if you look at internationally, China had 40Mn 2W biz which is now 25 Mn 2W biz --there PV is world’s largest. We have seen the shift starting in 10 yrs back and derisked our biz from what was 90% 2W is just 25% Biz & we are further derisking it by strong entry into electronics segment —we are protecting ourself pretty well

–Non-Auto has some weakness i.e global Biz

–EV --FAME subsidy issue the biz will be low but it will settle down after a few months and grow

–We will continue to outperform --we will have a double digit biz growth with Margin improvements

–LDC —We are tgting 100Mn$ biz for FY24 & margins which were 1% in FY23 will grow to mid-to-high single digits by FY24. Next yr will be double digit --that is the road map. We are winning new contracts in the controls division , LDC is getting merged as controls division and we are getting strong new biz , that will drive the margins in next few yrs.

–Non-Auto Biz outlook for FY24 —In our 4 segments like Auto / Non Auto , 2W and after market --the most challenging of them is the non-auto which is 20% of our biz . In NA and Europe mkts the non-Automotive products are discretionary products i.e lawn mower , sports vechicle , outdoor sports vehicles–these get hit by the economic slow-down & that is happening. Not seeing growth in this segment.
–Overall we see a double digit growth for FY24 although globally , the growth will be 0%
–Aftermkt cable division ? —We had 3/4 separate facilities which we have regrouped into one large facility --that is helping us streamline the segment , this will improve the margins of ops.

–Electronics Division --its our new segment, we have developed home grown products in our tech center which is being commercialized & growth will be like any start-up i.e very high growth on a small base. We are getting new contracts in 2W electric and 3W electric Vehicle space.

Dis: Not invested


Company came out with flattish results, their non-automotive business was very soft and is expected to be soft in Q2. Company appears very bullish on new product development front, with them getting into electromechanical actuators which have 8-10x value of normal cables. They also gave detailed disclosures around order book. Concall notes below.


  • Domestic: After-market cable division was flat, demand from 2-W has not recovered. 2-W EV market is slow due to FAME subsidy reduction. Passenger vehicle has shown good growth
  • Non-automotive business saw decline due to lower demand. This will persist next quarter, hoping for recovery in H2FY24
  • Secured order wins in cables and electromechanical actuators. These actuators have much higher value addition (8-10x value of a normal cable)
  • Supply 1.5 mn+ actuators to major passenger vehicles. Starting supplying 2 actuators to a leading 2-W EV company in India, one for steering lock and another for seat opening actuator
  • Seeing traction in actuator business in 4-W, from tier-1 seating manufacturers, who are looking at them as local suppliers
  • Trifa winding down may impact sales temporarily, as existing customers need to be migrated to Luxlite. Also incurring some wind down charges
  • Have introduced LED in India and in global market through Luxlite. Confident to deliver double digit margin in PLD division
  • Couple of European suppliers are going out of business in lamps, they have started buying from Suprajit
  • Other products apart from Digital clusters and actuators: braking-related systems
  • Electronic division is seeing very good customer traction, won orders from India’s top EV 2-W. Content per vehicle is much higher in EVs. Confident of reaching 100-150 cr. with current order book
  • Confident of double digit margin in Electronic division
  • China: have identified a new location, hired a new general manager. Relocation should be done by January 2024
  • Apart from Hilex, Suprajit is the only global cable maker to offer solutions and diverse capabilities, including global manufacturing footprint
  • Engineering capabilities: Capable of supporting customers from conceptualization to commercialization in a very short lead time
  • Maintain double digit growth for control division despite slow Q1

Disclosure: Not invested (no transactions in last-30 days)