Broker's call: Suprajit Engineering (Buy)

Target: ₹280

CMP: ₹212.85

Suprajit Engineering Ltd (SEL) is a key beneficiary of robust production growth in domestic 2W/4W segments with 45 per cent + revenue exposure and high market share in cables and bulbs. As per our checks, domestic after market segment is also witnessing strong demand.

The US non-automotive cable business is benefitting from healthy order book as OEMs ramp-up. Second round of Covid infections have slowed momentum in EU. However, as per estimates, 15 per cent y-o-y growth is expected in EU light vehicle production during CY21. The management has highlighted that the current product offerings will remain relevant for EVs.

SEL has consistently passed on commodity price hike to the OEMs. Long-term margin expansion will be driven by restructuring of international entities and cost reduction initiatives.

We expect revenue/EPS CAGR of 8.6 per cent/14.4 per cent over FY20-23E. Strong cash flows and minimal capex requirement would further strengthen its robust balance sheet.

We roll forward to Mar’22 (Sep’21 earlier) with a fair value of ₹280/share (1-yr forward PE of 20x). Continued under-performance at restructured international subsidiaries and currency movement are the key risks to our call.