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Axis reiterates ‘Buy’ rating on Suprajit Engineering, revises target price to Rs 249

Suprajit acquires 100% stake in Wescon Contols for $ 44.4 million. Wescon is a leading manufacturer of control cables in outdoor power equipment space with industry-leading profitability.

By: | Published: September 21, 2016 6:11 AM

Suprajit acquires 100% stake in Wescon Contols for $ 44.4 million (trailing 6.5x EV/EBITDA). Wescon is a leading manufacturer of control cables in outdoor power equipment space with industry-leading profitability (18% EBITDA margin). We believe the acquisition is a strategic fit, as it will further diversify revenue; increase focus on Americas; create engineering synergies & cross-selling opportunities.

We believe next leg of growth for Suprajit is likely to be driven by gaining share in global auto and non-auto cables (incl inorganic), increase in content supplied for CBS/ABS in domestic 2Ws; focus on aftermarket space (both lamps & cables). We incorporate Wescon in our estimates and reiterate buy with a revised target price of `249 (20x FY18E EPS) vs. `220 earlier.

Wescon is one of the largest control cable supplier to non-automotive segment (sells to OEMs only) based out of USA. Its customers include marquee names like MTD, Husqvarna, John Deere, TORO, Honda, etc. The top 5/10 customers account for 50%/70% of revenue with none contributing >25% of revenue. Post this transaction, Wescon will be able to source raw materials from Suprajit’s supply chain, which are more cost-effective.

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