Tesla opened its showroom in Mumbai recently, and this key component supplier to Tesla, Suprajit Engineering, got an upgrade from Emkay. The brokerage house recommended Buy and set a price target of Rs 550. This implies 22% upside potential for the Suprajit Engineering share price. They consider the valuations attractive at a 21x price-to-earnings ratio compared to average domestic peers available at 28x.
Emkay on Suprajit Engineering: Potential for further upside
According to Emkay, Suprajit Engineering, through multiple acquisitions, “has consolidated its positioning in control cables. It occupies the No 2 spot globally after Hilex, a major Japanese company working mainly with Japanese OEMs.
The company has a presence across geographies, and “sharp improvement in profitability (double-digit margins in H2FY25) led by strategic initiatives. The domestic business, comprising 48% of revenue and centred around cables, is slowly moving ‘beyond cables’, led by breakthroughs in brakes and electronics.”
Emkay projects “48% EPS growth over FY25-FY28 with 19% RoE. Optionalities (brakes, growth acceleration in PLD) are yet to be built in and provide further upside.”
Emkay on Suprajit Engineering: Global scale in place
Suprajit has many marquee global names in its list of clients, from GM and Mercedes to Tesla and BMW. Emkay highlights that the “global scale in place” for the company and the “structural efforts driving profitability improvement” will aid future growth. Major acquisitions including Wescon, Kongsberg LDC, SCS in cables; Phoenix Lamps, the company occupies No 2/3 position globally in control cables/lamps “with scope for share gains on continuing industry consolidation, its cost leadership, and widespread footprint,” added Emkay.
Suprajit Engineering’s strong track record and order wins, “aided by homegrown product developments in electronics and ‘e-throttles’ for a large Chinese EV OEM, would drive growth in global business (SCD) despite the challenging environment,” Emkay pointed out.
The structural measures over the past 5 years, including operational restructuring and partial manufacturing shifting to low-cost locations for its global business, “are starting to deliver, with double-digit margins in H2FY25 despite tough macros,” Emkay highlighted.
Emkay on Suprajit Engineering: Domestic business transitioning ‘beyond cables’
The Emkay report states that the domestic business growth also supports their positive recommendation on Suprajit Engineering. The company has an 80% share in two-wheeler OEMs in terms of component supply, and its “forward-looking R&D/tech investments and strong execution are being increasingly recognised by OEMs, resulting in order wins across electronics-based areas like brakes, clusters, and actuators,: Emkay explained.
The company “aims to be a one-stop shop due to the large TAM (potentially higher than in cables) and OEMs’ diversification interest; it is also exploring ways to accelerate growth to double digits,” as per Emkay. They are confident about Suprajit Engineering delivering “sustained double-digit domestic growth ahead even if the industry grows in single digits.”
