Suprajit Engineering (SEL) consolidated 4QFY18 Rev/EBITDA/PAT numbers were below estimates but margin beat estimates. Net sales at Rs 406 crore led by 18% growth in standalone cable business, and +9% growth in Wescon business marginally offset by muted growth in Phoenix. Consolidated EBITDA stood at Rs 73.4 crore with margin at 18.1%. Margin recovered sequentially led by 257bps margin improvement by Phoenix and strong margin of Wescon. SEL has a proven track record of prudent capital allocation across its organic and inorganic capacities and requirements, reflecting in strong return ratios (average ROE of 21% over the last five years). However, we believe Phoenix Lamps’ (PLL) business has been a drag on the overall financials for quite some time. The New H7 product line has not helped significantly in boosting sales in the export aftermarket.
Management expects cable business will continue to outperform industry growth. In FY18 the company benefited from strong 2W industry growth (commands a significant 65-70% market share). SEL has a smaller market share (25%) in the domestic PV segment (mainly supplies to M&M and Tata Motors), however the company is looking for opportunity to scale up its business with the market leader Maruti Suzuki.
The current capacity utilization in cable segment has reached 85% and the company is looking to expand its capacity from 250 million to 300 million in next two years. PLL disappointment was largely driven by lack of new orders in Europe, due to recent product related issues. H7 line’s capacity utilisation currently stands at 45%. Management expects utilisation level to reach 60-70% in the next one year For Wescon, the company has achieved its annual revenue guidance for FY18 and guided for 10% growth with 15-16% margin in FY19.