SUPRAJIT - Suprajit Engineering Ltd. Share Price

The management of Suprajit Engineering Limited presented a robust outlook during the Q4 FY 2025 earnings call. They expect double-digit revenue growth for the group in the coming year, targeting EBITDA margins between 12% to 14%. Notably, the outlook excludes the SCS (Suprajit Control Systems) business, which is projected to achieve a revenue of approximately USD 40 million in FY 2026.

Key forward-looking points highlighted by management include:

1. Revenue Growth: The management anticipates strong growth across different divisions, particularly in the Suprajit Controls Division (SCD) and Domestic Cable Division (DCD). They expect traction in multiple regions, including Hungary, Mexico, and China.

2. Order Book Strength: A significant order book, especially in the automotive segment, is anticipated to drive growth. The management has seen positive developments in securing contracts in emerging markets, such as a notable win with a Chinese EV OEM.

3. Braking System Evolution: The management is focused on expanding their braking systems business, transitioning from being a cable supplier to a comprehensive braking solutions provider. They have launched new braking products for both ICE and EV OEMs.

4. Operational Efficiency: SCS operations in Morocco are stabilizing, and the company is focusing on synergies and cost reductions, expecting to turn EBITDA positive by Q4 FY 2026 after integrating recent acquisitions.

5. Tariff Mitigations: The management outlined strategies to manage tariff impacts, such as passing costs to customers and relocating sourcing from China to more favorable countries like India and Morocco to mitigate duty risks.

Overall, the management remains optimistic despite global market challenges, underscoring their commitment to operational excellence and strategic growth.

Q&A Section Summary:

1. Question: "Considering the poor export situation, where do you see the top line moving for SCS in the next 3 years? How soon and confident is the team in taking EBITDA positive?" Answer: Our expectation for SCS is stabilization and consolidation this year. Despite European market challenges, order wins have been strong. We aim for SCS to reach EBITDA positivity by Q4 FY '26, targeting around USD 40 million revenue for this year.

2. Question: "What was the one-off expenses and restructuring charges booked for Q4 and FY '25? Can you help us understand customer write-offs?" Answer: Write-offs included amounts from insolvent customers, notably one European client. One-off expenses amounted to around INR 25-30 crores due to various restructuring and SCS transaction costs. Some write-offs will continue, but they'll taper off after restructuring.

3. Question: "Can you provide insights on tariffs and whether they have been passed on to customers?" Answer: Most tariffs have been passed on to customers, though timing can affect margins temporarily. Some duties were alleviated with customer agreements, but there's always uncertainty related to tariff changes, which can impact our business.

4. Question: "What are the expected growth drivers for the PLD over the next 5 years?" Answer: Growth will be driven by expanding our aftermarket presence, launching new products, and enhancing existing automated manufacturing lines. The Trifa brand has shown momentum in the aftermarket, which adds to our growth prospects.

5. Question: "How do you see the opportunity from the Chinese EV OEMs?" Answer: The partnership with a major Chinese EV OEM opens doors for us, not just in China but potentially in Europe as they expand. We aim to position ourselves with this customer across different regions, leveraging this relationship for future orders.

6. Question: "Can you provide more clarity on the growth profile and traction in electronics, especially with EV customers?" Answer: Write-offs have been addressed, and while the slowdown affected our order book, we've replaced some lost orders from new EV customers. We're also securing business with ICE platforms, and internal supplies bolster our capacity utilization.

7. Question: "What factors will limit achieving normalized margins in SCD?" Answer: Unpredictable tariff changes pose the biggest challenge. While we anticipate growth and stable margins, sudden shifts in tariffs can impact our pricing strategies until adjustments are made with customers.

8. Question: "What is the expected capex for the coming fiscal year?" Answer: The total capex budget is set at INR 160 crores due to the planned investments. This is a conservative estimate following last year's underspending due to market uncertainties.

9. Question: "Can you provide geographical revenue breakdown, particularly for India, Americas, and Europe?" Answer: We announce results by division rather than geographical specifics. Each division operates across multiple geographies, complicating granular revenue breakdown without detailed internal reporting.

10. Question: "Why did we see an increase in tax expenses for FY '25?" Answer: The increase in tax expense to INR 98 crores is mainly due to gains from mutual fund redemptions, which incurred tax in the current year.

This summary captures the essential questions and responses from the earnings call, providing insights into operational performance, growth strategies, and sector-specific challenges.