SUPRAJIT - Suprajit Engineering Ltd. Share Price

In the Q4 FY26 earnings call, management provided an optimistic outlook for FY27, forecasting double-digit revenue growth for the group. Specifically, they expect consolidated EBITDA to range between 12% to 13.5%, inclusive of the new Global Cables and Mechatronics (GCM) division which is anticipated to see significant EBITDA margin improvement from 6% to a range of 10% to 12%.

Management highlighted several key forward-looking points:

1. Revenue for the GCM division is expected to grow at double digits, aided by a strong order book, particularly in India and China.
2. The India Cables and Mechatronics (ICM) division also projects double-digit growth, driven by market share gains and Beyond Cables projects, with stable EBITDA margins.
3. The Suprajit Controls division is anticipated to have another strong year, maintaining double-digit growth, with margins expected to align with FY26 levels.
4. A capex budget of INR 200 crores is allocated for various initiatives, including the completion of the STC building and capacity expansions, particularly for SCD.
5. Management anticipates a recovery from tariff-related issues over the coming months, expected to positively impact financial performance.
6. The restructuring efforts have turned SES EBITDA positive in Q4, indicating operational improvement and better performance moving forward.

Key numbers provided included a solid consolidated profit before tax of INR 97 crores for Q4, nearly double that of the previous year, a full-year revenue increase of 17%, and an operational EBITDA growth of approximately 19-20%. The management's confidence is tempered by potential geopolitical risks in the Middle East and commodity price fluctuations, but overall, they see the company positioned favorably for growth in FY27.

1. Question: "We gave guidance of double-digit growth and margins improving to about 12.5-13%-plus levels. Now, there's a cost inflation due to Middle East war. So, is it more of back-ends? Do you think that the margin improvement will play out for us?"

Answer: "We have confidence in achieving double-digit growth based on contracts already won. However, delays due to global events can impact timelines. For margins, we anticipate passing increased commodity costs to customers unless geopolitical issues escalate. Our guidance is cautious, factoring some potential delays, but we believe it is achievable considering current market conditions."

2. Question: "On the India business, if you look at the price reduction impact, what would that be? And adjusting for this, what growth would we have seen?"

Answer: "If we account for the price reductions, India's business growth would have approximated 12-13%. Excluding the underperformance of the Phoenix Lamps division, our core divisions performed strongly and grew in line with or above industry averages."

3. Question: "What opportunities do you see from the Technical Collaboration Agreement for brake calipers?"

Answer: "Our collaboration focuses on developing proprietary calipers for Indian market two-wheelers. This partnership opens avenues with multiple OEMs, leveraging the expertise of our global partner, enhancing our product portfolio in the braking segment."

4. Question: "Is there any resolution on tariffs under recovery in North America? What are the demand trends in that segment?"

Answer: "We have obtained agreement on tariff recoveries, but the timelines for payments remain uncertain. The non-automotive business in North America has seen muted growth, influenced by broader market conditions, which we are continuing to monitor."

5. Question: "Can you share more details on your INR 200 crore CAPEX plan for FY27, especially for the Electronics Division?"

Answer: "Of the INR 200 crore CAPEX, approximately INR 80 crore is allocated for India operations, INR 50 crore for global operations, and INR 30-40 crore for a new Electronics Division building, aimed at modernizing our manufacturing capabilities over two years."

6. Question: "Can you comment on the capacity utilization for the Morocco factories post-positive EBITDA?"

Answer: "Currently, our Morocco facilities operate efficiently, primarily in one shift, effectively meeting demand. We anticipate maintaining this capacity without underutilization issues, ensuring we can fulfill orders as needed."

7. Question: "What will be the effective tax rate for FY27 and FY28?"

Answer: "We expect the effective tax rate to remain consistent at approximately 27% for both FY27 and FY28, as the structure has not changed significantly from the previous year."

8. Question: "Can you explain the potential for growth in the Chinese market, especially with the new EV customer?"

Answer: "Our current aim is to secure around 20% of business from this burgeoning EV customer within two to three years. The dynamics are favorable due to their global ambitions, allowing us to align closely with their growth trajectory."

9. Question: "How do you see the margins evolving for the Electronics Division over the next two to three years?"

Answer: "We anticipate maintaining comfortable double-digit margins in the coming year. The evolution of margins will depend largely on product mix and ongoing investments in R&D for innovative technology enhancements in our offerings."

10. Question: "Can you provide clarification on the revenue state of the Domestic Cable Division amidst challenging market conditions?"

Answer: "Despite challenges, if we exclude the Phoenix Lamps division's performance and account for price concessions, the Domestic Cable Division remains robust with margins intact, paralleling or slightly exceeding industry growth rates."