Suprajit Engineering Ltd Q1 FY23 Result Updates.
Poor operational performance of Phoenix Lamps division.

Suprajit Engineering Ltd reported a net profit of Rs. 27.3 crores, declined by 36.7% YoY from Rs. 43.2 crores and down by 43.8% QoQ from Rs. 48.6 crores. The net profit margin came at 4.2%, down by 770 bps YoY and down by 538 bps QoQ.
The total income stood at Rs. 645.2 crores as compared to Rs. 361.6 crores up by 78.4% YoY and 27.5% QoQ from Rs. 505.9 crores. Gross margin for the quarter is 40.4%, down by 428 bps YoY and 677 bps QoQ.
The Earnings before interest, tax, depreciation and, amortization is at Rs. 54 crores as against 49.2 crores in June 2021 and 76.6 crores in the March quarter.
Q1FY23 was a challenging quarter, mainly due to initial sharp hiccups witnessed post the acquisition of LDC and poor operational performance of Phoenix Lamps division.

Phoenix is facing input cost pressure due to higher gas prices.

Domestic auto cable performance was good despite muted 2W industry performance. It was able to pass-on material cost increase to OEMs and aftermarket.
Exports challenges continue w.r.t. the demand & supply situation along with a cost increase due to geopolitical situation. On the positive side, Suprajit received price increases from most of the customers, and container costs have come down from the peak. In addition, the company continues to receive new businesses from diverse customers across geographies.

For non-auto cables, the performance is stable and margins are in-line with expectations. YoY EBITDA margin declined by 510bps due to timing issues and one-offs. In the long term, the margin will be in-line with the past. There is a good order backlog in Wescon Controls, but some impact of lag in the price pass-on, impact of accelerated dispatches from India, paid higher freight charges and has some shortage of labors over there.

The growth of Phoenix Lamps division was good, but margins remain under pressure. The main issue is that the input cost increased due to 20x jump in rare gas prices. The major source of these gases are Russia and Ukraine. While, China and South Korea also supply these gases.
The challenges faced by Light Duty Cable (LDC) division in Q1 were the China lockdown impact; plants in China were operating at less than 50% utilization in the 1st quarter. Earlier management has not taken price increases from customers, but given price increases to its suppliers and the Hungarian currency depreciated by 30%, among other smaller issues. There is a lag effect of cost pass-on, which previous management has not done. LDC business impacted due to 1) China lockdown, 2) utilization dropped to below 50%, 3) Hungarian plant head left immediately post the acquisition, 4) Hungarian ‘Forint’ depreciated by 30% and 5) most important earlier management has not taken a price increase from customers after giving price increase to its suppliers.

The company has about Rs 2.71bn of cash in hand, which invested in MFs. The acquisition cost is included in other expenses. Other income includes forex gain as USD appreciated. Capex will be Rs 1.4bn for India operations and normal capex of Rs 160-240mn for LDC, total capex will be Rs 1.56bn. The revenue from throttle cable is approx. 15% of the total cables revenue.

The shares of Suprajit Engineering Ltd are trading at Rs. 338.40, down by 0.03%.

Valuations:
The return on equity (ROE) is 15.9% for the quarter ended June 2022. The price-to-earning (P/E) ratio stood at 29.3. The return on capital employed (ROCE) for the company is 17.3%. The price to book value of Suprajit Engineering Ltd is 4.32. The EV/EBITDA is 14. EPS during the quarter came at Rs. 11.4. Gross debt is Rs 5.37bn as on 30th June 2022, increased from Rs 3.11bn as on 31st March 2022. It is due to debt taken for the acquisition of LDC.