Brokerage firm Emkay Global Financial Services has initiated coverage on Suprajit Engineering stock with a buy call and a target price of ₹440, implying a 33% upside.
"We initiate coverage on Suprajit with a buy recommendation and Sep-23E target price of ₹440, based on DCF methodology which implies a 20 times forward P/E (price–earnings ratio). Our target multiple is broadly aligned with the company’s 10-year average P/E. Suprajit is attractively valued on ROE-adjusted PEG at 0.6 times and scores above the competition (average at 1.5 times)," said Emkay.
The brokerage firm said Suprajit’s auto cable segment saw a 9% revenue CAGR in FY16-22 against flat volumes for the underlying industry driven by market-share gains of 1-3% annually across the auto/non-auto segments.
"We expect auto-cable outperformance to endure, with 12% revenue CAGR over FY23E-28E against a 6% volume CAGR for the underlying industry," said Emkay.
The stock hit its 52-week high of ₹478 on January 4, 2022, and at present, the stock is 31% down from that level.
Emkay highlighted that during the past two down-cycles (FY07-09, FY19-21), Suprajit’s revenue growth was positive, thanks to: (1) the company increasing its wallet share; and (2) its diversified revenue base (healthy exposure to the aftermarket segment). The RoE (return on equity), too, was healthy, at over 15%.
The brokerage firm expects the auto cable segment to register a 29% CAGR over FY22-25E (organic revenue CAGR of 13%), led by (i) upcycle in the underlying industry (8% volume CAGR), (ii) increased CPV, driven by new products/premiumization, (iii) market-share gains on account of competitive pricing, and (iv) Kongsberg’s LDC (LDC) acquisition (nearly ₹5.5bn revenue accretion).
Emkay said CPV improvement is likely to be driven by new-product forays, such as digital speedometers, electronic throttles, actuators and allied cable products. This should more than offset the CPV reduction because of the transition to electric vehicles (EVs).
For the non-auto cables segment, Emkay expects a 24% revenue CAGR over FY22-25E (organic CAGR of 14%), led by: (1) upcycle in the overseas industrial segment – outdoor power equipment (8%), (2) market-share gains in new segments such as agriculture, construction, power sports vehicles, and medical, and (3) the LDC acquisition ( ₹1.1bn revenue accretion).
The lamps segment may post a 9% revenue CAGR over FY22-25E, aided by the upcycle in the underlying industry (7%) and a higher wallet share in the halogen lamps segment, owing to Industry consolidation.
"We expect market-share gains to offset the CPV loss, which was due to industry shift towards LED lamps," said Emkay.
According to a MintGenie poll, 6 analysts have a ‘strong buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.
