Suprajit Engineering Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
Suprajit Engineering Limited
Registered & Corporate Office: #100 & l 01, Bommasandra Industrial Area, Bengaluru - 560 099. Tel: +91-80-43421 l 00, Fax: +91-80-27833279 E-mail: info@supraJit.com Web: http://WWW.suprajlt.com Corporate Identity Number (CIN) : L29199KA l 985PLC006934
May 30, 2022
BSE Limited Department of Corporate Services P. J. Towers, 25th Floor, Dalal Street, Mumbai- 400 001 Ref: 532509
National Stock Exchange of India Ltd Exchange Plaza, C-1, Block-G, Bandra Kurla Complex, Bandra (E) Mumbai- 400 051 Ref: SUPRAJIT
Dear Sirs,
Sub: Investors conference call Transcript
Transcript of the Investors conference call held on Thursday, May 26, 2022 is enclosed herewith.
Same is also available on the website of the Company at www.su pra jit.com.
Kindly take the aforesaid information on record in compliance of SEBI (Listing Obligations and Disclosure Requirements), Regulations 2015.
This is for your information & record.
Thanking you
Yours faithfully For Suprajit Engineering Limited
~1
Medappa Gowda J CFO & Company Secretary
Encl : as above
~ Suprajlt
“Suprajit Engineering Limited Q4 FY2022 Earnings Conference Call”
May 26, 2022
~,suprajlt
;\N;\NDR ;YI HI
ANALYST:
MR. VIJAY SARTHY – ANAND RATHI SHARES & STOCK BROKERS
MANAGEMENT: MR. K. AJITH KUMAR RAI – FOUNDER & CHAIRMAN –
SUPRAJIT ENGINEERING LIMITED MR. N. S. MOHAN – MANAGING DIRECTOR & GROUP CHIEF EXECUTIVE OFFICER – SUPRAJIT ENGINEERING LIMITED MR. AKHILESH RAI – DIRECTOR & CHIEF STRATEGY OFFICER – SUPRAJIT ENGINEERING LIMITED MR. MEDAPPA GOWDA – CHIEF FINANCIAL OFFICER & COMPANY SECRETARY – SUPRAJIT ENGINEERING LIMITED
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Moderator:
Ladies and gentlemen, good day and welcome to the Suprajit Engineering Limited Q4
FY2022 Earnings Conference Call hosted by Anand Rathi Shares & Stock Brokers. As a
reminder, all participant lines will be in the listen-only mode and there will be an
opportunity for you to ask questions after the presentation concludes. Should you need
assistance during the conference call, please signal an operator by pressing “*” then “0” on
your touchtone phone. Please note that this call is being recorded. I now hand the
conference over to Mr. Vijay Sarthy from Anand Rathi Shares & Stock Brokers. Thank you
and over to you Sir!
Vijay Sarthy:
Thanks Rutuja. Good morning all. On behalf of Anand Rathi, I welcome you all to the Q4
and full year conference call of Suprajit Engineering Limited. From the management side,
we have Mr. Ajit Kumar Rai, the Founder and Chairman, Mr. N. S. Mohan, MD and Group
CEO, Mr. Akhilesh Rai, Director & Chief Strategy Officer, and Mr. Medappa, the CFO and
Company Secretary. As always we will start with the brief about the results and then we
will follow it up with Q&A. Thank you and over to you, Mr. Ajit!
Ajit Kumar Rai:
Thank you Vijay and good morning to you all. Welcome to this results concall for the Q4 as
well as the annual results of the Suprajit Engineering. I would like to thank Anand Rathi for
hosting this for Suprajit. I would as usual start with our team to make brief comments on the
year's performance and then I will conclude with my few comments and then we will have
the question and answer. With that I will hand over to Mohan to start his brief on the
operational performance of the group overall. Mohan!
N. S. Mohan:
Thank you. A very good morning to everybody. What I will do is as usual I will give you a
kind of a general overview on the business, then I will quickly move on to give you an
update on our divisions.
First of all as you are all aware the chip shortages woes continues and there has also been a
strong uptick in the commodity prices, so overall supply chain area continues to be a
challenge but also container and shipping costs being high and this also adds in terms of the
uncertainties that has built in and the delays that are happening in shipments.
On the domestic front, the entry two-wheeler segment is extremely tepid and therefore it has
got some amount of bearing. Despite all these kind of headwinds that we have at Suprajit, I
think we have done well on the domestic front and the US market has shown some growth.
New markets have been affected both from supply chain, Ukraine and also the demand
issue so there is a three-pronged I would say problem at EU.
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Now let me get into the individual divisions. Let me start with SENA or Suprajit
Engineering Non-Automotive which is WESCON and our unit nine. Like I mentioned you
know we have good market presence in US market. The US market is doing good. We have
a strong order book and the issue there has been more a supply chain issue and we have had
the order backlog with our customers. Labor availability at our Wichita and Juarez plants
have also added to the complex what I would say resource management; however, the order
book is pretty good. We have been able to successfully claw back on some of the cost
overruns that we have had and with some of the customers we have already got the price
increase and with some we are still negotiating, so that gives you a kind of an update on
SENA and I will move to our automotive exports.
Here like I was telling there was a huge amount of uncertainty in the European region and
all our major customers both OEM and tier one’s primarily because of the Ukrainian War
and its associated fall outs, what I would say but mainly we did better due to our new
programs which we had won which had started getting delivered but obviously the volumes
were not yet to the levels that we expected. There have been inventory management
challenges between our Slovenia warehouse and our plant Suprajit Automotive at the
Doddaballapur but having said that I would say that we have maintained that track record as
a reliable vendor for all our customers in EU and we have not had any issues in making
supplies to them.
On the pricing front, we got some price increases with some of the tier one customers and
we are also in discussion and negotiation with some of the major OEMs. It is taking time
but I am confident that we are seeing the light at the end of the tunnel. We should be able to
wrap it up in this quarter.
Moving on to Phoenix Lamps Division, this was the most affected division in our last year
and more so in the last quarter of the year; however, we still managed a growth in revenue
but at the price of profitability. If I remember right, I had mentioned this that due to certain
strategic reasons, we did not pass on the price to the market in the previous quarter when I
was talking in the last quarter; however, now that it is on the agenda we have already raised
the prices in the Indian aftermarket in this quarter. We have also got certain price increases
from some of the OEMs and some of the tier ones and with the others the negotiations are
still on.
Moving on to Phoenix Lamps but aftermarket of Phoenix Lamps, this continues to be our
mainstay business and it has shown I would say a very good traction. If I can recollect what
was at around 60% contribution to our domestic sales five years back now has become
about 75% of our sales with the advent of LED into the OEMs, I would say that this was
expected and it is happening as we had planned and expected.
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Our drop in LED solution has also been very well accepted in the aftermarket and it has got
very good traction there. Very specifically on PLD the commodity prices are still not
benign. The increases are very steep and we are testing the price elasticity in the
marketplace for our products, so we will see to what extent we should be able to move our
prices up. Luxlite and Trifa continues to have a headwind and there again we have asked for
price increases with our customers.
With that I move on to the Domestic Cable Division. Domestic Cable Division continues on
a path of good profitability and also with reasonably good growth in what I would call it is a
tepid market. This has been primarily due to our good product mix, strong after market and
also growth with certain customers and new added programs. Just to add to that our
aftermarket sales also grew very smartly in our cable division. So that completes all the
updates in the divisions.
Now I will just give a very quick update on what is happening at our technology center. The
work here has been extremely good and we have come out with products that interests the
market. We have got significant interest in our digital and electronic space and also for our
braking products. As you would notice that both electronics area and braking products that
we are looking at are powertrain agnostic therefore that is where we are focusing on and our
strategy to be growing beyond cable, I would say silently taking shape within Suprajit.
Moving on to the investments, board has approved our plan to invest in electronics, so now
a new SMP line with new digital cluster assembly and e-throttle control lines are being
invested in and we will be commissioning it in July. We are on track with our expansion at
Narasapura. This is basically to serve a customer with additional lines and we are also on
track with our, what we call it aftermarket fulfillment center at Bommasandra.
Last year we had made some amount of capacity enhancement at Phoenix but now with the
completion of that additional capacity at Phoenix, we have kept the capex at a very, very
minimal level at Phoenix and in the Automotive Cable Division and also in the Domestic
Cable Division, our journey on automation and also the introduction of industry 4.0 and
digitization continues. With this I complete my update.
Ajit Kumar Rai:
Thank you Mohan. Akhilesh will you give a quick update on LDC?
Akhilesh Rai:
Good morning everyone. As you know on April 6, 2022 Suprajit successfully closed the
acquisition of Kongsberg’s Light Duty Cable Division. Of course LDC has been facing
similar global headwinds both in terms of commodity price and slightly muted demand and
customer price increases will play an important role this year. The China plant has also had
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to run at reduced capacity during the lockdowns in Shanghai but the team, are confident that
there will be a strong rebound with a lot of pent-up demand seen from customers.
The immediate finance and IT integration of LDC is going well and should be completed on
time. We expect all key IT systems to be integrated into Suprajit in the first half of this year.
Further, we have also kicked off longer term integration project and called it Project Max.
Across all departments this will help extract synergies between LDC and Suprajit. This
should bring a strong focus to the LDC organization and business, alignment with the
Suprajit way and opportunities to better serve our global customers.
All customers of LDC are working closely with Suprajit and we are happy that they have
clearly seen Suprajit now as a preferred global control cable supplier which is one of those
key goals that we were looking at when we decided to acquire this company. With that I
will hand it back to you, Chairman.
Ajith Kumar Rai:
Thank you Akhilesh. Medappa!
Medappa Gowd:
Good morning everyone. We announced the financial results for the year ended the March
31, 2022 yesterday. The consolidated revenue we have recorded a growth of 12% with the
Rs.1840 Crores for the year against Rs.1641 for the previous year and consolidated
EBITDA was Rs.260 Crores as against Rs.237 Crores for the previous year recording
growth of 10%.
The standalone revenue was Rs.1271 Crores against Rs.1212 Crores with a growth of 14%.
The standalone operation EBITDA was Rs.213 Crores against Rs.181 Crores recorded a
growth of 18%. The overall group debt level was Rs.312 Crores. It has reduced in fact from
Rs.327 Crores from the previous year and we have a cash balance of Rs.261 Crores
invested in the form of mutual funds as March 31, 2022 and any further queries you can
approach me even after the call. Thank you.
Ajith Kumar Rai:
Thank you Medappa. Just to add that you all know the tough year we had not just in the
beginning the COVID situation, but subsequently the commodity issues and global
headwinds in terms of some kind of a downtrend in the automotive business. With that
background, I think Suprajit’s performance of growing at about 13% and EBITDA still
above 14% I would think is a very satisfactory outcome. We continue to have these
headwinds in this year but I am pretty sure that our team is working as usual to ensure that
we will get optimal results so with this I will give it hand it over to the moderator to start
collating the questions and we will answer them as it comes. Thank you over to you. Over
to you moderator!
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Moderator:
Thank you very much. We will now begin the question and answer session. Ladies and
gentlemen, we will wait for a moment while the question queue assembles. The first
question is from the line of Aashin Modi from Equirus. Please go ahead.
Aashin Modi:
Good morning, Sir. Congratulations on decent set of numbers and on completion of LDC’s
acquisition. Sir my first question would be regarding the new products which you are
developing at STC? We had been on testing so could you give us a color on the current
order book of STC and now since we are setting up a new line for each order in digital
cluster how are the orders over there?
Ajith Kumar Rai:
I will just give you a quick answer and then ask Mohan to give a little more detail. I think
we did make an announcement that some time ago that we have received significant orders
in excess of Rs.100 Crores for the STC products and based on that kind of a comfort, we
have now setting up a small division of electronics and we are already doing a small
production in the unit 3 but it will probably get streamlined in the next couple of months. I
would say that there has been a significant progress and we are making a fairly decent
financial investment in terms of putting up this new division so Mohan can you please add
on some of the products and our plans on STC.
N. S. Mohan:
Primarily there are two specific areas where we have focused on. One is the digital
instrument cluster area and here I think I did mention it in one of the earlier calls that we are
going in for what we call it as a platform approach. Therefore, we have developed what is
called Supra 1.0, 2.0, 2.5 and 3. These are different generations of instrument cluster which
would be available for the customers depending upon what level of technology they want to
adopt into their own vehicles. Now that has played out well and we have got good amount
of I would say orders also and a lot of them we have already fitted and it is also being tried
out at ARAI for homologation so this is one stream that we are looking at and here we are
looking at both ICE engines and also more heavily into EVs also so both the areas we are
focusing on. Other than that, we are also developing one for a nonautomotive segment
which is not here outside this country which will be exported out. The second area where
we are looking at is what we call it as a rotary sensor. This is a hall affect sensor, which will
be integrated with specific mechanisms for what is called as the e-throttle control. The e-
throttle controls are what gets replaced with the throttle cable therefore that is the reason
that we are focusing on that which incorporates a rotary sensor so these are the two major
areas. Purposely we did not put in our investment till such time we get some traction from
the marketplace and see how the market accepts these products because we have developed
these products but commercialization of the product is when we put our lines there. Now
that we are confident that the market is accepting this and there is good amount of interests
generated in the market we have decided to go ahead with our investment.
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Ajith Kumar Rai:
To add to what Mohan has said I think it is a very clear vision of our group that STC will be
a very focused product development center for us. The idea is simple. In the next three to
five years time Suprajit’s intention and our clear aim is to ensure that our content for two-
wheeler will be lot more than what it is today. I think that is our intent.
Aashin Modi:
Thanks a lot. Sir my second question is regarding LDC, so as you said that LDC operations
are right now affected by this so could you quantify the effect and also Sir on LDC if you
can talk about who are global major competitors and what are their sizes if we can talk
about this?
Ajith Kumar Rai:
Our competitors you mean if you are talking about?
Aashin Modi:
Yes in the global market?
Ajith Kumar Rai:
In terms of business, I think the same headwind that we face and what Mohan elaborated it
applies to LDC also. It is the same problem everywhere in the world so their business had
last couple of years have had its own effects for whatever reason and they probably had a
business of about $80 million last year and I think we have sort of guided that in the next
two years between this year and next year we should close the USD $100 million kind of a
sales. I think that is what we have projected in our last statement. In terms of the
competition, I think the global major is the HI-LEX from Japan. I think probably HI-LEX
and Suprajit are more or less in terms of at least the number of cables here on the same
levels and then of course there are other guys like there is Star Smith, there is Dura, there is
GRC, and there is WR Controls. There are a couple of cable players out of China. They are
all in the range of let me say anywhere between $40 million to let us say $100 million to
$120 million US kind of a size so that is the competition if you were to ask.
Aashin Modi:
Thanks a lot for my questions. My questions are answered.
Moderator:
Thank you. The next question is from the line of Mumuksh Mandlesha from Emkay Global.
Please go ahead.
Mumuksh Mandlesha: Thank you so much for the opportunity, Sir? Just one question for the STC business so what
is the new revenue increment revenue? Sir the last time we mentioned Rs.100 Crores so
what could be now new based on order wins?
Ajith Kumar Rai:
I think these orders are for the futuristic like from the day it starts commercial the
development time is there. Just to give you a rough idea I think Mohan correct me if I am
wrong. I think we did about Rs.10 Crores to Rs.15 Crores of business from the STC
products last year. I think we are hoping to do maybe about Rs.30 Crores to Rs.40 Crores in
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this year and it will probably double next year when our digital electronics division goes
into full stream so that is the kind of a road map I would like to give.
Mumuksh Mandlesha: Thank you. Sir what would be the new outlook for FY2023 or a CY2022 for LDC business
on account of a conservative occurring standards in China lockdown?
Ajith Kumar Rai:
Sorry. Can you please repeat? I cannot hear you properly?
Mumuksh Mandlesha: Sir what is the new outlook on LDC business for CY2022 on account of conservative
accounting standards in China lockdown?
Ajith Kumar Rai:
In terms of business I think I just mentioned that our aim is to cross $100 million in the next
two years. In terms of the margins I think I would probably give a clarity in another quarter
or maybe two because we are still trying to assimilate different countries accounts standards
etc, etc., so it is little premature to say but what I have mentioned in our last business update
is that the aim was to get into a double-digit EBITDA over the next two years time. As we
hit $100 million we also want to hit 10% EBITDA. That is our target. Current years you
must realize that this acquisition is done with a lot of remote diligences etc., etc., travel was
completely ruled out so we need to see in terms of the stocks what is there, how is the kind
of operating systems, what are the creditors and debtors situation, a lot of things will be sort
of absorbed over a period of time and there could be I have to accept that there could be
one-offs in this current year but that is normal in any acquisitions but our guideline is going
forward in the next two years to hit double digit at the LDC.
Mumuksh Mandlesha: Thank you and Sir SENA has done well in fy2022 so can you explain what drove the
growth and what is outlook for FY2023 Sir?
Ajith Kumar Rai:
I think you know we do not really give a forward-looking number. All I can say SENA has
done an excellent job last year of a good growth as you would see. The SENA division
between unit nine and WESCON has done nearly 20% plus I think of growth. This year
also we are expecting certainly. A growth a double-digit growth is expected. Margins as
Mohan was mentioning again global commodity is a big challenge but we have been able to
talk to our customers and able to pass on some of them at least so we continue to believe
that the margins that we have been sort of clocking in the last couple of years is doable
going forward as well.
Mumuksh Mandlesha: Thank you so much for the opportunity.
Moderator:
Thank you. The next question is from the line of Abhishek Jain from Dolat Capital. Please
go ahead.
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Abhishek Jain:
Thanks for opportunity and congratulations for a decent set of numbers in tough time. Sir
my first question is related with the automotive cable business so what is the reason for the
margin expansion in the core cable business? Is because of the better revenue growth or
from the four-wheeler and export?
Ajith Kumar Rai:
You are talking about automotive margin increase is it?
Abhishek Jain:
Yes.
Ajith Kumar Rai:
It is from 15.9% we have grown to 16.3%. It is a 0.4% increase on operational level which
can be due to any timing effect of a price increase, supplier price decrease or increases or
decreases whatever it is so I would only say that there is not really an increase in margin. It
is a stable margin.
Abhishek Jain:
How was the growth in the four-wheelers side especially for the export?
Ajith Kumar Rai:
I think simply one of our main businesses also in Europe. We grew our automotive exports
by about 10% to 11% and then I think when the Ukraine War hit, Ukraine was a big
supplier of I think some of the components to automotive industry in Europe. There was a
lot of disruption has happened. It is slowly starting to stabilize now. There are still some
disruptions happening because customers had to relocate these suppliers into other parts of
the world so the general feeling our own view is that this year global automotive I am
talking about a very general term it will not grow. If at all it will probably degrow this year
also but having said that I think because we have won businesses with customers and they
are all getting into production, we will continue to grow our automotive cable business as
well. Our overall guideline of saying that we will outperform Indian automotive industry by
5% to 10% which we have done by 10% this year, I think that is still a very much the
guidance that we would like to give.
Abhishek Jain:
Sir has the export business will be under pressure that will impact the overall margin of core
cable business in the coming quarter?
Ajith Kumar Rai:
No I think global typically automotive exports particularly global automotive customers do
not really are easy to give any price increases which is a very acceptable point. I think that
is what you are driving at but we have been able to convince some of our customers and we
are in the final stages of convincing another one or two key customers that these price
increases are not normal. They are much beyond the inflationary trend so they have to index
those prices. I think they have listened to us and some of them even tried to do some test
marketing to see whether somebody else can supply but there is nobody else to supply so
the fact that we have been so strongly entrenched player in cable and we have been able to
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deliver wherever they want. I think we are heard in the right manner and I think in the next
couple of months some of the price indexations will happen and if there is any going to be
any further let us say supplier price increases we will be able to offset so we are fairly
comfortable to say I mean overall we feel that there could be a timing effect of price
increases and decreases at various places but I think we will be able to do it. Having said
that if there is a major difference I know we have made a comment in our press release that
there could be some marginal pressure but that is not going to be 5% to 6%. I mean maybe
0.5% here and there or 1% possible. We do not know but our aim is to still guide what we
have guided in the past.
Abhishek Jain:
Sir how is the outlook for the domestic core table business? Demand is picking up well and
there is a recovery in the entry level and scooter segment which have a higher number of
cables so how do you see the positives in the domestic core cable business?
Ajith Kumar Rai:
You must realize that in last year the two wheeler industry actually degrew as you know
because of the entry level vehicles were not in demand. I am not sure whether that scenario
will change this year. I mean this is very judgmental but I think that slackness that tempered
offtake in the market continues so we are not really seeing a huge growth for two wheelers
per se in this year also. I mean we also believe that the trend was similar in China where it
grew stupendously and went to something like whatever $35 million to $40 million two
wheelers and now it has dropped off completely in the last few years so having said that I
think we will continue to grow Indian cable business whether it is through our ability to
penetrate more into the two wheeler customers, our ability to penetrate more into four
wheelers and of course the strong presence we have in the aftermarket so our belief is that
we will still grow our domestic cable business pretty well as I again said if industry grows
at 5% we should be able to grow at 10%.
Abhishek Jain:
In domestic core cable business have you won any business in the four-wheeler side
especially from the large OEMs like Maruti and others?
Ajith Kumar Rai:
Maruti as we have always said I think we have not really talking about Maruti at all these
days because our focus is not really. I mean our focus is there but as a tier one we continue
to supply to multiple customers but not as a direct supplier to Maruti so far, but there are
other businesses that we are winning as tier two as other customers like Mahindra’s, Tata’s,
etc., etc., and even as a tier one of some of these Japanese and Korean suppliers so we have
our own strength in those areas. This is why I am saying I mean instead of going into
specific customers we do believe that we will grow our domestic cable business based on
whatever the market conditions are.
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Abhishek Jain:
My next question is from the Phoenix Lamp Division, so as you mentioned that you have
taken a price hike in this quarter despite that the revenue growth and the margin is quite
muted?
Ajith Kumar Rai:
No I think you are looking at last year's quarter. I think what Mohan mentioned was in this
quarter that means the current year only we have got the price increases.
Abhishek Jain:
How it will reflect in the Q1 numbers Sir?
Ajith Kumar Rai:
We have got some price increases and we have increased the prices in the aftermarket. All
this is correct but still quite a few of the major customers are yet to give the price increases
so it will take little time. I think it will be happening this quarter and next quarter and I am
pretty sure it will claw back some of the lost margins. As Mohan said earlier I think it was a
strategic decision not to ask for a price increase because we wanted to keep our market
position intact and that having been done now we are looking at it so in the next two
quarters we will get certain price increases which will to some extent certainly will offset
the margin pressure that we have seen in the PLD which is the one instance where our
margins have actually decreased.
Abhishek Jain:
Can we see a double digit sort of the margin in the PLD Sir?
Ajith Kumar Rai:
I do not want to say anything about the double digit. I think we want to move forward from
where we are now. I think probably by next quarter results we will know clarity as to what
price increases we are getting and how much we have got it. I think based on that probably
we can comment.
Abhishek Jain:
Sir RM, prices is going down especially for the steel prices so will it have a positive impact
on your margin in the coming quarter because 40% to 50% of total raw material sales is
steel?
Ajith Kumar Rai:
I think there is a lot of news item in the last one week. Thanks to all these certain curbs put
by the government but we have to see practically you have to see in the in the operations of
these companies how they are reducing the prices. If you ask me have I received a price
reduction from the steel suppliers? Not yet, because there is already a price increase of the
past pending with us for settlement so probably it will get set off to some extent and let me
also say this if customers the moment the price reduction actually happens customer is at
our doorsteps to ask for price reduction too so I do not think it will be a margin accretive. I
think it will be margin neutral. If the prices come down just as we got the price increases
when it was going up we also are bound to give the price reduction to customers as it goes
down.
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Abhishek Jain:
Thank you Sir. That is all from my side.
Moderator:
Thank you. The next question is from the line of Nikhil Gadre from Axis Capital. Please go
ahead.
Nikhil Gadre:
Thank you for taking my question. My question was on the aftermarket side? Can you just
talk about your market share on the aftermarket both on the cables and the halogen side and
also I mean what is the pricing differential between us and the peers so you mentioned that
due to cognitive reasons and strategic reasons you did not take the price hike but your peers
have also been aggressive and they have also kind of refrained from taking price hike so
just some more color on the aftermarket side?
Ajith Kumar Rai:
Mohan will give you some color on the aftermarket?
N. S. Mohan:
Let me start with Phoenix. Before I get into the aftermarket and the share of aftermarket, I
think if I tell you the capacity in India then I lead to the aftermarket share that would be an
interesting way of looking at it. Today we are having about 110 plus almost about 112, 115
million bulbs capacity and as against this our nearest competitor would be at around 25
million bulbs so you can see the stark difference between the capacity that we have so
which means what other things can happen. Other things are imports. Where do these
imports happen? There are two areas that you can get bulbs coming into India. One is
obviously China. Another is Korea. Now with all the kind of container shortages and freight
issues and also the price increases that are happening there I would say that there has and
very, very, very important is the government's effort to streamline the economy to make it
more I would say clean economy. To that extent I would say the ball is playing in our favor
in the Indian aftermarket for bulbs. That means capacity is in our favor and reduced imports
are in our favor. Now I come to the market share as you are talking about. Market share
when I talk about market share if I look at a relative market share and an absolute market
share. Relative market share is with my brand my brand of Phoenix. If I talk about my
brand of Phoenix, I would be telling that probably I would be at around 60% market share
about ballpark number, I am talking about, but if I look at the absolute market share, there
are other players selling in their brands but I am the guy who is supplying it to them so back
ended it is my revenue. Of course it is an added margin up there. Therefore to that extent
when I look at an absolute market share it is really, really very, very high so this gives you a
color into what is the kind of market share. Now in moving on to the price differential
between the peers, again here what happens is that is why you remember I told that I am
testing the price elasticity in the market. The reason I am able to test the price elasticity is
because of my market position in my market because if I did not have that position in the
market I always had to look behind and run ahead because somebody is going to pitch me
in this race. Now today the gap is so much that I think I can set my own pace in running
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forward and that is what is happening but having said that there will be a level of pricing at
which the market stops picking up the goods. They will say okay let me do without it kind
of stuff. Therefore that is the reason I am testing the pricing elasticity. Comparatively if you
look at the pecking order Philips will be number one, Phoenix we have moved up the ladder
in terms of value chain. We are number two, OSRAM is number three, and then comes the
rest of the other players. There are some niche players at both the top end and at the bottom
end but they are very small quantity players. Have I answered your question?
Nikhil Gadre:
Yes but then Sir I mean just to take this point forward given that we have such a strong
market share position I would have imagined that we would have had the ability to take
price increases at a maybe a faster pace given that we are one of the leaders here?
N. S. Mohan:
Point well taken. Like I told in the previous call last quarter call we were running a scheme.
We run aftermarket scheme which starts from August 15 and runs all the way up to January
26 that means Independence Day to Republic Day for easy remembrance. So what happens
is when I am running the scheme if I am going to go and touch the price it upsets the market
in a very big way. Therefore I purposely did not want to touch the price in the aftermarket
till January 26. Now once January 26 got over, I moved ahead and I made those corrections.
Again when you are making corrections what will happen is like what I said testing the
price elasticity in the market. How much are you going to increase it by? Are you going to
increase it by 5%, 10%, 20%, or 50% so that is where some business judgment should come
in where we will have to make certain moves and I know to a certain extent I as a leader
would have to make the first move followed by me I would be expecting others to make
that move but whatever happens there would be a lag between me and other followers
making those prize increases. During that period there could be erosion in volume for me so
I need to balance all these factors before making that decision.
Nikhil Gadre:
Yes got it and Sir similar color may be about the auto cables aftermarket?
N. S. Mohan:
Yes automotive cables again we have a good pole position out there having said that we can
still definitely do much more. We are extremely strong in the southern region and to a
certain extent good in western region. In the northern region is where we need to kind of get
into much more stronger position and one of the reasons that when we go ahead and do
these things is the way you are able to fulfill your dealer and distributor order positions.
You will be able to get the order but the question is how fast you react to the market and
that is the reason where we have put in our aftermarket fulfillment center. This is going to
be a state-of-art with technology involved in it where we will be able to send groups across
to various parts in India very quickly. Therefore right now if you ask me on a market share I
would say there are I would say cottage industry players. To a certain extent, it has come
down, but I would very safely put my number at around 60% there.
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Nikhil Gadre:
Got it. Sir my second question was you mentioned in the opening comments that there was
some successful claw back on some cost over in SENA so can you just throw some more
light on that?
N. S. Mohan:
Yes you see when we classify the customers there are different types of customers. We have
the bada customers and not so bada customers and the chhota customers so what we do is
with all the chhota customers we unilaterally go and increase the price. We say that well
from such and such a date onwards our price is revised and our new price index is so and
so. That we did as a first round. Second round is the middle volume customers. With them
also we have been able to get the price increases. Our sales and marketing team has been
successful. Now it comes to the bada customers. With the bada customers with some we
have what we call as a LTA or long term trade agreement or long purchase LPA long term
purchase agreements. With them it needs some amount of scheduling and convincing to tell
them that this is what has happened and therefore in the best interest of keeping the supply
chain alive we would want you to support us in terms of price increase and that is
happening
Nikhil Gadre:
Got it and just my last question I think capex you have guided for Rs.140 Crores for this
year so if you could just maybe break it down for us or what would be this spent on the
project capacity and maintenance capex details?
Ajith Kumar Rai:
Mohan will you answer the question as well?
N. S. Mohan:
The capex I generally classify into three major categories. One category I call it as land and
building again split probably into land and building but that ballpark is going to be because
last year if you remember I had brought in about Rs.110 Crores which I said that would be
spread over two years. Therefore there is a spillover of that Rs.110 Crores which has come
into this year. Therefore optically it looks as though it is Rs.110 Crores of last year plus
Rs.140 Crores. No it is not. It is a spillover of last year Rs.110 Crores plus a top-up which is
going to happen this year. Top-up primarily is coming because of my electronics area where
I am putting up a clean room. Rather it has already come up now. The clean room is ready
and the machines have already come. The assembly line has already come. The assembly
lines have already come. Now they are being as we speak are being installed. Therefore my
major I would say top of line item this year is probably we might be looking at some land
assets somewhere which will aid our I would say land bank to expand. Other than that it is
going to be into electronics foray.
Nikhil Gadre:
Got it. Thank you Sir. That was very helpful.
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Moderator:
Thank you. The next question is from the line of Viral Shah from Edelweiss. Please go
ahead.
Viral Shah:
Thanks for the opportunity. Congrats for good set of numbers Sir. Sir one question I had
was on SENA? If I look at this quarter Y-o-Y revenue growth is single digit? Is there
anything to read into it because generally the recovery was reasonably well in the non-
automotive market in US so is there a base effect or anything else to look into it there?
Ajith Kumar Rai:
No. I think the answer for that is simple. I think we have mentioned in quite a few of the
past conference calls. WESCON business is cyclical because the seasons of the green
season and snow season the products are spread out in different, different times so I think
the effect of that happens in certain quarters so I think that is the reason why you see that
difference and I think there is nothing more to it actually. The business is growing there
actually.
Viral Shah:
I was more looking at Y-o-Y because seasonality will be taken care of when you look?
Ajith Kumar Rai:
Because what has also happened is that the start of a green season for example starts
sometimes much earlier or it gets spilled into the next year so I think that is what is also
happening. For example, the summer season or the green season let us say if it is starting
little late because if they had last year's unsold stocks in their warehouses they will first sell
it and start releasing the orders little later so it gets spilled into the Q1 of ours which is Q2
of theirs so that is also the possibility that the reason of it. It is just a timing issue I think.
Viral Shah:
The second question was on that new e-throttle product that you are mentioning I could not
catch it properly sorry if you have to repeat so it is a replacement of the throttle cable right
that is what your intent is and if I understood it correctly? Sir how does the component mix
look like? Is it more bought out components involved over there and also the value content?
Is it similar in pricing or as initially it will be expensive and if at all how expensive it is?
Ajith Kumar Rai:
E-throttle is probably 10x the throttle. In e-throttle comes both with the cable and without a
cable. The electronic mechanism so I will probably ask Mohan to elaborate a little more on
this.
N. S. Mohan:
In terms of the product value obviously it is much, much higher like the chairman was
talking about. Let me just explain the product then I think you will get a clarity. E-throttle is
basically a chip which is there, which is going to analyze the position of the throttle when
you not twist the throttle grip. The angle which you twist it is converted into a signal and
the signal is processed and sent across. Now when you are doing it there are two ways you
can do it. Number one you give IP67 level protection at the grip level itself. That means you
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make it much more robust in terms of its protection towards electromagnetic radiation,
towards the weathering effect, etc., so you build all those factors at the handle level itself.
This is I would say configuration one. Configuration two is you just have the normal grip
with a normal cable. The cable runs normally back either near your IC engine or near to
your motor controller and you place this rotary sensor out there because already there is a
lot of I would say IP67 level protection given. Therefore you do not need to have a separate
level of protection to be given here. Therefore these are the two versions that we have
developed and this is what we have taken to the market and shown both the versions. In fact
I would not like to name that company or name that brand but very, very I would say state
of art well known EV brand. The CTO of that was at our STC. He was there literally on his
knees checking out all our products, looking at how this fitted and all those things and he
was complementing our engineers and our three teams as to the kind of innovations that we
have brought about and one of them he talked about was the specific thing when we told
that we have these two versions available.
Viral Shah:
Sir I presume the second version would be reasonably cheaper to the first version right?
Ajith Kumar Rai:
Yes this is correct.
Viral Shah:
Because this is completely integrated one?
Ajith Kumar Rai:
Yes.
Viral Shah:
Sir is this is everything you will be doing on your own the way you do the cable or initially
there will be a lot of amount of bought out components in this?
Ajith Kumar Rai:
I think the product pricing will be done such a way that it will have a reasonable and in line
with Suprajit’s thinking of margins. There would be of course for example a sensor would
be obviously bought out but lot of things are integrated internally itself so it is a
comprehensive products and in some of these products that we have developed we even
have an IP protection so we expect you know, we have quite a few interesting things to
happen in this space.
Viral Shah:
If I can squeeze in one last question. Sir on the braking products we have been talking about
it since a reasonable time? If you can throw some color where are we in terms of
acceptance, order flows, etc., and on how you are looking to ramp up the capacity over
there?
Ajith Kumar Rai:
Mohan will you answer?
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N. S. Mohan:
First of all we have to understand that we are talking about a safety product. Braking being
the safety product for an OEM to switch over to a supplier it is not going to be very easy.
There is a lot of testing that needs to be done, proving which needs to be done and it has to
be extremely rigorous and that is what we have done because we also again do not want to
jeopardize our fair name in the marketplace by just being in a hurry to bring something into
the product so to answer your question it has been taking a lot of time. The answer is yes
because we want to be doubly, doubly, doubly sure that a safety product going out of the
stable of Suprajit with our brand name carries the mark of quality that we can really be
proud about. Now getting the customers convinced takes time. There are two types of
customers. One is the traditional customer who already has got certain supply chain with
them and then you have the newcomers who are coming. Now with the newcomers we are
having some good traction. It is going to take obviously more time with the established
players.
Viral Shah:
Thank you very much and all the best.
Moderator:
Thank you. The next question is from the line of Shravan Prasad an Individual Investor.
Please go ahead.
Shravan Prasad:
Sir I just want to ask that what percentage of your product folio is EV agnostic and what
percentage of that is not EV agnostic? Can you give a highlight of a percentage on that?
Ajith Kumar Rai:
Sorry EV agnostic mean product.
Shravan Prasad:
Yes the product folio percentage that will be impacted if there is a full adoption in EV in the
market the percentage of your parts that will be impacted or the revenue that will be
impacted?
Ajith Kumar Rai:
I can put it simply this way. In passenger cars there is nothing that will be affected because
of EV because we have no products there. In fact it will probably add to our product range
as we see it. In two wheeler we know we just talked about throttle cable just a while ago
with the thing so for example throttle cable can be replaced with an electronic throttle
control that is possible so that is where I think EV and non-EV will come into picture in a
two wheeler. The other product changes for example if you are going into hydraulic brake
systems obviously a brake cable will go away if it is preferred to have an hydraulic braking
system because it works in a whole system. It has nothing to do whether it is an EV or
otherwise but that is a different product altogether.
Shravan Prasad:
Can you give the percentage of how much is the revenue percentage of these two products
in your folio?
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Ajith Kumar Rai:
I would say throttle cable is one of the five cables yes, but it is not that all the EVs use
electronic throttle by the way. We supply to EV guys who are using usual mechanical
cables also so it is very difficult to give that percentage.
Shravan Prasad:
Sir hydraulic brake also?
Ajith Kumar Rai:
Again hydraulic brake is generally popular beyond 175 cc onwards. Today the volumes are
in the lower level so again that depends upon how the markets will change. Higher end
hydraulic brakes are there.
Shravan Prasad:
Can you explain like from 5% to 10% and 10% to 20% anything in the range?
Ajith Kumar Rai:
It is difficult no because as I said how do you say in motorcycle what is hydraulic because
right now 150cc or 175cc plus are having hydraulic brake systems. Not all of them but
some of them so again how the adoption is going to there we do not know.
Shravan Prasad:
Any estimations also you do not have?
Ajith Kumar Rai:
We have internal estimation. It is not for the market. That is why we have been working on
various other products also.
Shravan Prasad:
Okay Sir. Thank you.
Moderator:
Thank you. The next question is from the line of Rohit Balakrishnan from IThought PMS.
Please go ahead.
Rohit Balakrishnan:
Most of the questions have been answered and just is one question on STC are we also
especially on digital speedometers, etc., are we also trying to get into four wheelers or it is
largely for two wheelers at this point of time?
Ajith Kumar Rai:
At this point of time, it is for two wheelers. It is for three wheelers. It is also for non-
automotive applications. We are not really at the moment focusing on passenger vehicles
but obviously it will be an obvious next step at an appropriate time as we grow this business
and its understanding.
Rohit Balakrishnan:
Would it not be sort of fair to assume that as we get into products which are beyond cables
we will continue to hold on to our margin guidance of 14% to 16% at a consolidated level I
mean would that be a fair assessment? I am not talking about this year specifically.
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Ajith Kumar Rai:
We are fairly clear with our STC products that it will also generate something similar.
There may be an entry strategy different but eventually a similar margin profile is what we
are expecting and aspiring and working on.
Rohit Balakrishnan:
Just last question Sir on our lamps business a few calls back we were talking about getting
entry into the US market given the overall sentiment against China, etc., just wanted to get
an update if we have moved forward on anything and we would like to share anything?
Ajith Kumar Rai:
US entry of course we are still working on the US entry strategies, but there have been
certain very strongly entrenched players. The global majors are sitting pretty there and they
have got a fairly deep connectivity. It is not an easy thing to break in as such but we
continue to make our effort. What has happened in the meantime is that we have got
multiple strategies. One of the other strategies that we had was to enter Russia of all the
places in this current situation and we won some businesses and then the war broke out of
course and these things happen so our export strategy at Phoenix Lamps is taking strong
roots but there are some disruptions as I said we have few large orders coming in from
Russia in the last quarter of last year but then now they are getting into some limbo and
hopefully we will find some resolution to that soon so there is ups and downs. The market is
pretty tough but we will continue to grow but yes entry into US will take more time.
Rohit Balakrishnan:
I am so sorry just one more extension on the company so Luxlite and Trifa have been
seeing a lot of headwinds over the last many years now so just wanted to get your sense
what is our thinking around? You have tried a lot of things and we have restructured it but
the headwinds continue to just keep on growing?
Ajith Kumar Rai:
I agree. I think it a valid point. In fact we are also reassessing the situation again, I must say
but the point is simple I think it has been a market where there has been quite a bit of
competition. The competition was operating without a full presence in Europe and we are
competing with the full presence in Europe. That adds to the cost so we are trying to see
how we can mitigate that of course we have restructured as you rightly said. I guess there is
some more work to do and I am sure we will be working on it right soon.
Rohit Balakrishnan:
Fair enough Sir. Thank you very much and all the very best.
Moderator:
Thank you. Ladies and gentlemen this will be the last question which is from the line of
Ronak Vora from Ohm Advisors. Please go ahead.
Ronak Vora:
Sir on the Phoenix Lamp Division you said that our market share is 60% and our capacities
are around 110 million to 115 million bulbs whereas the second player has around 25
million bulbs correct?
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Ajith Kumar Rai:
Yes I think that is the Indian manufacturing capacity but there are a lot of imports also you
must realize it. These are India manufacturing capacity right correct.
Ronak Vora:
So in imports do not we see any supply chain constraints for the Phoenix Lamps Division?
Ajith Kumar Rai:
Yes I think imports that I think Mohan mentioned there is a constraint. It is more expensive.
It takes more time. That is why we have augmented our position in the aftermarket in India
strongly. I mean that is also one of the reasons.
Ronak Vora:
But due to these challenges would not be a benefit to you and you can straight away take
price hikes to mitigate the margin pressure?
Ajith Kumar Rai:
Yes but at some point the import becomes cheaper. There is a fine balance so we can
increase so much and after some time the elasticity does not exist so we have been testing
the market as Mohan said, we have done one small pricing this last year end and then we
have done one more this year. We will see how it is and at what price it becomes easier for
people to import so it is a kind of testing the markets at the moment, but we have increased
the price in this quarter and it seems to be okay.
Ronak Vora:
Is it like our prices are at par with the import prices?
Ajith Kumar Rai:
We do not want to go into the pricing positioning in the market. It is a much more complex
than that so pricing situation we do not want to discuss in the open forum.
Ronak Vora:
Just to get an idea?
Ajith Kumar Rai:
No. Again it is not only the pricing. It is also brand. I mean if Phillips can bring it and sell it
at 20% higher than us then they can still sell but somebody else cannot do it so the
positioning also is important.
Ronak Vora:
Thank you.
Moderator:
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to
hand the conference over to the management for closing comments.
Ajith Kumar Rai:
Thank you all for your continued interest and questions on Suprajit. As I said it has been a
tough year but we still think that we had a good year going forward as well. Our current
year expectations also continues to be a decent and strong growth and we believe that LDC
will bring lot more new businesses for us and will be a strong integrated global supplier of
cables and we are working on all the divisions pretty confidently that despite the difficult
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times will turn out to be another decent year for this current year as well. Thank you all for
your interest and I now hand it back to the moderator. Thank you and have a good day.
Moderator:
Thank you. On behalf of Anand Rathi Shares and Stock Brokers that concludes this
conference. Thank you for joining and you may now disconnect your lines.
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