SUPRAJITNSENovember 18, 2022

Suprajit Engineering Limited

9,853words
104turns
10analyst exchanges
5executives
Management on call
K. Ajith Kumar Rai
CHAIRMAN – SUPRAJIT ENGINEERING LIMITED
N. S. Mohan
MANAGING DIRECTOR AND
Akhilesh Rai
DIRECTOR AND CHIEF STRATEGY
Medappa Gowda
CHIEF FINANCIAL OFFICER – SUPRAJIT ENGINEERING LIMITED
Vijay Sarthy
ANAND RATHI SHARE & STOCK BROKERS
Key numbers — 40 extracted
rs,
Vijay Sarthy: Thanks, Lizann. Good morning, all. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to the Q2 FY '23 results of Suprajit Engineering. On the management side, we h
60%
eed for a fair price in this territory. As you know, this plant at Matamoros contributes close to 60% of the business of LDC. We are lowering our full year estimated revenues from LDC from the earlie
95 million
f the business of LDC. We are lowering our full year estimated revenues from LDC from the earlier 95 million and in the range of 5% to 7%. This is primarily due to some of the currency effects that we are s
5%
owering our full year estimated revenues from LDC from the earlier 95 million and in the range of 5% to 7%. This is primarily due to some of the currency effects that we are seeing globally. As you
7%
g our full year estimated revenues from LDC from the earlier 95 million and in the range of 5% to 7%. This is primarily due to some of the currency effects that we are seeing globally. As you know,
INR 1,361 crore
esterday. The consolidated revenue, including LDC for the half year ended 30th September 2022 was INR 1,361 crores as against INR 855 crores for the corresponding previous year, recording a growth
INR 855 crore
evenue, including LDC for the half year ended 30th September 2022 was INR 1,361 crores as against INR 855 crores for the corresponding previous year, recording a growth of 59%. The consolidated
59%
against INR 855 crores for the corresponding previous year, recording a growth of 59%. The consolidated operational EBITDA for the half year ended 30th September 2022 was INR 136 cror
INR 136 crore
of 59%. The consolidated operational EBITDA for the half year ended 30th September 2022 was INR 136 crores, as against INR 129 crores for the corresponding period last year, with a growth of 5%. The cons
INR 129 crore
ted operational EBITDA for the half year ended 30th September 2022 was INR 136 crores, as against INR 129 crores for the corresponding period last year, with a growth of 5%. The consolidated revenue, excluding
INR 1,033 crore
h of 5%. The consolidated revenue, excluding LDC for the half year ended 30th September, 2022 was INR 1,033 crores, against INR 855 crores previous year, with a growth of 21%. The consolidated operational EBITDA
21%
th September, 2022 was INR 1,033 crores, against INR 855 crores previous year, with a growth of 21%. The consolidated operational EBITDA from last year ended 30th September 2022 was INR 144 crores
Guidance — 20 items
N.S. Mohan
opening
“and our one-stop facility for our aftermarket needs, which we call as Unit 8 in Bommasandra, we expect it to be ready by this end of this fiscal and ready to serve the market early next fiscal.”
Akhilesh Rai
opening
“These products will be made available to customers, both in India and globally and have been received well.”
Viraj
qa
“So if we just have to understand H1 and generally going forward as well, if you can just give some color in terms of did we take any write-offs in H1?”
Viraj
qa
“And going forward, do we see any need for any further write offs or provisions for that operations?”
K. Ajith Kumar Rai
qa
“So it will be an ongoing process at least during the course of this year.”
K. Ajith Kumar Rai
qa
“And if anything more to be done, it will be done as we go forward.”
K. Ajith Kumar Rai
qa
“We did say that the first two quarters will be negative and as you have seen and that it will become progressively improving.”
K. Ajith Kumar Rai
qa
“And I expect it to be in the black this quarter.”
K. Ajith Kumar Rai
qa
“So I think that's how the whole movement will be there.”
Viraj Kacharia
qa
“So I'm assuming this will be including the write-offs of the pro...”
Risks & concerns — 11 flagged
However, the exchange rate impact on the Hungarian forint and euro/dollar portion poses a challenge for us and for our LDC unit there in Hungary.
— N.S. Mohan
As Mohan said, the euro and Hungarian forint depreciation, also high inflation and continuously increasing energy costs are a cause for worry and have been a larger drag in this quarter.
— Akhilesh Rai
While we have been able to get some price increases, mainly in the non-automotive customers, it proves to be a challenge in the automotive world.
— Akhilesh Rai
But our commentary going forward is very cautious.
— Viraj
I think Mohan has been cautious in terms of the US market, because as you know, Wescon service is mostly the United US, North American market.
— K. Ajith Kumar Rai
So going forward, although the market seems to be weak, we are also winning new contracts.
— K. Ajith Kumar Rai
So we do expect a stable half year, whether -- how much growth or something is a little difficult to say at this moment, because again, we don't know how the economy will pan out.
— K. Ajith Kumar Rai
Today, most customers want to de-risk a single location and single geography, and also want to be close to their plant.
— K. Ajith Kumar Rai
I mean you were a little, it was a little difficult to get to your question, but if I understood correctly, you were talking about the double-digit growth.
— K. Ajith Kumar Rai
Or do you think that could be a challenge, given you're entering a new business and also acquisition?
— Rohit Balakrishnan
The challenge is to reach the double digit in the next pillar, say, 18 months' time.
— K. Ajith Kumar Rai
Q&A — 10 exchanges
Q
Just have a couple of questions. First this on the LDC. So if we just have to understand H1 and generally going forward as well, if you can just give some color in terms of did we take any write-offs in H1? And going forward, do we see any need for any further write offs or provisions for that operations? And a related question is, when you acquired, we were looking at aspiration of close to double-digit EBITDA margin or even higher over the next two, three years. So what I understand in the call, you talked about somewhere around 5% to 7% operating margin. So is that only for FY '23 or even i
K. Ajith Kumar Rai
Okay. In terms of writing off or taking something, it's an ongoing process in the first year. So I would like you to sort of review our 25th July update where we have given this background. So as and when we see something, we if it needs to be provided for, we provide for it. So it will be an ongoing process at least during the course of this year. So whatever you have found or we need to do, we have done. And if anything more to be done, it will be done as we go forward. So that's on that. In terms of margin, again, I would like to address all of you from the point of view of our last trip on
Q
Congrats for a decent set of results. Sir, my first question is regarding global automotive cable business that is our auto exports from India and LDC. So also, we have seen that -- you're saying that the industry seems to be weakening, but you continuously told that you have a good order in there. So is there a scope of market share expansion that could take the -- crush the degrowth and we can grow well?
K. Ajith Kumar Rai
Yes, absolutely. I mean that's the only reason we will be able to grow. If you really look at the global automotive market in the last two years, it has been only been shrinking. In fact, this year, both US, Europe and China markets by end of the year, expect to have a negative growth compared to the last year. So we continue to -- yes, we're guiding a growth and we are guiding that we are continuing to get new businesses. Yes, I think I've been telling you in all the investor calls and on most of the places where we have an opportunity to meet investors, is that the consolidation of vendor is
Q
Congratulations on the decent performance. So just want to understand more on the non- automotive division sir. Can you share any new traction being witnessed in the newer segments like agri, construction, medical, marine and powersports sir?
K. Ajith Kumar Rai
Mohan, will you answer that as well? Sure. There are two portions to this answer. One is the cable portion itself. There, we are gaining more traction there, because what's happening is, you would see that we are very strong with the North America, particularly US. Now what our Chairman was alluding to earlier, there is a consolidation happening. Therefore, there are some people who would want to associate themselves with a much more stronger player, both strong in terms of technology, in terms of financial wherewithal and very important, strong in terms of the ability to deliver across the gl
Q
Sir, SENA division margin has improved...
Management
Q
Yes. Sir, SENA division margin has improved. Is it due to the high exports from Unit 9? Or is it because of the better product mix?
K. Ajith Kumar Rai
I think, again, you must realize that this one quarter number should not be taken. You should take at least half year level. Because what happened, there have been some price increases here and there and the effect gets magnified in some quarter and it chews the numbers. But if you look at the half year number, we are in line with the last year about 12%, 13%. I think that is what the margin going forward. It has got no other effects. So your full year guidance would be that 12%, 13%? Yes. In this range, current numbers should hold good, yes. But quarter 4 margin is always better than the othe
Q
So just had one question on BESCOM. Basically, just wanted to understand, if I look at the growth rate for last two years, three years, it has been a very, we've seen a very high double- digit kind of a growth rate, in a market which is traditionally a low single digit kind of a growth rate. But if I were to look at the margin, it's still around 14%, 14.5% level, operating margin, versus what it used to be around close to say, 17%. 18% when we acquired. So just trying to understand, what is the reason the margin is still around these levels, despite the growth rate being very heavy?
K. Ajith Kumar Rai
I mean you were a little, it was a little difficult to get to your question, but if I understood correctly, you were talking about the double-digit growth. Yes, we have had double-digit growth, and I think it is continuing this year also. In a market where the customer growth business, it is largely because we have, when we first started acquiring it, it is a, basically outdoor power equipment market. But in the last two years, three years, we have also got into powersports vehicles. Now we are into agri and construction. So we are slowly expanding our market within the non-automotive space. S
Q
I had two questions. One was in the past for Phoenix plant, I think we've maintained that we will kind of continue with halogen lamps. Is there any change of thought there on doing LED lamps going forward? And second question was on these digital sensors, actuators, cluster that we are kind of launching more electronics products. In the past, our product did not, were not like electronic components or did not have. So I'm not sure if they had like the product liability clause, or product recall clauses and all that, right? Now when we get into electronics, those kind of things will kind of add
K. Ajith Kumar Rai
Yes. Thank you, Ravi. On the halogen PLD, I think PLDs manufacturing facility is to make halogen lamp. So can I change over to LED, no. We'll have to put a new infrastructure. Now what is our plan? I think we'll continue to be a significant halogen player. We have talked about the last man standing position on this business. And I think that holds good. And we are starting to get the traction on this, in terms, as I said earlier, it is starting to show in our margins going forward. And I think we will also start getting those businesses as we go forward. In terms of LED, we have also talked ab
Q
Yes. Sir, just one question. What is the percentage of exports out of India in automotive and non-automotive for us? Percentage of revenue exports.
K. Ajith Kumar Rai
That immediately, I may not be able to give you. You may have to come offline to Medappa. Because, we have multiple exports, and I don't have the data in my hand. We can take one more question, operator, if there is any more.
Q
Sir, just a couple of questions. So I mean, you've given an outlook on LDC earlier on this call as well. But let's say, a couple of years out, at a consolidated level, I mean, we've been very consistent with our overall margin of that very tight range of 14% to 16%. So over the next couple of years, do you think that whatever businesses that we have the electronics business also and LDC as well, let's say, two years out from FY '23, do you think that you'd be able to maintain that margin of 14% to 16% at a consolidated level? Or do you think that could be a challenge, given you're entering a n
K. Ajith Kumar Rai
Yes. I think if you talk about the LDC standalone as a separate entity, we have said that by end of next financial year, that is probably Q4 of '23, '24, we are expecting to get into double digits. So we have never said that we'll be in the 14% to 16% margin. And from then onwards, I think we will see where we will go from there, depending upon how the market forces are there. The challenge is to reach the double digit in the next pillar, say, 18 months' time. I think that's what our team is working on in terms of LDC. Now ex-LDC, we have said 14% to 16% margin. I think it generally holds good
Q
Yes. Again, thank you all for your continued interest in Suprajit and taking part in this con call. If there's any further queries, you are most welcome to contact us again. Medappa is our single point contact. You can always write to him or contact him. I would like to thank you all for your patience hearing on our performance for the last one hour, and I would also like to thank Anand Rathi, Vijay Sarthy, and his team for organizing this con call. Thank you very much, and have a great day.
Management
Speaking time
K. Ajith Kumar Rai
45
Moderator
12
Viraj
8
Abhishek Jain
8
Mumuksh Mandlesha
6
Medappa Gowda
4
Aashin Modi
4
Rohit Balakrishnan
4
Akhilesh Rai
3
Viraj Kacharia
3
Opening remarks
Vijay Sarthy
Thanks, Lizann. Good morning, all. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to the Q2 FY '23 results of Suprajit Engineering. On the management side, we have Mr. Ajith Kumar Rai, the Chairman; Mr. N. S. Mohan, MD and Group CEO; Mr. Akhilesh Rai, the Director and Chief Strategy Officer and Mr. Medappa Gowda, the CFO. As always, we will have initial review about the results then follow it up with Q&A. Over to you, Mr. Ajith.
K. Ajith Kumar Rai
Yes. Thank you, Vijay, and good morning to you all and welcome to you all for our Q2 and half year results call. I would like to thank Anand Rathi and also Vijay Sarthy and his team for hosting us for this call. As usual, I would go around and ask our team to make a short brief on activities for the first half and Q2. Followed that, we'll have also the question and answer. I'll first start with our Managing Director, Mohan. Mohan, go ahead.
N.S. Mohan
Yes. Thank you. Very good morning, everybody. What I'll do is as usual, I'll give you an update on what's happened in the second quarter, and then I'll really take you by division. So before we start, I'll just give you a general update on the industry, which I think, by and large, you are all aware of. But in India, the 2-wheeler segment is fully not out of use as we all know. Last quarter was not great again for 2-wheel industry. October, particularly and the festival season has brought in some cheer into the market. Now the question is, is it a flash in the pan? Is the rural business over? I think we'll have to wait and see. PCVs and CVs continue to show growth, but the industry is still not out of this chip shortages. But definitely, the situation has eased a bit. In terms of commodity prices, the northward march has halted, that I can very clearly look at. But we are yet to see any kind of significant drop in the prices. It's still holding on there. In Europe, if I move to Europe,
Akhilesh Rai
Thank you, Mohan and good morning, everyone. LDC has shown good improvement in performance, despite worsening conditions in Europe and the US. The plant management teams have worked hard to deliver operational improvements, along with our max team integration effort, that has successfully found and started delivering on various synergies and improvements and cost savings across LDC, SENA and SAL plants At China, the Lonestar operation came out of the COVID lockdown issues, and delivered well in Q2, both on revenue and EBITDA front. Some dollars lost in translation, but in yuan terms, Lonestar is doing well. The woes at Siofok, our Hungarian plant continues. As Mohan said, the euro and Hungarian forint depreciation, also high inflation and continuously increasing energy costs are a cause for worry and have been a larger drag in this quarter. But on the positive front, we got a new plant head in Hungary, who is working well under the leadership of Jim, to ensure that we bring the plant b
Akhilesh Rai
So we have a good number of launches at STC coming up in the next few months, and most of them are focused on the EV space. We continue to be focused on to bring our solutions to the industry with a clear focus on 2-wheeler and non-automotive segments and both in the mechanical and…. These products will be made available to customers, both in India and globally and have been received well. Thank you, and over to you, Chairman.
Medappa Gowda
Yes. Thank you, sir. Good morning, everyone. We announced the financial results yesterday. The consolidated revenue, including LDC for the half year ended 30th September 2022 was INR 1,361 crores as against INR 855 crores for the corresponding previous year, recording a growth of 59%. The consolidated operational EBITDA for the half year ended 30th September 2022 was INR 136 crores, as against INR 129 crores for the corresponding period last year, with a growth of 5%. The consolidated revenue, excluding LDC for the half year ended 30th September, 2022 was INR 1,033 crores, against INR 855 crores previous year, with a growth of 21%. The consolidated operational EBITDA from last year ended 30th September 2022 was INR 144 crores as against INR 129 crores, with a growth of 12%. The standalone revenue for the half year ended 30th September, 2022 was INR 723 crores against INR 564 crores previous year, recording a growth of 28%. The stand-alone operational EBITDA for the half year ended 30 S
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