Earnings Call Transcript Analysis Report #
Financial Performance #
- Revenue (Consolidated excluding SCS, 9 months ended Dec 2024): INR 2,290 crores vs. INR 2,113 crores (previous year), +8%.
- Operational EBITDA (Consolidated excluding SCS, 9 months ended Dec 2024): INR 295 crores vs. INR 231 crores (previous year), +28%.
- Revenue (Standalone, 9 months ended Dec 2024): INR 1,283 crores vs. INR 1,124 crores, +14%.
- Operational EBITDA (Standalone, 9 months ended Dec 2024): INR 226 crores vs. INR 200 crores (previous year), +13%.
- Revenue (Consolidated excluding SCS, Quarter ended Dec 2024): INR 782 crores vs. INR 724 crores, +8%.
- Operational EBITDA (Consolidated excluding SCS, Quarter ended Dec 2024): INR 111 crores vs. INR 87 crores, +28%.
- Debt: Total debt level of INR 627 crores as of December 31, 2024.
- Cash Surplus: INR 276 crores invested in mutual funds and bonds as of December 31, 2024.
- SCD EBITDA: Achieved double-digit EBITDA margin of 11.8% in Q3.
- Effective Tax Rate Guidance: Expect around 26-27% for the year.
Strategic Initiatives & Business Updates #
- Suprajit Controls Division (SCD): Achieved 5% revenue growth and EBITDA surged over 100%. “Driven by new contracts and better plant performance and also, of course, the restructuring that SAL, that is the export-oriented unit in India and also the U-9, which is again a EOU in India.”
- Domestic Cable Division (DCD): Continuing to grow profitably, expanding in aftermarket and “theme beyond cables”, specifically STC products and braking projects.
- Phoenix Division: PLD margins performed well. Exports at Luxlite experienced volatility.
- Suprajit Electronics Division (SED): Won a throttle project from a leading EV 2-wheeler customer. Secured global off-highway electronic projects.
- Suprajit Technology Center (STC): Showcased products at Bharat Mobility Expo, attracted interest in actuators, braking, and sensor product lines.
- SCS Acquisition: Integration and turnaround phase. Restructuring costs due to operational inefficiencies related to the relocation of operations to Morocco.
- Morocco Operations: Moving from a 3-shift to a 1-shift operation, showcasing productivity improvements. Strong team in Morocco adapting to Suprajit’s expectations.
- Poland Plant Closure: “Poland plant will soon be closed…will be completely closed in the coming 2 quarters.”
- German Warehouse Relocation: “Germany warehouse will be shifted to a location very close to Suprajit Hungary, so the Suprajit Hungary team will take a lead in supporting those operations rather than let it have sitting in Germany.”
- SCS Canada and China Acquisition: Expected to close in Q4 or early Q1 of next year.
Market & Competitive Landscape #
- Indian Automotive Growth: “It was not up to the expectations” with flat passenger vehicle growth and moderate 2-wheeler growth. Industry grew around 10% for the 9 months as of December 2024.
- U.S. Market: Political stability, but questions remain regarding ICE vs. EV leadership and treatment of OEMs that moved to Mexico and had purchasing offices in China.
- European Market: “Continues to flounder” with political indecisiveness and lack of economic stability. Manpower cuts at OEMs, production cuts, and economic brinkmanship.
- China: Market expansion in Europe.
- Red Sea and Panama Canal: Continuing to impact the industry.
- Cable Exports: Indian cable exports grew by 35%.
- Wescon: Non-automotive business had a degrowth.
- Electric Vehicle Market: EV market in India was “quite tumultuous” impacting margins due to product mix changes.
Risk Factors & Challenges #
- SCS: Impacted by the shrinking European market and restructuring costs.
- Matamoros, Mexico: Challenges related to tariffs and labor costs.
- Suprajit Electronics Division: Margins impacted by product mix changes due to shifts in EV market volumes.
- Global Market Uncertainties: Political and economic instability in the U.S. and Europe.
- Tariffs: Potential impact of tariffs, especially on Matamoros operations.
- Labor Costs: High labor costs in Matamoros.
- Supply Chain Issues: France-based supplier was “creating a lot of problems for Matamoros as a part of the supply chain.”
Forward-Looking Statements #
- SCS Turnaround: Expects to see “fruits of this turnaround project in the coming quarters” and improvements in the next few quarters.
- Morocco Operations: Expect to see “how we have moved literally almost, I would say, conquered the Western world.”
- Growth: Expects the growth of SAL Automotive to be “even more exciting” with multiple new contracts going into production.
- SCD Margins: Aims to improve and consolidate current achievements. “But of course, our journey to further improve and consolidate this what we have achieved in this quarter is paramount importance for us.”
- Capacity Utilization: Significant capacities available and will be utilized as needed.
- Electronics Division Margins: Expects utilization to build up and “get back to the double digit.”
Q&A Insights #
- SCD Margin Improvement: Driven by key plants performing well (SAL, SEU, Lone Star, Hungary, Wescon, Unit9), except Matamoros.
- Motor Sourcing from India: Shift expected to reduce overall acquisition costs and eliminate supply chain pain points.
- SCS EBITDA Positive Visibility: Restructuring is underway, Morocco plant is strategically located. Expect stabilization and improved performance over the next few quarters.
- Effective Tax Rate: High in Q3 due to tax on redemption of mutual funds and bonds, but expected to be around 26-27% for the year.
- Wescon Business Outlook: Expects some amount of perking up.
Management Tone & Sentiment #
- Overall Tone: Positive about growth both on a standalone and on consol basis (excluding SCS). Confident about SCD turnaround.
- Caution: Acknowledged challenges in the European market. Cautious about the turnaround of SCS and uncertainties in the global market.
- Confident: Emphasized the strategic positioning of the Morocco plant and the ability to offer flexible solutions to customers.
Key Takeaways #
- Suprajit Engineering has demonstrated solid financial performance, driven by both domestic and international operations.
- The company’s strategic focus on operational efficiency, restructuring, and diversification is expected to drive future growth and profitability.
- While the European market and SCS acquisition pose challenges, management is confident in the long-term potential of these initiatives.
- The company’s flexible manufacturing capabilities and strategic location in Morocco provide a competitive advantage in navigating global uncertainties and tariffs.