Suprajit Engineering Ltd (SEL) shares surged over 8% to hit a new 52-week high of Rs 403.00 on the BSE on Thursday. The auto ancillary company has seen its stock price rally by over 12% so far in 2023.
The recent upward momentum in Suprajit Engineering shares can be attributed to strong Q3FY23 results, positive management commentary, healthy order book and upbeat growth outlook.
Suprajit Engineering Q3 Results Beat Estimates
Suprajit Engineering reported a consolidated net profit of Rs 34.76 crore in Q3FY23, registering a growth of 15% YoY. Revenue came in at Rs 521.5 crore, up 18% YoY.
Both revenue and profit numbers were ahead of market estimates. The company reported an EBITDA margin of 12% in Q3FY23.
The management said demand conditions continue to be robust across key markets and segments. The order book remains healthy and the company is working to further diversify revenue mix across customers and geographies.
Growth Outlook Intact Despite Macro Headwinds
Despite concerns over a global slowdown, Suprajit Engineering has maintained its growth guidance of 12-15% revenue growth for FY23. The company is confident of outpacing industry growth over the medium term based on its strong client additions, new product launches and strategic priorities.
Key growth drivers for Suprajit include – increased content per vehicle from existing customers, addition of new customers, fast growth in non-auto segments and benefits from organic & inorganic investments.
The company remains focused on margin improvement through value engineering, cost efficiencies and operating leverage benefits. The management has guided for 50-100 bps improvement in EBITDA margins annually over the next 2-3 years.
Strong Order Book Provides Revenue Visibility
Suprajit Engineering has a strong order book of over Rs 650 crore as of Q3FY23, providing healthy revenue visibility for the coming quarters. The company continues to win new business from existing and new customers across India, Europe and North America.
Some recent order wins include – LCD display assemblies from a global EV maker, shale shakers from a US oil & gas company and chrome plated gears for commercial vehicle OEMs in India.
The company is also seeing good traction in non-auto segments like railways, aerospace, off-road vehicles and medical equipment which will aid diversification.
Capacity Expansion to Support Growth
To cater to strong demand and new order wins, Suprajit Engineering continues to expand capacities across India and Europe.
In Q3, the company commenced production at its new facility in Hungary to produce hi-tech vision systems and other assemblies for global OEMs. Further capacity addition is underway at the Tumkur plant in Karnataka.
These capacity expansions along with investments in R&D and automation will enable Suprajit Engineering to capitalize on growth opportunities and improve competitiveness.
Valuations Remain Reasonable Despite Rally
Despite the recent run-up, Suprajit Engineering stock continues to trade at reasonable valuations. The stock is currently trading at a P/E ratio of 36.4x FY23E earnings, below its historical average of 39x.
The auto ancillary sector is trading at an average P/E of 34x, indicating that Suprajit still offers value considering its leadership position, strong client profile, healthy order book and double-digit growth outlook.
Suprajit Engineering also offers a dividend yield of 0.6% which offers stability in volatile markets. The company has a consistent track record of dividend payments over the last decade.
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Analysts Maintain Positive Stance
Brokerages have maintained a bullish view on Suprajit Engineering post the strong Q3 show. Analysts highlight the company’s industry leading growth, margin drivers, strong balance sheet and reasonable valuations.
Emkay Global, ICICI Securities, Motilal Oswal and Yes Securities have maintained Buy ratings on the stock with target prices of Rs 420-475, indicating further upside potential of 5-18% from current levels.
Key downside risks cited by analysts include extended production cuts by OEMs, input cost pressures and adverse currency fluctuations. However, these headwinds appear to be priced in current valuations.
Conclusion
The future outlook remains positive for Suprajit Engineering based on healthy demand conditions, new customer wins, capacity expansion and margin improvement drivers.
The stock appears well positioned to continue its upward momentum and outperform the broader auto ancillary sector. Investors with a medium to long term perspective can look to buy the stock on dips for a possible price target of Rs 450-500.