Sharekhan Maintains Positive Outlook On This Small Cap Stock, Retains Buy For Robust Gains

Stock Outlook & Returns

The stock last traded at Rs 333.75 per share on NSE, 0.30% down from its previous close. It has given 3.67% negative returns in 1 past week. In the past 3 months 2.57% negative returns. Over a year, it has given 17.42% negative returns. In the past 3 years, it gave a maximum 89.25% positive returns and in the past 5 years, it gave 5.8% positive returns.

The stock recorded the 52-week low on 07 March 2022 at Rs 272.05 and the 52-week high on 02 January 2022 at Rs 470, respectively. 

Diversified and de-risked business model

SEL has evolved as a well-diversified and de-risked company over through continuous focus on improving technology, widening product portfolio, enhancing content per vehicle, increasing geographical penetration and building multiple brands. Over the last two and half decades, the company's profile has changed considerably, led by strategic acquisitions in its core expertise areas and successfully integrating various business verticals, while gaining market share across segments and geographies.

LDC division's progress on track

The LDC business has witnessed a sharp improvement in operational performance, which has led the performance near to breakeven during the Q2FY23. The EBITDA margin for the LDC division for Q2FY23 improved to negative 0.9% versus negative 4.5% in Q1FY23. The LDC division also won some new businesses during the Q2 and will go into production in 1-2 years. In 5-7 years, the orders/revenue are expected to be substantial, with EBITDA margins settling in double-digits.

Management remains positive on growth prospects

The management remains positive on the outlook, though noted risk of geo-political tensions. The company expects its exports to grow robustly going forward, with share of exports improving to ~55% in FY23E from 40% in FY22. The capex plans remain intact with FY23E capex at ~Rs140 crore, while the LDC division Capex is expected to be ~US $ 2-3 million in FY23E. SEL's earnings is expected to clock a 24.3% CAGR during FY2022-FY2024E, driven by a 27.2% revenue CAGR, partially offset by a 50bps decline in EBITDA margins.

Sharekhan Maintain Buy with a revised PT of Rs.403/share

Suprajit would continue to gain wallet share from customers in the cable segment (domestic PV segment, by higher sourcing by global OEM and acquisition of LDC unit) and Phoenix Lamps (increased sourcing by Osram). Further, the company would continue to enter new segments in the non-automotive cable division. We expect FY2023E and FY2024E to be a strong years, driven by the normalisation of economic activity, improving demand, new launches and the acquisition of the LDC division. The recent acquisition of the LDC unit could impact profitability in the medium term, while the revenue contribution is expected to increase by ~20%. "Propelled by a robust business outlook and prudent capital allocation, we expect Suprajit's earnings to report a 24.3% CAGR during FY2022-FY2024E, driven by a 27.2% revenue CAGR, partially offset by a 50 bps decline in EBITDA margins. The stock trades at a P/E multiple of 14.9x and EV/EBITDA multiples of 9.8x its FY25E estimates, trading below its historical average. We retain our Buy rating on the stock with a revised price target (PT) of Rs.403," the brokerage has said.

Key Risks - Chips supply shortage, rising commodity prices, and transportation constraints remain key concerns. Moreover, delayed approval from OEMs for incremental business may affect performance.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.