Smallcap Auto Stock Trading Below Rs 400 Is Hot To Buy, 24% Returns Ahead; Paid 230% Dividend YTD

India's largest manufacturer of automotive cables, Suprajit Engineering is a hot stock to buy as the company is well-poised for abundant gains from the industry and also acquisition of Light Duty Cables (LDC) is a synergy fit. More profitability can also give the opportunity more benefits for traders in this smallcap stock which is trading below Rs 400 per share currently on exchanges. Because Suprajit is among dividend-paying stocks!

At the time of writing, Suprajit shares traded at Rs 394.80 apiece, up by nearly 1.8% on BSE. The stock was near its intraday high of Rs 395.15 apiece.

Last month, the stock turned ex-dividend for the final dividend payout to the tune of 125% amounting to Rs 1.25 per share for FY23. Overall, in the financial year 2022-23, Suprajit paid a total of 230% dividend valuing Rs 2.3 per share to its shareholders.

The company has held a consistent track record of paying dividends to its investors. As per Trendlyne data, since July 2003, Suprajit has declared a whopping 41 dividends to date.

On the current market price, the stock's dividend yield is at 0.6%.

Following the strong outlook ahead, Suprajit shares have the potential of nearly 24% upside in the near term.

In its research note dated October 12, LKP Securities said, "We believe SEL will benefit from the recovery in 2W and 4W OEMs. In the aftermarket cable segment, a large part of the business lies with unorganized players. Aftermarket accounts for ~16% of the cable division's revenue."

However, over the last few years, SEL has gained from the shift in business from the unorganized to the organized players. However, exports, which contribute ~18% of the segment revenue, are impacted by adverse macro conditions. Accordingly, the brokerage said, "We believe a recovery in the foreign markets will further add to the growth. We expect SEL's auto cables revenue to clock a 14% CAGR over FY23-25E."

Further, with the acquisition of Light Duty Cables (LDC), LKP said that SEL became the second largest player in cables globally. The huge scale of operation, close proximity to customers, cost leadership, and complementary customer & product portfolio will further aid SEL in the export market.

At present, LDC is facing the challenge of delayed cost pass-through from customers, which has impacted profitability; however, the company under SEL is negotiating with customers.

"We expect profitability to recover going ahead and estimate a 10% margin in FY25E. We also expect SEL and LDC to gain a significant market share in the global automotive cable industry (~5% currently) and the latter to post revenues of ₹7.6bn / ₹8.8 bn in FY24E/ FY25E," LKP's note added.

That being said, LKP recommended Buy on SEL for a target price of Rs 488 going forward.