Suprajit Engineering Limited (532509) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Suprajit Engineering Q1 FY '27 Earnings Conference Call hosted by Anand Rathi Shares and Stock Brokers. [Operator Instructions] Please note that this call is being recorded. I now hand the conference over to Mr. Mumuksh Mandlesha from Anand Rathi Shares and Stock Brokers. Thank you, and over to you, sir.

Yes. Thanks, Shruti. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to the Suprajit Engineering Q1 FY '27 Results Conference Call. I thank the management for taking time out for this call. From the management side, we have Mr. Ajith Kumar Rai, the Founder and Chairman; Mr. N.S. Mohan, MD and Group CEO; Mr. Akhilesh Rai, Director and Chief Strategy Officer; and Mr. Medappa Gowda J., CFO and Company Secretary. I request Ajith sir and team to give an introduction review about the results, and then we can follow up with the Q&A session. Over to you, sir.

Thank you, Mumuksh, and good morning to you all. Greetings from Suprajit. Thank you for joining us for the Q1 call. As you all know, the Middle East conflict, the oil and commodity prices, trade restrictions and shipping disruptions continue to be in play. Global automotive and non-automotive business have been not growing. They also stayed muted. India had a very good quarter in terms of the automotive numbers with the sector growing at about 22% and both passenger vehicle and 2-wheeler segments had a solid double-digit growth. From our point of view, I think our team will talk briefly about how we performed. But on an operating level, I think we have had an exceptionally good quarter. Consolidated revenue grew up by about 24%. EBITDA was up by nearly 57%. We had the highest ever quarterly operating revenue of INR 1,070 crores in this quarter. Stand-alone margins came under pressure, and Mohan will be walking through that as to what happened and how it's going to be a temporary phenomena for us. And then we will take on the questions after all our briefings done from our team. First of all, I'll hand over to Medappa for a brief financial detail. Medappa?

Yes. Thank you, sir. Good morning, everyone. The consolidated revenue for the quarter ended June 2026 was INR 1,070 crores as against INR 863 crores for the corresponding previous year, recording a growth of 24%. The consolidated operational EBITDA for the quarter ended June 2026 was INR 129 crores as against INR 82 crores for the corresponding previous year, recording a growth of 57%. The stand-alone revenue for the quarter ended June 2026 was INR 470 crores against INR 390 crores for the previous year, recording a growth of 20%. The stand-alone operational EBITDA for the quarter ended June 2026 was INR 60 crores against INR 61 crores for the corresponding previous year, recording a growth of -- degrowth of 0.3%. The total debt level was INR 776 crores as on June 2026. Surplus cash balance was INR 243 crores as on June 2026 invested in the mutual funds and bonds. For further queries, you can connect with me even after the call. Thank you very much.

Mohan?

Very good morning. Thank you, Medappa. So let's start with the Global Cables and Mechatronics, what we call it as GCM now, which used to be formerly called as SCD, Suprajit Controls Division. First of all, the revenue went up by 27% -- almost 28% and EBITDA moved very smartly from 5.8% to 12.6%. This has been an outcome of the global restructuring that we had been explaining over the last few quarters. Thank you for all your patience, and we are finally seeing the results here. GCM continues to work with our customers and also with some of the governments for a fair recovery of the tariffs, particularly in U.S.A. And we have certain V-A-T, VAT recoveries in China, Canada and Germany, which was a part of the acquisitions that we had done there. In terms of new business, we are ramping up new projects, both in China and in India. The China, we have one of the largest OEMs that we are now working with, and we are going to launch the product with them is the Chinese OEM. And again, in India, we are launching quite a few lines and products for a large U.S. OEM who is specifically looking to building a resilient supply chain as they describe it. These are all driving good volumes at the GCM. This quarter was very strong for new business wins also, and we have recorded business wins across India, Mexico, China, which I think is showing the customers' various preferences, particularly with the kind of global footprint that we have today. With this, I move to India. And before I get into the specifics, let me just talk about something in general. First things first, I think we need to recognize that we have strong headwinds that has hit us not in terms of the market itself, market is doing good, but the raw material prices have really gone sky high. And to compound with that, what we have had is an increase in employee costs. So this happened, as you know, in the NCR region, all those unrest happened and the elections happened. Therefore, we had a lot of migration of labor going back to their work -- to work in their constituency. Therefore, these were the kind of headwinds we faced. While we have mechanisms with our customers to tackle with the material cost increases, employee cost increase has been a different angle for us. And for the first time in many years, we have approached the customers to pass this on to. And quite many customers understand this pain point and some of them have already agreed to make payments. I'm sure that we should be able to see a reason in the industry and make good of it neck of the productivity measures that we are going to take. Having said that, let me start now with the specifics. Now I move to India Cables and Mechatronics or ICM, which we used to call it as DCD earlier. Revenues went up by almost 21%. This is broad-based. If you look at it, OEM, aftermarket, everything put together. But EBITDA grew only by 4.2% with the margins down from almost 15% to 13%. This was primarily due to the cost pressures that I mentioned to you. In our opinion, this is very clearly a timing problem. We haven't yet passed through all these raw material and wages increase to the customer. And the process will get completed in the coming quarter and the margins will recover. Our braking products, we are moving very well. And on a small base, a smaller base, but on a long journey, it always starts with a small step. The CBS revenues went up by 110%, brake shoes and brake pads went up by around 80%. So I think it's a good start in our braking area. Moving over to Phoenix Lighting and Electricals or PLE, what we used to call as PLD earlier. Our revenues went up by 5.4%, but EBITDA went down by 45%. Margins went down 2.8% to 6.7%, primarily due to delayed price increases and also in -- particularly in the aftermarket business. And new prices are now in effect, and we expect a recovery going forward in Q2, Q3. Trifa sales in Middle East still remains soft. And on a positive side, we have started ramping up deliveries to one of the largest retailers in the U.S. who awarded significant additional business. So, overall, while we look at damp results in Phoenix Lighting and Electricals, we look at that brightening going forward. With this, I'm going to hand it over to Akhilesh to take us through Sensors, Electronics, Displays and Technology sector. Over to you, Akhilesh.

Yes. Thank you, Mohan, and good morning, everyone. From the Sensors and Electronics and Displays division, it had a very strong quarter. Revenue is up 48%, EBITDA up 100%, margins close to double digits. This is because of a lot of new projects that ramped up very well in the quarter and will be continuing to ramp up. A lot of strength is in the digital clusters and electronic throttle grip area where that is driving the growth of the business. We also have a very good pipeline of new wins, which is why we are now on a war footing, expanding capacity of our Electronics division to cater to this increased demand and our pipeline. SED has also picked up a lot of good awards worth noting. Firstly, from Mahindra Last Mile Mobility, we got an award for our extraordinary efforts in ramping up the throttle supplies that we had this year. This is all because of the rare earth curves that were put on India, and we had developed a rare earth-free throttle. So they had to very quickly move to Suprajit and that ramp-up was extremely difficult this year, but we managed successfully, and we have now won further businesses with Mahindra. Similarly, we also on operations, continue to have excellence in operations as well, and that's shown with the ACMA Manufacturing Excellence Award, which SED won this year -- this quarter. Coming to STC because SCS is now part of GCM, so I won't be covering it. It is already covered with Mohan under GCM. So coming to STC, it, of course, is our R&D engine, continues to support a lot of projects, including the ABS and sunroof cable projects, which are now progressing towards progressing well. And STC and ICM have jointly picked up the Ather's Most Innovative Supplier Award, really showing the kind of capability that we are building as a true technology provider in India. The new STC building is on track now for completion in Q3, and we would look forward to hosting our investors there sometime. General updates, I think we also have won a lot of good awards from Bajaj JIPM TPM Excellence Award. TVS Motors gave us a Platinum award for our TPM process as well. And those show that we continue to have great support from all our customers, whether it's ICE or EV. So, with that, over to you, Chairman.

Thank you, Akhilesh. Just to sum up, I think the GCM restructuring is completed and the numbers of the quarter clearly show that the restructuring has yielded the right results for us. ICM and PLE margin pressure, as Mohan has explained, it is a timing issue and a price pass-through, and we expect that to be recovering well in this and the next quarter. The guidance we gave, I mean, despite all these things, the guidance that we gave in our press release dated 25th May 2026, still holds for the year. I don't think there is any concern on meeting the guidance that we have already set out. Thank you all for joining. Now I hand over to Shruti at the Chorus to start organizing the call and the questions. Thank you.

[Operator Instructions] The first question is from the line of Viraj from SiMPL.

Congratulations on decent set of numbers in a very volatile environment. Just a couple of questions. First is on the GCM. So if you look at the consol numbers also and the segmental which you gave, the margin which we earned this quarter, was there any one-off in terms of write-backs or any FX element in this?

In operational result, there is no. Operational performance.

So in the Global Cables...

Yes. GCM, whatever the operational number that we have set out, there isn't anything that is a one-off number in that. I mean, there may be small one-offs, but nothing that is material, no.

Okay. Because if you look at the consol margin -- if you look at the consol gross margin, contribution margin for us, we have seen a very healthy expansion given this is despite the pressure we have seen on the RM and the stand-alone of the India business and also considering that the overall raw material environment has been very inflationary. So despite that, we've seen a very healthy gross margin in the consol. So I'm assuming that in the subsidiaries of the global business, we've seen a very healthy expansion in contribution margin. So I'm just trying to understand what is driving this?

I think one is please understand the restructuring has made our operations very tight. And it is much leaner now compared to what it was earlier. That is number one. Number two, there is a top line growth of whatever, 20-plus percent. Now automatically, when the operations are tight and lean and efficient and the top line grows, it automatically drops into the gross margins. Please also note during the course of last year, we have initiated quite a few cost improvement projects within the group globally. So that also has had its effect. So there is nothing one-off in this actually. So, improvement in margins, yes.

Okay. So this margin of 12%, 12.5%, which we earned this quarter, this is what should broadly sustain?

We did mention about 10.5%, I think 10.5% to 12% was what we said in the beginning of the year. At this moment, it is at about 12-plus percent, but I will still stick to my guidance that we have given for GCM at whatever, 10% to 12%. Again, it depends upon the product mixes as we go forward. So new projects are getting launched. So we have to actually see how the margins are. That 10% to 12% at GCM is very much on the cards. Right now, it is on the higher side, a little bit, yes.

Okay. And the second question was on the India business. See, I understand there was a raw material impact and the wage inflation. But typically, do OEs, they do give the escalation from the wage impact? Or do you see any continual impact of that in coming quarters?

Honestly, we are in discussion with the customers. I think the pass-through of materials is not an issue. Pass-through of wage increases, which has been significant, particularly in the northern region is pretty significant. I think customers understand us our view. Some of them have agreed to pay. Some of them are still dally. So that's why I said it takes one or two quarters to convince this part of the increments. But having said that, we are also working on a lot of cost reduction within the organization. So my view is that by Q2, Q3, let's say, latest, we should be recovering most of that lost 100 basis points here and there on the wage.

The next question is from the line of Anubhav Mukherjee from Prescient Capital.

Sir, congrats on a great set of numbers. Sir, my first question is, will it be possible to share separately the revenue contribution and EBITDA margin for SCS in Q1?

No, we have very clearly said last year itself, end of the year, even when we acquired itself that the SCS will be separately disclosed for a year till March this year, just to show how the progress we have done post acquisition. And once -- and that it will turn EBITDA positive. And once that is done, we have said that we are going to combine that in global cables and mechatronics. The reason is simple. they all work in tandem with each other. Now the names of SCS, LDC, Wescon, they all vanish from the scene. They are all acquisition entities, acquisition names. Today, GCM operates as a single entity as far as we are concerned. There are entities within GCM, which will disclose their numbers end of the year, which you'll get to see. But it has got no meaning actually because the way we have restructured it in such a way that the LDC entity has been -- Wescon entity has been shut down and merged with the LDC. SCS in Germany has been restructured. The warehouse of SCS has moved to old LDC. There are so many things have happened. So separately disclosing has got no meaning anymore, which you have explained earlier con calls also. So it will be under GCM.

Got it, sir. And sir, the very strong revenue growth of 28% in GCM. Can you share some perspective on like what kind of growth you expect for the rest of the financial year in GCM yes?

Let me. Also let me clarify a little bit. I think the second tranche of SCS Canada and China happened in May. So we didn't have the revenue of April and May of the second tranche of SCS last year. So actually, optically, the number of 27% is -- I must state that is not entirely right. I think if you offset those two months revenues, the growth is around 23% or so actually because the acquisition completed end of May last year. So that slight variation is there. Having said that, it's still a very good growth. What we are seeing from at least a month number that we see as of July, it is still very strong. August is a month where, of course, it's the same thing for last year also is a month of holidays in Europe and most of the places. So revenues are -- whether the revenue growth will be there or not compared to first quarter, I do not know. But compared to last, still strong double-digit growth for this quarter also for GCM.

Okay. Sir, my last question is the other income for Q1 compared to Q1 last financial year, that has seen a sharp drop. So can you -- the composition, yes.

Yes, the composition there are multi. I think there are so many things, but I will summarize this way. There are a few elements in it. One is restatement of our, let's say, loans across our divisions, it gets restated. We have quarter end creditors and debtors, which is in different, different currencies, that gets restated. There is also forward covers that we have made. There is a certain portion of the forward cover, which does not go through the balance sheet. It comes into the P&L. And there is also some other income that accrue. For example, last year, we had some subsidy came into Morocco, which is not there this year. So these four, five elements, if you see last year from the beginning of last year to end of the last year, the dollar rupee dollar, rupee, euro, all was very positive in terms of change. That's why you saw a large number end of last year. Since March now, it is more or less stable. So that fluctuation isn't there. So there is no delta there. That's why that amount for the first quarter is much smaller.

That. Sir, my final question before I get back in the queue, sir. In the SED division, can you share some light on like what is driving the growth? And is it like mainly driven by the digital cluster business? And what kind of new business wins are we getting in that?

Mohan, will you answer that question?

Sure. Well, we need to break it down into three major product groups. One, I would call it as display systems, that is instrument clusters. Second one, I would call it as actuators and sensors. And the third one specifically within sensor, it would be the throttle position sensor or TPS as we call it. So on all the three accounts, we are seeing growth. We are seeing growth happening. And it is not just across one customer. We have got a couple of customers. In fact, if there is one problem, and it's a good problem to have, this month and next month is multiple launches. I'm facing about six launches in my plant with various customers. Therefore, is it a problem? The answer is yes, but it's a good problem to have. So are we gaining traction on all these product groups? The answer is yes, with multiple customers.

And to add to what Mohan said, just as a matter of general information, I think July has been an exceptionally good month at the Electronics division clocking the highest sales. And I think the trend seems to be continuing at the moment.

The next question is from the line of [ Rakesh from Axis AMC ].

Congratulations, sir, on a good set of numbers. I think some good delivery from last four to eight quarters, what the efforts we have taken. Now sir, looking at your presentation, the FAQs clearly highlight one thing that the -- our product portfolio today do not cater the EV powertrain in a very significant way, while the market is moving in a direction, at least in 2-wheeler 3-wheelers and PVs, where currently, a large part of the growth is being driven over there. So how is the management thinking in terms of catering to this journey of EV right now? I mean, organically, how are we placed? And I mean, if I missed out any of your products, which are not there in presentation? And how should we think about our participation in this growth phase of EV?

I will ask Akhilesh to answer this. Akhilesh, on our EV journey and what we are doing and what are the products that's going in?

Yes, sure. So of course, we are very much and very deeply involved with the EV, with many EV customers. I would say EV has been a great driver of our growth, especially at SED, but also in our ICM division. So I understand your question is just around the drivetrain. We don't specifically look at the drivetrain itself. But we look at very agnostic products that will support EVs and non-EV programs. Please understand that just like an EV as to a drivetrain makes a vehicle go forward, we also need to stop that vehicle. So our focus has been on the stopping side and looking at braking as a key technology going forward. because EVs, just like the drivetrain has changed, also the requirement of the braking is changing. And we are in the right place at the right time with a lot of good technologies in braking to support this change. And I think that's why, for example, Ather has given an innovation award and they gave us their key braking system products. It is because of this kind of knowledge and technology that we are building. And I think Ather, as you know, is well renowned technology name in the EV industry in India. And similarly, we supply to all the new age EV brands for some of our products. I mean it depends on whether it's clusters or actuators or braking products or even our core cable product. We are still supplying to practically all the EV players in India.

Sure. Can you help us how the content of braking or actuation products would have? Or is it how different it is for EVs versus ICE in whatever customers we are catering to?

The content per vehicle for the most part is the same in terms of EV versus ICE, but because we're going from our core product of INR 100 cable to a product of braking, which could be anything from INR 400 CBS to INR 1,500, INR 2,000 brake systems or from speedometer cables to digital clusters, which can again span from INR 700, INR 800 to INR 7,000 depending on the cluster. So each of our product lines are increasing by at least 3x to 4x, 5x in terms of price that we sell to our customers. But in terms of whether EV and ICE, there is no real difference. I mean the EV or ICE could pick any of these products going forward.

I think just to add what Akhilesh has said, I think it's important to understand between ICM and SED, both are in the -- significantly in the 2-wheeler kind of space. If you add them together, the kind of growth we had is ahead of the automotive industry growth. So what I'm trying to say is that a couple of years ago, we have sort of said that some part of our cable portfolio may become or changed over to something else. But at the same time, we have said our content per vehicle will increase. We still hold the same view, whether it is ICE, whether it is EV, our overall content in the 2-wheeler per vehicle, I think it's only increasing as we see it now.

[Operator Instructions] The next question is from the line of Gokul Maheshwari from Awriga Capital.

I just have a couple of questions. So one is on the GCM business. Is there an element of ForEx, which would have come in with respect to enhancing your growth rates? Or if you could just provide what could be a constant currency kind of growth rate which we would have experienced in Q1?

As you know, Gokul, we have not been announcing the constant currency rate for all this because there are so many multicurrencies involved. So, yes, there would be some. I would not deny that because but in the last quarter, at least, there has not been a much change in the no significant change in the rates, whereas I think during the course of last year, there has been an increase in dollar-rupee conversion significantly. But I think now it has been around whatever, INR 95, INR 96 has been more or less stable. I think that would be the rate at which it has been -- that has been used.

And any tariff recoveries happened in this quarter?

Yes, please understand tariff recovery is a double-edged sold. If the customer has given the tariff relief to us, we'll have to give it back to them. And if they have not given it, that is the only thing that we can recover. So as we have always said, most of it has been passed on in our last year's -- what is that, our press releases. Most of it that has come back also needs to be going back. There will be some delta, if you ask me. I mean, we always like to hold on to something. But that is something -- it is difficult to quantify it here, but that would not be very significant.

Okay. Just lastly, on the domestic business, this year -- this quarter, we grew 20%, which is fantastic. If you could just give us sort of a flavor with respect to the broader breakup between the core traditional business in terms of the cables and how this is -- how newer products within this segment are actually helping driving the growth. I'm not talking specifically of the numbers, but just more qualitative comment that how the new products are really contributing in ensuring that the growth rate is now matching with the sector growth rates...

I think in this, Gokul, I would say the other products, the non-cable or beyond cable products are basically some of these braking products like CBS and some of those related products. That is -- although they have grown very good, very well, as Mohan has sort of mentioned in his commentary, but they are still a small low base. So will that would have given it, let's say, a couple of percentage of traction to ICM, the answer is yes, but it is not beyond that. That's what I'm trying to say. So it's still a small base. I hope -- let's see how the whole year goes. Maybe next year, we will segregate braking separately out or whenever the time is right, then I think we'll also get to know more clearly that. But the base is still small, but they are growing at a much higher rate, yes.

The next question is from the line of [ Nishita Shanklesha from Sapphire Capital ].

So I'm just attending the call for the first time. I'm hearing about the company for the first time. So if you could just reiterate the guidance that you've given earlier, that would be great.

Okay. What we did was in the May after finalizing the Q4 and the year-on-year -- I mean, annual numbers, we have said that on a consolidated basis, we will grow in double digits and that the EBITDA margin range would be -- these are all operational numbers you are talking, 12% to 13.5%. We have said the Global Cables and Mechatronics will also have a double-digit growth with the EBITDA margin operationally at between 10% to 12%. ICM, we have said around the last year's number, which is, I think, about 5%, 15%. PLD, that is Phoenix Lighting and Electricals, we have again said around last year, which is about 12%. And yes, SED, we have said, again, in line with the last year, which was touching 10%. So, basically, we are aiming to do the 10% again. These are guidance that we have given last year for the current year.

The next question is from the line of Purnima from Kredent Family Office.

[indiscernible]

Can you please talk a little louder? I think you're a little weak. Sorry. I can't hear you properly, Purnima. Sorry. I'm not able to get your question. Not very good.

Sir, is it better?

Okay. Go ahead with your question. Let's see.

I wanted to ask what is the revenue number for LED retrofitting business. [indiscernible]

LED retrofit, I don't think we give any separate number for it. I don't think it is large enough to disclose. But Mohan, do you have any idea on what is the LED status on our retrofit general comment maybe?

No, I don't have specific information. I do know we track what we call it as beyond halogen. But specifically, is it such a significant number that we can disclose? The answer is no.

We don't have that.

Okay. And is that segment profitable? Do you have any idea about that?

It is profitable because the point is -- yes, go ahead, Mohan. You can comment on the retrofit generally maybe.