Suprajit Engineering : Q3 FY 2023 Earnings Conference Call Transcript

"Suprajit Engineering Limited

Q3 FY 2023 Earnings Conference Call"

February 14, 2023

MANAGEMENT: MR. K. AJITH KUMAR RAI - FOUNDER AND

CHAIRMAN - SUPRAJIT ENGINEERING LIMITED

MR. N.S. MOHAN - MANAGING DIRECTOR AND

GROUP CHIEF EXECUTIVE OFFICER - SUPRAJIT

ENGINEERING LIMITED

MR. AKHILESH RAI - DIRECTOR AND CHIEF

STRATEGY OFFICER - SUPRAJIT ENGINEERING

LIMITED

MR. MEDAPPA GOWDA J - CHIEF FINANCIAL OFFICER

AND COMPANY SECRETARY - SUPRAJIT ENGINEERING

LIMITED

MODERATOR: MR. VIJAY SARTHY - ANAND RATHI SHARE AND STOCK BROKERS LIMITED

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	Suprajit Engineering Limited
	February 14, 2023
Moderator:	Ladies and gentlemen, good day. And welcome to the Suprajit Engineering Q3 FY '23 Investors
	Call hosted by Anand Rathi Share and Stock Brokers Limited. As a reminder, all participant
	lines will be in the listen-only mode. There will be an opportunity for you to ask questions after
	the presentation concludes. Should you need assistance during the conference, please signal an
	operator by pressing star then zero on your touchtone phone.
	Please note that this conference is being recorded. I now hand the conference over to Mr. Vijay
	Sarthy from Anand Rathi Share and Stock Brokers Limited. Thank you. Over to you, sir.
Vijay Sarthy:	Thanks, Dorwin. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to the
	Q3 FY '23 conference call Suprajit Engineering. I thank the management for taking time out of
	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. Request Mr. Ajith to give an
	introduction review about the results and then follow it up with Q&A. Over to you, sir.
K Ajith Kumar Rai:	Good morning to you all. Thank you, Vijay. I appreciate all of you joining our Q3 results
	conference call. Thanks to Anand Rathi and the team. We have been able to interact with you
	over the years and that continues. As usual, I would request our team to make a short presentation
	on the results of Q3 and 3 quarters.
	And then I will give you a short few wrap-up points, and then we'll allow the questions to come
	in. With that, I will first hand over to Mohan, who will talk about all the businesses, except LDC
	and STC, which will be done by Akhilesh. Medappa will cover the financial side of the
	presentation before they hand it over to me. Over to Mohan.
N S Mohan:	Thank you very much. Good morning, everybody. As usual, what I'll do is I'll start with an
	overall assessment of the market situation. And then I'll move on to each one of the divisions.
	Well, generally speaking, October, and December quarter, we generally get hit by the year-end
	stock corrections by the OEMs because they are closing their accounts at the end of their
	calendar year. And this is also accompanied by Christmas and year-end closures. Therefore, this
	is generally kind of a quarter, which is not great.
	However, moving on specifically to Indian market, Indian market has shown some resilience.
	The urban market has picked up and is borne by the fact that passenger car vehicles really went
	up very smartly. However, the entry-level segment of 2-wheelers did not do well. But the
	nonentry-level segments of 2-wheelers had done very, very well. That's primarily because of
	some rural stress probably. And we are also seeing some liquidity tightness in the market.
	Moving on to China. China has come out of the COVID cold. Hello?
K Ajith Kumar Rai:	Yes. Go ahead, Mohan.
N S Mohan:	China came out of the COVID cold, and it has started warming up a bit. It's still plagued by
	supply chain issues. And particularly the Ukraine war fallout in China has also happened. This
	is particularly affecting the European OEMs in China, like BMW etcetera. Europe is reeling
	under an inflationary pressure, coupled with high energy costs and overall general uncertainty
	due to war.
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Suprajit Engineering Limited

February 14, 2023

So that's what the scene in Europe. US market is hit by, we all know, unprecedented levels of inflation in recent times. And raising interest rates, which they are trying to tame the inflation, but has deflating effect on the consumption. And we have seen that happening pronounced the amount of business in that market. Now I'll take you through each one of our business divisions.

At DCD or the Domestic Cable Division, despite the muted 2-wheeler growth, which incidentally hasn't crossed the pre-COVID levels, our growth has come. This is both on the revenue front and also on the margin front, we are pretty robust. We have been seeing some benign commodity prices but rather strangely in the last month, we have started seeing an

	upward swing again and I hope this will not turn into a trend.
	Our aftermarket fulfilment centre, which is a comprehensive table of aftermarket operations and
	warehousing, this we are going to start operations later this month. Moving on to the cable
	exports, the clouds of war, winter, energy, this has started affecting our overall business scenario.
	However, our consolidated sales and margin improvements is heartening. This is primarily
	because we have been able to get from our customers to compensate for the increased material
	cost. And this is coupled with also lower shipping and container costs. So together with this, I
	would like to say that our business pipeline has been pretty robust here.
	Moving on to SENA or the Non-Automotive Segment, the impact of inflation in the US market,
	high interest rates, tepid housing market, all these things have not helped. This slowdown is
	expected to continue to another quarter the way we look at it. At Phoenix Lamps Division, the
	margins smartly bounced back. We clocked a double-digit EBITDA margin. We -- as you know,
	we were testing the pricing elasticity in the Indian aftermarket, which I had been talking about
	it in the last few calls. And I think that has started yielding results.
	We have been making a few in-flight corrections, which were both responsive and proactive in
	the marketplace. And I think we had to show this agility, which we have done. This has been
	coupled with a laser sharp focus on cost reduction measures at the operations, and that has
	continued to yield that result. We focused our attention and actions on streamlining and making
	our overseas subsidiaries in PLD, more leaner and cost manageable. As you all know that we
	have 2 warehouses, 1 at Trifa and 1 at Luxlite and that we consolidated into 1 at Luxlite. We
	thinned down the staff at Trifa in line with the business. Now we are in the process of voluntarily
	winding down Trifa. And these, of course, are subject to statutory and other necessary approvals.
	So in effect, restructuring at Europe for PLD has gathered momentum. These restructuring
	actions will, in my opinion, rightsized our business and also the infrastructure in Europe and, of
	course, bring the cost down on a long run. So this gives you an overview to what's happening in
	our traditional business, and I would want Akhilesh to fill in on the LDC and STP. Over to you
	Akhilesh.
Akhilesh Rai:	Thank you, Mohan. In LDC update dated 25th July 2022 and 14th November 2020, we projected
	improvements in profitability despite significant headwinds in Europe, U.S. and China. Despite
	the unforeseeable headwinds of COVID as Mohan mentioned and related issues in China, we
	have still delivered our commitment of positive LDC EBITDA in Q3.

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Suprajit Engineering Limited

February 14, 2023

This improvement was based on operational improvements, integration synergies and share price adjustments from customers. On an operational level, LDC in Q1 was a negative 4.5% EBITDA. And in Q3, we showed a positive 3.7% EBITDA. This 8.2% improvement is significant in the

	automotive context and is very impressive work from the team there.
	In Shanghai, China, we had some severe disruptions in Q3 due to China COVID resurgence
	there, which led to a challenging environment for our Shanghai Lonestar plant. The team has
	done well to overcome these challenges, but we continue to see softer demand in China.
	In Siófok, Hungary, the team is doing well despite the continued slowdown in the automotive
	market there and inflationary trends in both labour and power costs. The operations have shown
	an improvement but select customer pricing discussions in that region are continuing into Q4.
	We expect these issues to be closed in this quarter. And Mr. Mohan had visited these customers
	in Q3 to help bring discussions to a conclusion. In Matamoros, Mexico, the team has architected
	a remarkable turnaround, both operational improvements, group synergies and more timely
	customer price enclosures in the U.S. supported the team there. A strong pipeline of business is
	seen and the team is highly motivated to improve the business further.
	At our tech center, STC, the focus has been to commercialize some of the innovative products
	we have developed over the last few years. Our participation at the Auto Expo showed Suprajit
	in a very different light to our current customers and attracted many new customers as well. The
	market got a clear message that while we continue to focus on our core competitive control
	cables, we have a strong appetite of growth beyond cables as an R&D and innovation focused
	organization, be it into mechatronics, mechanical systems, braking systems or electronics.
	Finally, our electronics facility is scaling up production with most of the products focused on
	the EV segment and with the majority of India's leading EV customers.
	This facility is expected to be a material contributor in Suprajit' s organic growth and
	profitability in years to come. Thank you. And with that, I hand it back over to Chairman.
K Ajith Kumar Rai:	Medappa?
Medappa Gowda J:	Good morning, everyone. The consolidated revenue, including LDC for the 9 months ended 31st
	December 2022 was INR 2,053 crores, against INR 1,335 crores the previous year, recording a
	growth of 54%. The consolidated operational EBITDA for the 9 months ended 31st December
	2022 was INR 223 crores, against INR 190 crores for the corresponding previous year, with a
	growth of 17%. The consolidated revenue excluding LDC for the 9 months ended 31st December
	2022 was INR 1,545 crores, against INR 1,335 crores last year, recording growth of 16%. The
	consolidated operational EBITDA for the 9 months ended the 31st of December 2022 was INR
	225 crores against INR 190 crores for the corresponding previous year, recording a growth of
	18%.
	The standalone revenue for the 9 months ended 31st December 2022 was INR 1,092 crores,
	against INR 915 crores previous year, recording growth of 19%. The standalone operational
	EBITDA for the 9 months ended 31 December 2022 was INR 187 crores, against INR 157 crores
	last year, recording growth of 19%. The total group debt level was INR 604 crores, against -- as
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	Suprajit Engineering Limited
	February 14, 2023
	on 31st December 2022 and we have a surplus cash of INR 343 crores as on 31st December
	2022 invested in mutual funds. The Board has declared an interim dividend of 105% for the year
	'22 and '23. For further queries, you can approach any time as usual. Thank you very much.
K Ajith Kumar Rai:	Thank you, Medappa. I think overall, what I would like to conclude is to say that we had a solid
	and good Q3 with solid improvements across our divisions within the group. For the first time
	in many quarters, PLD has done a double-digit EBITDA margin, which has been very
	heartening. Domestic cable division has done nearly 19%, again, one of the best in recent times.
	Suprajit Automotive plus Suprajit Europe, our original export group have done a good
	improvement in margins and also improvement in sales. SENA has been steady. LDC, as
	Akhilesh has mentioned, it has become EBITDA positive in the third quarter. Overall, I would
	say we had a good growth and a very good improvement in margin in Q3. Despite Mohan and
	others are talking about the gloom and doom, despite that, I think we have turned out an excellent
	performance. The Q4 is also expected to be fairly steady and good. We have made the comments
	on -- in our business update.
	With that, I will now let the questions to come so that we can specifically answer any of the
	questions that you may have. So I'll hand over to Dorwin, the moderator to start the questions to
	come in. Dorwin?
Moderator:	The first question is from the line of Aashin Modi from Equirus.
Aashin Modi:	Congratulations for decent margin performance. So sir, my first question is regarding PLD
	margins. So sir, you've talked about that the gross margin over here was hit by high gas prices.
	So if you could help us understand where are the gas prices now? And secondly, if you could
	also let us understand markets of Trifa and Luxlite in the last 2, 3 quarters and how...
K Ajith Kumar Rai;	Sorry, I'm missing on the Luxlite. What is the question on Luxlite? Hello?
Moderator:	Sir, the participant in the queue currently has dropped from the queue, sir?
K Ajith Kumar Rai:	Okay. I will answer for the purpose of others. I didn't understand the second question on Luxlite.
	The gas prices have come down, but it has not gone back to the historic levels. But what our
	operations team has done an excellent work was improve the efficiencies within the plant to get
	a better margin out of the entire operations. And also, of course, we have been able to pass on
	some of the price increases. And that's the reason why the margin at PLD has improved. So you
	can go to the next question.
Moderator:	We have the next question from the line of Mumuksh Mandlesha from Emkay Global.
Mumuksh Mandlesha:	Congratulations on our turndown in LDC and lamps margin, sir. So we visited the Suprajit
	pavilion in the Auto Component Expo and there you have showcased your wide range of new
	products such as mechanical disc brake display system, electronic throttles, actuators,
	speedometers and seeder gear boxes. Can you highlight how has been the response to the new
	products and particularly on the mechanical disc brake systems, which make use of sensors is
	particularly the cheaper than the disc brake systems?
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