Excerpts from an interview with Mr Ajith Rai, chairman and managing director of Suprajit Engineering published in Livemint dated 5th September 2019Assetmultiplier
Update on Indian market: On Friday, Nifty gained (+0.91%) to 10,946. Within NIFTY stocks, top performers were Maruti (+3.9%), Tech M (+3.8%) and Tata Steel (+3.4%) and worst performers were Indiabulls Housing (-4.6%) and Yes bank (-1.9%). Among the sectoral indices, best performers were Auto (+2.6%) and Media (+1.9%) and Pvt banks (+1.4%). Worst performing sectors were Realty (-0.6%) and FMCG (-0.2).
Excerpts from an interview with Mr Ajith Rai, chairman and managing director of Suprajit Engineering published in Livemint dated 5th September 2019.
- The auto ancillaries are probably weathering the storm slightly better. In Suprajit’s case, quite a few of these OEMs have reduced their shares of the business because of their business slow down by 10-20%.
- Companies such as Suprajit have diverse exposure, not only customer wise, across the segment from two-wheelers to LCV, HCV and automotive. They also have multi-sector exposure.
- They are in two-wheelers, they are in the aftermarkets, they are in exports and they are in non-automotive business. So, fortunately, for Suprajit, though the Indian OEM business is an insignificant part for them, from the overall perspective they have not been that badly affected.
- From an overall point of view, this slowdown is certainly affecting all of the auto ancillary companies but it is a question of how badly or how least affected one is. Suprajit is one of the least affected ones in this business.
- Suprajit has 17 plants across with capacity utilization of around 75% at this moment plus or minus 5% depending upon the plant and the units.
- They are improving their operational efficiencies. They are able to deal with the slowdown more efficiently.
- They get regular schedules from OEMs. At the end of the month, they get the schedule for the next month but during the month also, there is a lot of fluctuation that happens with the OEMs because they also go by what their distributors and the end-users want. So there is a change during the month itself.
- Mr Rai said that “Over the 35 years of my life as an auto ancillary, there have been at least four slowdowns or cyclical downturns and these downturns typically last anywhere from 12 months to 24 months. We are through for about 12 months. It started somewhere in last September. So we are already one year into it and probably at least another six months to 12 months is still pending.”
- There are multiple reasons for the slowdown or the cyclical downturn. Right now it could be the EV threat, it could be the additional cost or it could be the BS-VI issues or the GST.
- They all are basically waiting for whether the GST comes down or not, whether the GST effect is there or not, whenever that happens, somebody has to take a hit.
- However, the real story is that the demand itself has to pick up. He thinks it will have to go through the whole cycle to get back to normalcy.
Consensus Estimate (Source: marketscreener website)
- The closing price of Suprajit engineering was Rs 160/- as on 6th September 2019. It traded at 17x / 14x the consensus EPS for FY 20E / FY 21E of Rs 9.4 / 11.1 respectively.
- Consensus target price of Rs 182/- implies a PE of 16x on FY21E EPS of Rs 11.1.