Breaking Down Suprajit Engineering Limited Financial Health: Key Insights for Investors

Understanding Suprajit Engineering Limited Revenue Streams

Understanding Suprajit Engineering Limited’s Revenue Streams

Suprajit Engineering Limited, a key player in the Indian automotive industry, has diversified revenue streams that contribute to its overall financial health. The company primarily engages in manufacturing automotive cables and engineering products.

The breakdown of Suprajit’s revenue sources highlights a mix of products and services across various regions:

• Automotive Cables: Approximately 65% of total revenue
• Engineering Products: Around 20% of total revenue
• Other segments (including non-automotive products): About 15% of total revenue

Year-over-year revenue growth for Suprajit Engineering has shown positive trends. In FY2022, the company reported revenues of ₹1,257 crores, representing a 24% increase from ₹1,014 crores in FY2021. The compound annual growth rate (CAGR) over the last three years has been approximately 16%.

The contribution of different business segments to overall revenue illustrates an interesting dynamic:

Notable changes in revenue streams include the increased focus on automotive cables, which saw significant growth due to the rising demand from the growing automotive sector. In contrast, the engineering products segment also performed well, driven by expansion in both domestic and international markets.

This comprehensive revenue analysis underscores Suprajit Engineering Limited’s robust financial health and growth potential, driven by strategic shifts in product focus and market expansion.

A Deep Dive into Suprajit Engineering Limited Profitability

Profitability Metrics

Suprajit Engineering Limited has displayed a noteworthy profitability trajectory over the years. Analyzing its gross profit, operating profit, and net profit margins reveals the company's operational effectiveness and overall financial health.

Gross Profit Margin

For the financial year 2022-23, Suprajit Engineering Limited reported a gross profit margin of 29.6%, showing a positive trend from 28.5% in the previous fiscal year. This improvement indicates enhanced production efficiency and cost management in raw materials.

Operating Profit Margin

The operating profit margin also demonstrated robust performance, landing at 19.2% in FY 2022-23 compared to 17.8% in FY 2021-22. This growth is reflective of streamlined operations and effective expense management.

Net Profit Margin

As for the net profit margin, it reached 12.5% in FY 2022-23, an increase from 11.0% reported in FY 2021-22. This rise is attributed to increased sales and better control over operational costs.

Trends in Profitability Over Time

The following table encapsulates the profitability trends over a three-year span:

Comparison with Industry Averages

When compared with industry averages, which hover around 25% for gross profit margin, 15% for operating profit margin, and 10% for net profit margin, Suprajit Engineering Limited outperforms its peers significantly across all profitability metrics.

Analysis of Operational Efficiency

Cost management has played a pivotal role in the company's profitability. The gross margin indicates an upward trend, suggesting effective procurement strategies and production enhancements. Additionally, the significant improvement in operating margins points towards disciplined fixed cost management and operational efficiencies.

In terms of efficiency ratios, the return on equity (ROE) stands at 18.0% for FY 2022-23, showcasing the company's ability to leverage shareholder investments effectively.

Overall, Suprajit Engineering Limited's profitability metrics reflect a solid financial foundation, supported by strategic cost management and operational efficiencies that position the company favorably within its industry. These insights serve as a crucial consideration for potential investors looking to assess the company's financial health.

Debt vs. Equity: How Suprajit Engineering Limited Finances Its Growth

Debt vs. Equity Structure of Suprajit Engineering Limited

Suprajit Engineering Limited, as of the latest financial year, reported a total debt of ₹1,340 million. This amount is divided into long-term and short-term debt, with long-term debt accounting for ₹1,000 million and short-term debt at ₹340 million. This indicates a significant reliance on long-term financing for its operational and expansion needs.

The debt-to-equity ratio of Suprajit Engineering stands at 0.50 as of the last quarter, which is comparatively lower than the auto ancillary industry average of 0.75. This suggests that Suprajit Engineering is less leveraged than many of its peers, ensuring a more conservative approach to financing.

Recently, Suprajit Engineering issued bonds worth ₹500 million to refinance existing debt, aiming to capitalize on lower interest rates and extend its maturities. This move has improved their interest coverage ratio, which now stands at 4.0, indicating a robust capacity to meet interest obligations.

The credit rating for Suprajit Engineering is currently rated as 'AA-' by CRISIL, reflecting a strong ability to service debt and the company's sound financial health. The firm has consistently maintained this rating, highlighting its effective debt management strategies.

Suprajit balances its debt financing with equity funding efficiently, demonstrating a clear strategy by raising equity capital during favorable market conditions. The company’s equity consists of ₹2,680 million, leading to a total equity-to-assets ratio of 0.67. This suggests a solid equity base to support both growth and financial stability.

In summary, Suprajit Engineering Limited maintains a prudent balance between debt and equity financing, enabling sustained growth while minimizing risks associated with high leverage.

Assessing Suprajit Engineering Limited Liquidity

Assessing Suprajit Engineering Limited's Liquidity

Analyzing Suprajit Engineering Limited's liquidity involves examining its current and quick ratios, working capital trends, and cash flow statements. These metrics help investors gauge the company's short-term financial health.

Current and Quick Ratios

As of the latest financial report for the fiscal year ending March 2023, Suprajit Engineering's current assets amounted to ₹1,046 crores, while current liabilities were reported at ₹579 crores. This results in a current ratio of:

The quick ratio, which excludes inventory from current assets, is calculated as follows. With inventory valued at ₹118 crores, the quick assets total ₹928 crores.

Both ratios indicate that Suprajit Engineering Limited appears to maintain a solid liquidity position, boasting a current ratio above 1.5 and a quick ratio that also exceeds 1.5.

Analysis of Working Capital Trends

Working capital, defined as current assets minus current liabilities, for Suprajit Engineering was reported as:

This indicates a healthy working capital position, which has shown improvement over the past year, reflecting effective management of receivables and payables.

Cash Flow Statements Overview

Looking at the cash flow statements for the fiscal year ending March 2023:

The operating cash flow is positive, indicating strong core business operations. However, investing and financing cash flows are negative, which is common for firms investing in growth and managing debt repayments.

Potential Liquidity Concerns or Strengths

Despite a strong liquidity position, potential concerns include the reliance on cash generated from operations to fund capital expenditures. Furthermore, any downturn in demand could restrict cash flows. However, Suprajit Engineering's solid working capital and favorable liquidity ratios suggest that the company is currently well-positioned to navigate short-term financial obligations.

Is Suprajit Engineering Limited Overvalued or Undervalued?

Valuation Analysis

Suprajit Engineering Limited's financial health can be evaluated using several key ratios and metrics that help shed light on whether the company is overvalued or undervalued in the current market. This analysis will focus on the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, along with stock price trends, dividend yield, and analyst consensus.

Valuation Ratios

As of the latest financial reports:

• P/E Ratio: 29.4
• P/B Ratio: 4.1
• EV/EBITDA Ratio: 17.2

These ratios suggest that investors are paying a premium for earnings and book value, indicating that the stock might be overvalued compared to industry peers.

Stock Price Trends

Looking at the stock price trends over the last 12 months, the following data is relevant:

The stock has appreciated by approximately 27.3% over the past year, reflecting positive market sentiment.

Dividend Yield and Payout Ratios

For investors considering income generation through dividends:

• Dividend Yield: 1.2%
• Payout Ratio: 15%

The modest dividend yield coupled with a low payout ratio suggests that the company is reinvesting a significant portion of its earnings for growth rather than distributing them to shareholders.

Analyst Consensus

Market analysts have provided their insights on Suprajit Engineering's stock valuation:

• Buy: 5 analysts
• Hold: 3 analysts
• Sell: 2 analysts

This consensus indicates a generally positive outlook among analysts, although there are mixed opinions on the stock's current valuation.

In summary, while Suprajit Engineering Limited shows strong price appreciation and a favorable analyst consensus, its valuation ratios suggest potential overvaluation in comparison to its earnings and book value. The company's approach to dividend payouts indicates a focus on growth, which could be appealing for long-term investors. However, caution may be warranted for those seeking immediate returns or lower-risk investments.

Key Risks Facing Suprajit Engineering Limited

Risk Factors

Suprajit Engineering Limited faces several internal and external risks that could impact its financial health. Key risks include increased industry competition, regulatory changes, and fluctuating market conditions.

In the automotive and engineering sectors, competition has intensified due to the entry of new players and technological advancements. According to the latest market report, the global automotive parts market is expected to grow at a CAGR of 6.2% from 2023 to 2030, increasing pressure on existing companies, including Suprajit. Failure to innovate could erode market share.

Regulatory changes pose another significant risk. For instance, stricter emission norms and safety regulations could lead to increased compliance costs and operational adjustments. Recent guidelines from the Central Motor Vehicle Rules in India require more stringent testing standards which may require capital investment from manufacturers.

Market conditions are also volatile, influenced by global economic factors. In FY 2022-2023, Suprajit reported a revenue growth of 16% year-on-year, yet the ongoing geopolitical tensions and supply chain disruptions due to the COVID-19 pandemic have left the company vulnerable to fluctuations in raw material prices, specifically copper and plastics, which are integral to its products.

Operational Risks

Operational risks are a pertinent concern for Suprajit. The company relies heavily on its manufacturing facilities located in India, which may be susceptible to labor strikes, natural disasters, or equipment failures. In their recent earnings report, Suprajit noted an increase in employee costs which could impact margins if not managed effectively.

Financial risks also play a role in the company’s overall risk profile. Suprajit has a debt-to-equity ratio of 0.65, indicating moderate financial leverage. However, fluctuations in interest rates could increase borrowing costs, affecting profitability. In FY 2022, interest expenses amounted to ₹45.3 million, underscoring the need for prudent financial management.

Strategic Risks

Suprajit’s strategy to expand into new markets carries inherent risks. The company's efforts to penetrate the European market could encounter barriers such as trade tariffs and local competition. For instance, the European Union's proposed carbon border adjustment mechanism could impact pricing and profit margins for manufacturing firms importing goods.

Mitigation Strategies

To tackle these risks, Suprajit has implemented various mitigation strategies. The company is investing in automation and efficiency improvements aimed at reducing operational costs. Management has indicated plans to diversify its supplier base to mitigate risks associated with raw material prices and supply chain vulnerabilities.

Additionally, the company is focused on R&D to innovate and expand its product portfolio, aiming to cater to both domestic and international markets. This proactive approach may serve to enhance competitive positioning and drive sustainable growth.

Future Growth Prospects for Suprajit Engineering Limited

Growth Opportunities

Suprajit Engineering Limited, a leading manufacturer of automotive cables and components, has positioned itself for robust growth in the coming years. Let's delve into key growth prospects that could significantly impact the company's financial trajectory.

Key Growth Drivers

Several factors are set to drive growth for Suprajit Engineering:

• Product Innovations: The company focuses on diversifying its product offerings. A notable introduction is the new range of lightweight cables designed to enhance fuel efficiency in vehicles.
• Market Expansions: Suprajit is actively expanding its footprint in international markets, particularly in North America and Europe, where demand for automotive components is rising.
• Acquisitions: Strategic acquisitions are part of their growth strategy; in 2022, they acquired a 70% stake in a German automotive parts manufacturer, enhancing their technology and market presence.

Future Revenue Growth Projections

Analysts project that Suprajit Engineering could see a revenue CAGR (Compound Annual Growth Rate) of around 15% from FY2023 to FY2026. Earnings estimates suggest an increase in EBITDA margins from 14.5% in FY2023 to 16% in FY2026, driven by operational efficiencies and cost control measures.

Strategic Initiatives and Partnerships

The company has initiated several strategic partnerships aimed at enhancing its technological capabilities. Collaborations with electric vehicle manufacturers are expected to yield new revenue streams as demand for specialized components grows.

Competitive Advantages

Suprajit’s competitive advantages include:

• Established Market Presence: With over 30 years in the industry, Suprajit has a substantial customer base, including major automotive OEMs.
• Strong R&D Capabilities: An investment of approximately 7% of revenue in R&D supports continuous innovation.
• Robust Supply Chain: An efficient supply chain enables the company to respond swiftly to market changes.

Financial Performance Overview

In summary, Suprajit Engineering Limited's proactive approach through product innovation, strategic market expansion, and partnerships lays a solid foundation for future growth. With a robust financial outlook, investors may find attractive opportunities within this evolving landscape.