Suprajit Engineering Limited — Q3 FY25 earnings call

Call held 13 Feb 2025

Management summary

Suprajit Engineering reported a satisfactory Q3 FY25 performance, driven by strong operational excellence and restructuring efforts, particularly in its Controls Division which achieved double-digit EBITDA margins for the first time. Despite challenging global automotive markets and a tumultuous Indian EV sector, the company saw robust growth in consolidated and standalone financials, with significant traction in Indian cable exports. Management highlighted ongoing integration efforts for SCS and strategic positioning of its global manufacturing footprint.

Highlights

  • Consolidated revenue (excluding SCS) for 9M FY25 grew 8% YoY to INR2,290 crores.

  • Consolidated operational EBITDA (excluding SCS) for 9M FY25 surged 28% YoY to INR295 crores.

  • Consolidated revenue (excluding SCS) for Q3 FY25 increased 8% YoY to INR782 crores.

  • Consolidated operational EBITDA (excluding SCS) for Q3 FY25 grew 28% YoY to INR111 crores.

  • Standalone revenue for 9M FY25 rose 14% YoY to INR1,283 crores, with EBITDA up 13% to INR226 crores.

  • Suprajit Controls Division (SCD) achieved a double-digit EBITDA margin of 11.8% in Q3 FY25, marking a significant turnaround.

  • Indian cable exports demonstrated a strong 35% growth.

  • Total debt stood at INR627 crores, with cash surplus in mutual funds and bonds at INR276 crores as of December 31, 2024.

Concerns

  • Matamoros Tariff and Labor Cost Issues

  • SCS Acquisition Integration and European Market Shrinkage

Key financials

3 periods

Headline

  • Total Debt
    ₹627 Cr
  • Cash Surplus
    ₹276 Cr

Q3

  • Consolidated Revenue
    ₹782 Cr
    YoY +7.9%
  • Consolidated EBITDA
    ₹111 Cr
    YoY +27.5%

9M

  • Consolidated Revenue
    ₹2,290 Cr
    YoY +8.4%
  • Consolidated EBITDA
    ₹295 Cr
    YoY +27.7%
  • Standalone Revenue
    ₹1,283 Cr
    YoY +14.1%
  • Standalone EBITDA
    ₹226 Cr
    YoY +13%

What they filed

Q1 FY27: revenue up 24.0%, net profit up 8.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue834 832 877 863 941 +13%979 +18%1,042 +19%1,070 +24%
EBITDA63 97 87 82 100 +59%95 −2%120 +38%129 +57%
Net profit0 33 27 48 51 13 −61%71 +163%52 +8%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Suprajit Controls Division (SCD)
    11.8% EBITDA Margin5% Revenue Growth100% EBITDA Growth
  • Indian Cable Exports
    35% Growth

Guidance & targets

Restructuring

  • SCS Europe Turnaround Restructuring · next 2-3 quarters · Medium confidence 2 to 3 quarters
    And of course, the work in SCS Europe, it continues for at least 2 to 3 quarters.

    — Ajith Kumar Rai, Founder & Chairman

Operations

  • SCS Germany Plant Closure Operations · next 2 quarters · High confidence coming 2 quarters
    Poland plant will soon be closed. It's already dwindled down to a few team members only in the Poland plant, but now will be completely closed in the coming 2 quarters.

    — Akhilesh Rai, Director & Chief Strategy Officer

  • Wescon Business Stabilization Operations · next 1-2 quarters · Medium confidence stabilize and start improving
    I think we are in the bottom of the pit. I think in the next 1, 2 quarters, it should stabilize and start improving.

    — Akhilesh Rai, Director & Chief Strategy Officer

Acquisition

  • SCS Second Tranche Closure (China/Canada) Acquisition · Q4 FY25 / Q1 FY26 · High confidence Q4 or early Q1 of next year
    But the second tranche was China and Canada, and that is under discussion. As you know, we've set up the entities to make these acquisitions in both Canada and China. But this is expected to close in Q4 or early Q1 of next year.

    — Akhilesh Rai, Director & Chief Strategy Officer

Tax

  • Effective Tax Rate Tax · full year · High confidence 26-27%
    Around 26%, 27% only. That will continue. There is no change in that.

    — Medappa Gowda J, CFO & Company Secretary

Volume

  • SAL Automotive Growth Volume · upcoming quarters · Medium confidence even more exciting
    I think just for the matter of record, Suprajit Automotive has been winning some significant, significant large contracts, and you will see in the upcoming quarters, the growth of SAL Automotive will be even more exciting as we have won multiple new contracts, which will all go into production in the next few quarters starting now.

    — Ajith Kumar Rai, Founder & Chairman

Market context

  • SCD EBITDA Margin Profitability · ongoing · Medium confidence double digit
    I think we have to consistently perform. There's always a product mix variations and things like that happen in a quarter. So, as long as we stabilize in the next two couple of quarters in the range that we are, it would only mean that we are strengthening our base. And then when the newer projects come in, it will further improve.

    — Ajith Kumar Rai, Founder & Chairman

  • Electronics Division Margins Profitability · future · Medium confidence double digit
    And as the utilization builds up and we start sweating the assets, I'm sure that we should be able to get back to the double digit.

    — N. S. Mohan, Managing Director & Group Chief Executive Officer

Risks & concerns

  • Matamoros Tariff and Labor Cost Issues

    high

    The Matamoros plant in Mexico faces ongoing challenges from tariffs and rising labor costs, with a legal case moving slowly and efforts to claw back costs from customers.

    Management acknowledged

  • SCS Acquisition Integration and European Market Shrinkage

    high

    The SCS acquisition is in a turnaround phase, impacted by the significant shrinking of the European market and one-time restructuring costs and operational inefficiencies from moving plants to Morocco.

    Management acknowledged

  • Global Market Headwinds

    medium

    Flat sentiment in the US market, political indecisiveness and economic instability in Europe, and Red Sea/Panama Canal issues continue to impact the auto industry.

    Management acknowledged

  • Indian EV Market Volatility and Electronics Division Margins

    medium

    The Indian EV market is tumultuous with changing volumes, impacting the margins of the Suprajit Electronics division due to underutilization of new SMT lines as projected EV volumes collapsed.

    Management acknowledged

  • Inability to Pass on Labor Costs for Existing Projects

    medium

    Rising labor costs for existing projects cannot be passed on to customers, requiring a slow turnaround as old projects phase out and new, higher-priced contracts come in.

    Management acknowledged

Q&A highlights

3 direct
SCD margin improvement and sustainability Direct
I think as you rightly said, Controls division had a good improvement in margins. You must realize if you look at the total picture, the key plants of ours has performed very well... I think that is why the margins have improved for the quarter. Is it sustainable? I would believe so that it is sustainable.

This question addressed the significant margin expansion in the Controls Division, a key turnaround story, and sought clarity on its sustainability.

Asked by Mumuksh Mandlesha

SCS acquisition losses, turnaround timeline, and Morocco plant's strategic use Direct
I think there are 2 portions to it. SCS Germany, which is the first part of our acquisition, was an insolvent company. Obviously, it was making losses. So that continues... As Akhilesh was mentioning earlier, when the second tranche closes, the China and Canada part, that is actually a profitable part of that business. So, when you look at together as SCS, let's say, from 1st of April onwards, I think the numbers should look slightly better. And of course, the work in SCS Europe, it continues for at least 2 to 3 quarters. Continuously an improving situation. It is not that it is going to be deteriorating going forward. So, I think you have seen the worst of it already.

Analysts were concerned about the ongoing losses from the SCS acquisition, and management provided a clear roadmap for its turnaround, differentiating between loss-making and profitable parts, and highlighting Morocco's strategic importance.

Asked by Mumuksh Mandlesha

Electronics division margins and impact of EV volume collapse Direct
But the volumes have not picked up because some of these EV players whose volumes have been projected and we have been pushing us to set up the second line, suddenly, the volumes have all collapsed. So, it's a question of, I think, readjustment for a quarter or so. I think as the time builds up and the capacities get filled up, these overheads gets covered. So, it's just the question of a growing pain and issues of a brand new division, I would say, and it's only a short term.

This question probed the reasons for low margins in the Electronics division despite revenue growth, revealing the impact of unexpected EV volume declines and management's view on it being a short-term issue.

Asked by Mihir Vora

2 min read 6 chapters

Detailed narrative

Strong Q3 FY25 Performance Driven by Operational Excellence

Suprajit Engineering reported a robust Q3 FY25, with consolidated revenue (excluding SCS) growing 8% YoY to INR782 crores and operational EBITDA (excluding SCS) surging 28% YoY to INR111 crores. For the nine months ended December 31, 2024, consolidated revenue (excluding SCS) increased 8% to INR2,290 crores, and EBITDA grew 28% to INR295 crores. Standalone performance also remained strong, with 9M FY25 revenue up 14% to INR1,283 crores and EBITDA rising 13% to INR226 crores, reflecting effective internal strategies despite external challenges.

Suprajit Controls Division (SCD) Achieves Double-Digit EBITDA Margins

The Suprajit Controls Division (SCD) marked a significant turnaround in Q3 FY25, achieving a double-digit EBITDA margin of 11.8% for the first time. This improvement was attributed to new contracts, better plant performance, and successful restructuring efforts across key units like SAL, U-9, SEU Hungary, Wescon, and China Lone Star. Management expressed confidence in the sustainability of these margins, expecting further improvements as newer projects come online and operational efficiencies continue to be realized.

SCS Integration and Turnaround Efforts Underway

The integration of the SCS acquisition is progressing, with management acknowledging initial challenges due to the shrinking European market and operational inefficiencies from consolidating plants into Morocco. Restructuring costs were incurred in the first two quarters, but the company expects the European operations to stabilize and improve over the next 2-3 quarters. The second tranche of the acquisition, involving profitable China and Canada operations, is expected to close in Q4 FY25 or early Q1 FY26, which should further improve overall SCS performance.

Electronics Division Navigates EV Market Volatility

The Suprajit Electronics Division (SED) experienced mixed results, with revenue growth but margins impacted by product mix changes and volatility in the Indian EV market. While SED secured new throttle projects and off-highway electronics business, the collapse of projected EV volumes from some players led to underutilization of a newly installed SMT production line. Management views this as a 'short-term' issue and expects margins to return to double digits as utilization improves and new contracts, including those for established ICE players launching EVs, ramp up.

Strategic Global Footprint and Cost Optimization

Suprajit is leveraging its strategically located Morocco plant, which has significant capacity, to address geopolitical uncertainties and tariffs, potentially supplying the US market. The company is actively in-sourcing components, such as electronic boards and motors from India for its Matamoros plant, to reduce costs and improve supply chain reliability. Operational excellence initiatives, including moving from three-shift to one-shift operations in Morocco, are driving productivity improvements and cost reductions across the group.

Indian Cable Exports and SAL Automotive Outlook

Indian cable exports recorded a 'fantastic' 35% growth, primarily driven by new business wins rather than inter-divisional shifts. Suprajit Automotive (SAL) has secured significant new contracts, with management anticipating 'even more exciting' growth in the upcoming quarters as these projects move into production. This strong domestic performance, coupled with strategic export initiatives, underpins the company's overall growth trajectory.

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