SUPRAJIT - Suprajit Engineering Ltd. Share Price

Management Outlook:
Suprajit's management remains cautiously optimistic, emphasizing resilience amid challenging global markets (flat U.S. sentiment, European instability, China's slowdown). They anticipate sustained improvement in margins, driven by restructuring, operational efficiency, and strategic initiatives. Key focus areas include integrating the SCS acquisition, expanding electronics/EV segments, and leveraging global diversification to mitigate geopolitical risks.

Major Points:

1. Financial Performance:

   • Consolidated revenue grew 8% YoY (9M FY25: Rs.2,290 Cr); EBITDA surged 28% (Rs.295 Cr). Standalone revenue rose 14% (Rs.1,283 Cr).
   • SCD (Controls Division) achieved a turnaround with 11.8% EBITDA margin (vs. single digits earlier) due to restructuring, cost optimization, and new contracts.

2. Operational Highlights:

   • SCD Improvements: Restructured plants (India, Hungary, China) and shifted motor/PCB sourcing to India to cut costs. Matamoros (Mexico) remains challenging due to tariffs/labor costs.
   • SCS Integration: Morocco plant consolidation (from Poland/Germany) is underway, with operational efficiency gains (shift reduction, cost cuts). Second tranche (China/Canada) expected by Q4 FY25/Q1 FY26.
   • Electronics (SED): Won EV throttle/off-highway projects; new SMT line operational. Margins impacted by product mix but expected to stabilize with volume growth.

3. Market Strategy:

   • Global Diversification: Utilizing Morocco's strategic location for tariff flexibility.
   • New Products: Braking systems, actuators, and sensors gaining traction in India/globally.

4. Risks:

   • Geopolitical uncertainties (Red Sea/Panama disruptions, U.S.-China tariffs).
   • European demand slump impacting SCS near-term.

Management expects gradual SCS turnaround, sustained SCD margins, and growth in electronics/EV segments, supported by operational excellence and cost synergies.

Question 1:
"Sir, congrats on the strong operating performance, sir. Sir, firstly, just on the improvement in the SCD margins, which has increased to 11.8%. Can you help us understand what has led to the increase? [...] And going ahead, do you see this as a sustainable margin, sir?"

Answer Summary:
SCD's margin improvement to 11.8% in Q3 stemmed from restructuring, operational excellence (e.g., improved performance at SAL, SEU, Wescon, and China plants), and reduced expenses. Legacy high-cost projects are being replaced with newer contracts. Management believes this margin is sustainable, citing stabilized operations across most plants except Matamoros and reduced restructuring costs.

Question 2:
"Sir, you mentioned [...] shifting the sourcing of the motors to India. [...] Just want to understand by when do you see that shifting and how do we see that impacting the margin, sir?"

Answer Summary:
Shifting motor sourcing to India aims to address supply-chain inefficiencies and high costs from a France-based supplier. Supplies have already started, reducing acquisition costs and retaining profitability. Further savings are expected once customer approvals for in-house electronic boards and motors are secured, improving Matamoros' margins over time.

Question 3:
"Just for this quarter, was there any forex gain in the Q3 quarter? And how is this for the Q2 also?"

Answer Summary:
Q3 saw an overall forex gain, but specifics for Q2 were not immediately available. Medappa Gowda noted the gain in Q3 and deferred detailed Q2 clarification post-call.

Question 4:
"Sir, lastly, sir, on the SCS losses [...] based on the restructuring [...] just visibility we have to see the EBITDA positive for this business. [...] can that plant be used to supply to the U.S. market?"

Answer Summary:
SCS's Morocco plant is strategically positioned near Europe and the U.S., with excess capacity (shift reduction from 3 to 1). It could serve U.S. markets to bypass tariffs. Restructuring (closure of Poland/Germany units) and cost optimizations (material sourcing, operational efficiency) aim to turn EBITDA positive in 2-3 quarters.

Question 5:
"[...] why the effective tax rate was so high in Q3?"

Answer Summary:
The higher tax rate in Q3 included one-time taxes on mutual fund/bond redemptions. The normalized effective tax rate is expected to stabilize at 26-27% for FY25.

Question 6:
"For the SCD, [...] how much sales happens in Europe and in the U.S.?"

Answer Summary:
SCD's geographic sales split is approximately 55% North America (including Matamoros) and 45% Europe (SAL, SEU).

Question 7:
"SCS [...] how much more [...] restructuring costs [...] in the coming quarters?"

Answer Summary:
SCS restructuring (Germany/Poland closure, Morocco integration) will incur costs for 2-3 more quarters. The profitable China/Canada tranche (closing Q4/Q1) will offset losses, with gradual EBITDA improvement expected from Q1 FY26.

Question 8:
"Wescon's outlook [...] impact of tariffs on China?"

Answer Summary:
Wescon's non-auto segment remains sluggish (linked to U.S. housing/agri markets), but margins improved via operational efficiency. Tariffs on Chinese imports may boost demand for U.S.-made products. Electronics/braking projects and synergies (India sourcing, Mexico capacity) are growth drivers.

Question 9:
"Electronics division margins [...] what is impacting them?"

Answer Summary:
Lower volumes from EV players (post-demand slump) and upfront investments (new SMT line, fixed costs) impacted margins. Growth is expected as volumes recover and capacity utilization improves, targeting double-digit margins.

Question 10:
"New projects with established ICE players in EVs?"

Answer Summary:
SED collaborates with ICE OEMs on EV components (e.g., clusters, actuators, brake systems) and traditional cables. Global OEMs/Tier 1s are exploring India-sourced electronics, aiding export growth alongside domestic demand.