Suprajit Engineering Limited (SUPRAJIT.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Suprajit Engineering Q2 Earnings Call hosted by Anand Rathi Share and Stock Brokers Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mumuksh Mandlesha. Thank you, and over to you, sir.

Thanks, Trisha. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to the Suprajit Engineering Q2 FY '26 Conference Call. I thank the management for taking time out for 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 Jain, CFO and Company Secretary. I request Ajith sir and team to give an introduction review about the results, and then we can follow up with the Q&A session. Over to you, sir.

Yes. Good morning. Thank you, Mumuksh and Anand Rathi for hosting this call. Good morning, everybody, and welcome to Suprajit's Q2 FY '26 Results Call. As you all know, the automotive industry grew by about 5.8% during the first half. Passenger vehicles had 3.8% and 2-wheelers had something like 5.8% -- of course, since the change in GST, there has been a gush of new business. October has been good. However, we have to see how the whole thing pans out for the balance year. Global business environment continues to be challenging with continued geopolitical issues, tariff issues, rare earth export restriction issues, et cetera, even shipping congestion in Europe has become an issue. But having said all this, the company has performed, I think, pretty well. In that background, I will now hand over to our teams one by one to give some few and key financial items and operational and other items to brief you all. and follow that -- following that, we'll have a Q&A. I'll first hand over to Medappa for the key financial items. Medappa?

Thank you [Technical Difficulty] -- good morning [Technical Difficulty]...

Sorry to interrupt, sir, but your voice is breaking, Medappa sir.

Now?

Now it's proper sir.

Yes. Good morning, everyone. The consolidated revenue, excluding SCS for the half year ended 30th September 2025 was INR 1,605 crores as against INR 1,508 crores for the corresponding previous year, recording a growth of 6.4%. The consolidated operational EBITDA for the half year ended 30th September 2025 was INR 215 crores as against INR 184 crores for the [Technical Difficulty]...

Sorry to interrupt, sir, your voice is still breaking, sir.

Are you on mobile?

Yes. Now okay?

Yes, sir. Now it's good.

Yes. The stand-alone revenue for the half year ended 30th September 2025 was INR 877 crores as against INR 827 crores for the corresponding previous year, recording a growth of 6%. The stand-alone operational EBITDA for the half year ended 30th September 2025 was INR 145 crores as against INR 145 crores for the corresponding previous year. [Technical Difficulty].

Medappa sir, your voice is still breaking.

Now?

Yes, go ahead. But I think you can -- I think the results numbers have all been with the investors, so it should be okay.

[Technical Difficulty]

No, you're still breaking -- either you have to come again, I suggest you log off and then probably ask them to reconnect on a land line for questions. I will pass it on to Mohan for your highlights, Mohan.

Yes. Thank you very much. Am I audible and clear?

Yes.

Great. Okay. Gentlemen, very good morning, and let me start with the business divisional highlights. Obviously, the hero of the day is our SCD or Suprajit Controls division, which is the global cables and controls. When I'm talking about it, I would want to exclude SCS, which has been our latest acquisition. So stand SCS, the operational revenue grew by around 7% year-on-year. But what is very interesting is that the operational EBITDA grew strongly. It's almost by 50%, and we have achieved a double-digit EBITDA of 11.6%. This, of course, reflects the underlying operational improvements that our team has been working hard, like in-sourcing of populated PCBA to our own LPD or labor productivity improvements, et cetera. And another major area that we worked on, which is paying off for us is the tariff-related costs are being passed on and most of them has been done and whatever little are absorbed and also reflected in our results. In terms of outlook, SCD is expected to perform pretty well despite all the uncertainties that our Chairman was talking about in terms of geopolitical issues and so on and so forth. Restructuring remains on track. That's very important for us, and we expect that to be completed by 2025, December. This includes majorly moving the operations from Puarez plant into the Matamoros plant. Therefore, Matamoros and Brownsville has been strengthened [Technical Difficulty]. The evolving tariff situation is a moving target as we all know, and it's being mitigated through many proactive alternate delivery solutions. We have made mitigation proposals to our U.S. OEMs. We will be qualifying our Wichita facility that is the Wescon with IATF certification, which would allow potentially for transit into the MAGA or Make America Great Again. So that's an overview on SCD and moving on to the Domestic Cable division. The operational revenue grew well by around 10-plus percent on a year-on-year basis. And EBITDA margin contracted very marginally, but nothing very substantial there. Aftermarket beyond cables and new braking system projects continue to gain very good traction. And our capacity expansion with additional building at Chakan has been completed. This is primarily catering to the passenger car vehicle segment. In terms of outlook, I would say a strong second half is expected with better sector growth because generally, automotive industry in India in the second half is better. And we also expect aftermarket traction. Both beyond cables and multiple braking projects are also coming up and will be ramped up. Moving on to the Phoenix Lamps division. This is the elephant in the room. The revenues declined at PLD, leading to an EBITDA margin reduction. Now it is at around 12.7% [Technical Difficulty] 15% what we used to be. So quarter was largely muted due to the steep reduction in exports to Middle Eastern countries and very specifically Trifa brand and direct sales. So while this has been the past, in terms of outlook, we expect second half to be better. We expect some amount of headwinds to continue in Europe, but we expect that to be overcome by local business. And very important is one of the global competitor has filed for Chapter 11. Therefore, we are already receiving multiple inquiries at PLD for exports and also from the domestic OEMs. Therefore, we expect that to gain traction in the next few quarters. So with that, I would like to hand it over to Akhilesh. Akhilesh, over to you.

Thank you, Mohan. And just as a point of information, I'm on the road, so might have some issues with network, please let me know if I break off. I'll take up from the Suprajit Electronics division, where we supply a lot of clusters and sensors and some actuators. Revenue grew well at 36% and EBITDA also increased well by 251% from 5.2% last year to 13.5% this year. So good strong double-digit EBITDA performance. The significant slowdown of a leading EV customer was overcome by new order execution from other customers, especially our throttle grips gained a lot of traction in the last few months with record sales from multiple customers. Order ramp-up with new customers will certainly derisk the business. And we see a strong growth trend with multiple projects for both EV 2-wheeler and 3-wheeler players all going into production in the coming quarters. Next, we move on to SCS. The acquired entity from insolvency that were based headquartered in Germany. Revenue grew to about INR 109 crores and the EBITDA loss reduced to INR 6.7 crores. It's an important point that this is the first quarter where the entire all SCS assets, that means Germany, Morocco, Canada and China are all now integrated and have been -- we've had a full quarter of their business under Suprajit. The integration process of these assets is well underway with Canada already moved to a larger site and the Jiaxing operations, which were having certain struggles earlier are now streamlining. On the Europe side of SCS, all European production is fully relocated to Morocco now. The Poland plant has been completely closed. We also set up a new Hungary warehouse close to our Hungary plant, literally 15 minutes, 20 minutes away by road. And that has replaced the old German warehouse. This will also support us because we're having a significant German headcount reduction in December, which is also as planned. When it comes to Morocco, their top priorities are streamlining operations, input cost reduction, overhead control. So we have a team from India supporting them, a team from Hungary also supporting them and things are working well and going as per plan. There's a smaller restructuring going on also from Germany, where we're moving a German tool room also to Morocco to further support our rightsizing at Germany. This is all, of course, aligned with our master plan, which we have been talking about for the last -- since the acquisition of SCS, where we expect to turn EBITDA positive by the fourth quarter of this year. And I think that is well on track. Coming to STC, our technology center continues to assist all our divisions in launching multiple programs with focus on the homegrown products that we have developed ourselves, but also with strategic collaborations with -- for ABS with Blubrake and Sunroof cables with a partner in Germany. This collaboration for ABS is also perfectly [ asked ] because of the current situation with the ABS mandate. And we are also working now with a lot of more complex brake systems to support our customers as they look at ramping up their ABS projects within their product line. The Blubrake ABS has now been sized for 2 customer requirements and is under validation. We're quite happy with the speed and the kind of performance that we're looking at, but we will need to go through the complete validation process. Program pipelines in clusters, throttles, grips and actuators continue to be strong. And the new STC technology center building, which will house more than 200 R&D engineers is progressing as per plan. Some other updates from the quarter, more general. We have a big One SAP initiative where we hit another milestone with our U.S. and Mexico plants going live on SAP. The DCD 16 plants and SCDs plant in Bangalore will now follow suit in Q4. This will take us over the 50% mark in terms of SAP implementation with almost 6 implementations already completed. We have applied for an additional land in AURIC Bidkin near the Aurangabad cluster of industrial cluster. This is for various customers who have requested us to plan a presence in the future. Suprajit also participated for the first time in EICMA 2025. This is the largest 2-wheeler expo in Milan, Italy. We are very pleasantly surprised by the kind of response we had, which is both where customers are very impressed by both our technology focus and our homegrown product. With that, I hand over to Chairman for closing remarks. Chairman?

Yes. Thank you, Akhilesh, Mohan and Medappa. I think Akhilesh may have to drop off the call as he has some of their earlier commitments. He will answer as many questions if he's on. Otherwise, Mohan and I, along with Medappa will deal with any questions that you may have. As a summary, I think accepting a slightly muted PLD performance, the rest of the divisions have done well. They have performed ahead of the industry. I think what Mohan has mentioned, the Controls division margins have consistently been in double digit in the last 2 quarters. And even if you look at consolidated numbers without SCS, it's at 14%, which is the top end of our guidance. And even with the SCS, we are at about 11.5%. So it's been a good quarter and a good half. The integration is going pretty smoothly and as planned. So by end of December, I think most of the major heavy lifting will all be done and dusted. At the same time, we are also very focused on mitigating the tariff-related impacts and giving alternate options to customers, et cetera, and the operations streamline across various global units of us and also presenting our portfolio that is being developed at STC to our customers, I think we expect second half would be better than the first half. With this, I will hand over to the moderator to take the questions, and we'll answer as we go along. Thank you. Over to moderator, Trisha.

[Operator Instructions] The first question is from the line of Viraj from SiMPL Investments.

Just a couple of questions. First is, if you look at the gross margin for the quarter, we've seen one of the highest ever contribution margins we have seen in SCD. But at the same time, if you look at our OpEx costs and employee costs, it still remains elevated. So were there any further restructuring charges or any other write-offs further we have seen in the quarter? So the first one to start with.

Yes, you're right. Our gross margins have been one of the best, I think, where the OpEx and employee costs are there, there will be continuing hits that will happen till end of December because, for example, in Germany, the employees have a clear plan of being reduced from whatever the X number to X minus. And they have certain time lines when they will be leaving the organization. So when that happens, their separation costs have to be paid. So that will continue to hit. OpEx, yes, there is some continuing work that will be done in this quarter because the operations from Puarez has been moved to Matamoros -- that operational movement, relocation, reestablishing it will continue to be there. As we also mentioned, the tool room is being moved from -- again, these are all cost reduction plans for the next year, I would say, is moved from Germany to Morocco so that there is a better operational control also on all the tooling requirements. So all these are some of them. At the same time, this last couple of months, we have been moving our Canada operations to a new location, larger location for more efficient management of the inventory and also the workflow within the organization. So these things are ongoing. That's why I said these hits will continue to happen until end of December. I think that's when we'll all be done.

If we look at Q2 or maybe H1, would it be right to say that this restructuring or this additional OpEx costs will be in the tune of INR 15 crores, INR 20 crores at least?

For the period, I think it would be -- I think the -- I think if I right, our cost for the -- what is that employee separation in Germany itself is about EUR 1.1 million or EUR 1.2 million. So I think it's more than that.

Got it. And on the gross margin, sir, what explains such a high gross margin? I mean, how should we understand the drivers and sustainability?

Sorry, I didn't get the last part of the question.

How should we understand the drivers and sustainability of high gross margin?

I think the gross margins will be good, whether it will be exactly the same or a little plus/minus, I do not know. The reasoning is simple. The restructuring is leading to a much more optimal and much more cleaner operation across the group. So I would expect that we will have a good gross margin. I don't want to hazard a guess on the future. But I think you have seen it how in the last 4 quarters, we have improved. And I think there is one last leg left. So I would think it would continue to be good.

Okay. Just 2 questions, and I'll come back in queue. First is on the Phoenix Lamps. You talked about one of the global players filing for bankruptcy. So Marelli, they have filed. But if you look at the portfolio, they are still quite heavy on the LED portfolio and news and technologies. So I'm just still trying to understand how does it -- from our point of view, how does it really benefit us sir? And any color you can give in terms of demand-supply dynamics now in lamps?

I don't want to comment on specific names. I think I am not talking about Marelli. But at the same time, all I'm saying is that we have been rushed with new inquiries for Phoenix Lamps, both out of Luxlite and also from India itself. This is, as I said, I've been saying all along in the last 2 years, 3 years is that there is a consolidation of the business and consolidation of vendors and the strongest last man standing will gain with this. I think that's what we are seeing now again. And that's why, yes, this quarter or last 2 quarters have been slightly muted on top line and hence, the margins have probably had a couple of hundred basis point reduction. But still at 13%, whatever, 13.5%, we have always been that 13% to 15%. We are at the lower end. I think that will also change with time. So we are quite clear that business, there is going to be more consolidation and some more business will come. Although the overall business may shrink, our business is not expected to be disturbed.

Okay. And last question was on the view of the land acquisition, which we announced. What products is this for? Any color you can give?

That's for the range of Suprajit's domestic products. It's for -- it's a domestic plant, it's certainly cables and beyond cables.

The next question comes from the line of Gokul Maheshwari from Awriga Capital Advisors LLP.

So just on Phoenix, we had in the past associated with some retailers overseas to sell our products. What is the update on that?

Mohan, will you answer?

Yes, sure. When we talk about retailers, we are talking about basically a couple of areas. One is the Russian area. Another is more in the African continent. And the third portion of that is North America. Those are the relationships that we are forging, but it is going to take time. So we are working on it, but we are pretty sure that it is going to fructify in the near future.

I think to add to what Mohan said, Gokul, we are working with one of the global majors for the North American market. And the initial deliveries have been made is the largest retailer, I would say. And I think they are again coming for another assessment. What we have done actually is only a pilot testing of the North American market through this chain. And I think post this December visits, I think we would get more clarity on what next in terms of launching in multiple their own outlets in the U.S.

Okay. And on SPS, you have mentioned in the PPT that you're looking for a breakeven by Q4. But what would be the estimate for the full year revenues for SCS given the sales which were there around USD 40-odd million at the time of the acquisition?

I mean the quarter has been very clear, Gokul. That quarter is the full quarter. This quarter, the revenue has been mentioned, I think, in our business. So one easy way to do it to multiply it by 4 for the next year. But I think it's -- there will be some variation, but I think that is the rough figure for you.

Okay. And just lastly, on your domestic business, given the changing of the festival season during -- I mean, in the month of September quarter, the Q3 will reflect the strong sales with respect to what the OEs have experience in their retail sales even for you with higher sales growth for the domestic business in Q3?

Mohan, will you answer generally what's happening in the GST scenario also, I guess?

Okay. Let's keep it this way. In terms of the overall market, we have seen that -- I'm talking about the OEM market, I'm talking about. We see an uptick both in terms of festival season and also because of the pent-up demand after GST, coupled with the rural market economy looking upbeat. So now obviously, it is going to trickle down to us. Therefore, from an OE -- from a sales to OE perspective, we definitely would look at a higher uptake going forward. But in terms of aftermarket, Also, we are looking at a positive tailwind coming in primarily because of GST. And there was some amount of muted growth. I think now it's going to become much more better. Particularly control cable, we were at around 28% GST rate. Now we are at around 18%. Same thing with the speedometers, 28% reduces to 18%. So some of the tractor parts, for example, comes down from 18% to 5%. So overall, I would say it is more benign to us. Lamps on the lamps portion, it is not going to be GST impact. It is 18% continues to be 18%, no change.

The next question comes from the line of [ Yash Agarwal ] from Nirmal Bang.

I have just one question related to U.S. tariff issues. Like what's the kind of negotiation we are having with the customer? Like are we passing up the entire cost or they create the sharing of the tariff costs related to our products?

Yes. I think we have also mentioned that in our business update. I think in essence, I would say most of the tariffs have been passed on. I'll tell you a little background to this. In terms of -- if you're talking about the 25% and 50% or whatever, it's not just India. We also look at China because since our global operations -- we look at the impact of tariff from multiple countries into U.S. because our operations are happening in Canada, in Mexico, China, India, Morocco and in Europe. So instead of going into the details, I think it's a very complex scenario. All I can say is that the tariffs have been passed, passed on to customers. What is being difficult to be passed on is some of these smaller impacts. I'll give you an example that, for example, we are importing in, let's say, our U.S. operations as well as in Mexico operations, let's say, steel inner wire from China. Now that is a very small part of the entire cable assembly. In a $5 cable, it may be $0.25 or whatever. So that steel tariff has an impact on this particular material, which will be just a $0.01 or $0.02, which on the $5 may be nothing. But when you add on multiple millions of these products, it makes some effect. So when you're attending the -- approaching the customer for this big ticket, 25%, 50%, that they listen to. But when you are trying to present this $0.01, $0.02, it is difficult to convince them. So that is where we get some small hits. So I think that is very -- it's absolutely not a material for us, but there has been some little effect. So all I want to say is that most of the tariff impact has been passed on.

And the second question is on ABS regulation. So what is the current update like we have as of now.

I think your guess is as good as mine. Mohan, anything that you want to comment?

Yes. The latest is that there has been a pushback from the OEMs. Obviously, the kind of the due date that has been stipulated by the government looks to be almost impossible, primarily on 2 fronts. Number one is the supply chain is not ready. Therefore, there will be not -- second thing is this is a product which needs to be homologated, proven on the vehicle. It cannot be introduced at such a short notice. Therefore, there has been a representation made by the OEMs. And incidentally, as a Tier 1, we have also put in our representation to the government. We have given our opinion. While I'm not able to disclose the entirety of the opinion, but definitely, we have given our opinion. So will it happen? The answer is yes. Will it happen tomorrow? The answer is no.

Yes. Just to add, I think it's also a question of the timing of that. And also whether it will be for the entire range or certain range of 2-wheelers, I think there's a lot of discussion going on at various levels. So I think we'll have to wait and see, but I don't see, as Mohan said, it's getting introduced in 1st of January for sure.

Okay. And one last question on the gross margin since we had a very good gross margin, one of the highest in the history. So can we expect it to sustain in the medium term at this kind of level.

I think there was a question on the same earlier also. I think the answer is same. I think the restructuring that we have been doing internally, particularly in our overseas entities are showing these numbers being really improving over the period, and it has been consistently improving. As I said, there is one last leg to be done in this quarter. And I do believe that we will have good gross margins, but I don't want to speculate a number on that. But as we are saying, the consolidation is still to complete. The end result of all this consolidation is further improvement, but the exact numbers would be difficult to say.

The next question comes from the line of Tanmay Jhaveri from Finterest Capital.

Sir, I have couple of questions. First one is from the accounting point of view. So our effective tax rate remains relatively high compared to standard 25% corporate tax. So I just wanted to understand the factors behind that. Is it due to subsidiary mix or deferred tax? Like what is the reason behind this?

Medappa, will you answer that?

Basically, including deferred tax and considering the [indiscernible] consol profit that percentage is changing, the effective tax rate is 25% to 27% only. There is no change.

Sir, I think for last few quarters, we have seen a good growth in our company. So if you could just share what kind of growth do we see over the next few quarters or maybe a year or 2 years, what kind of momentum are we expecting in this industry and our company?

I think the guidance that we have given in the beginning of the year is that ultimately, today, we'll have to benchmark ourselves with the global industry growth. With all the uncertainties globally, the industry is not really growing. Of course, India is a growth market at this moment. And the overall global market, we don't know where it will be. It will be in a low single digit, maybe 1% to 3%. What we have guided is that we'll continue to try to grow 5% to 10% ahead of that global industry because now we are a global company in terms of the product mix. In terms of margin also, we have said that we will be without -- I mean, excluding, of course, for this year, SCS being a drag. We have said excluding SCS, we will be between 12% to 14% -- so if you really look at it at this moment, although the top line growth has been slightly below the target from the target of global industry, we still have probably 5% ahead. But from our own double-digit expectation, we are slightly below that. And our margins at -- without controls -- without SCS, I think as of second quarter, we are already at 14%, which is at the higher end of our own guidance. So the guidance remains the same. In the second half, we expect to do better. But if you look at the overall next year number, I think it's a little difficult for us to project this time. But our overall guidance of growing 5% to 10% ahead of the global automotive industry still holds. I think that's where I will leave it as these uncertainties of global growth will always be there for us.

Sir, if you could just throw some light on our new products or technology initiatives that are currently in the pipeline. Any new launches or applications which we are excited to launch in near term?

Akhilesh, are you online? Otherwise, I'll ask Mohan to answer that question.

Akhilesh has dropped out.