The cable specialist

The situation
Suprajit is the country's largest manufacturer of mechanical cables used in automobiles. It has a 65 per cent market share in two-wheelers and 25 per cent in four-wheelers. It has an estimated 80 per cent market share with Bajaj, Hero and Suzuki, and it supplies 100 per cent of cable requirements for TVS and Yamaha.

Suprajit's dependence on the auto sector means that its fortunes are interlinked with those of the auto sector. Also, the company had been, for a long time, a single-product company.

What's changed?
Suprajit is transitioning from a single-product company that manufactured only cables and supplied primarily to a single OEM (TVS) to a multi-product and multi-OEM seller. Two-wheelers brought in 99 per cent of the revenues in 2001. Today, they bring in 51 per cent.

Triggers

• Suprajit supplies 20 per cent of Honda's requirements. That is set to go up to 50 per cent in the next two years, according to Axis Capital, as the company replaces another Honda vendor, Hi-Lex.
• Suprajit's recent acquisition of a majority stake in Phoenix Lamps gives Suprajit market dominance in the halogen-lamp market. Phoenix has a market share of 55 per cent in passenger vehicles, 80 per cent in light commercial vehicles and 70 per cent in two- and three-wheelers.
• An improved product mix that involves higher replacement demand and exports and other cost savings have improved margins from 12.8 per cent in FY07 to 15.7 per cent in FY15.

What lies ahead?
Suprajit is set to consolidate its dominance in the two-wheeler market. The Phoenix Lamps acquisition will add a new product line and is likely to increase the revenue per vehicle and revenue per customer.

Valuations
Suprajit trades at a P/E of 30x. This is excluding the Phoenix Lamps numbers. Add these, and Suprajit becomes a ₹1,000 crore revenue company, with PAT of around ₹100 crore, a market cap of ₹1,550 crore, and a P/E of around 15.5 times. That's not very expensive. A recovery in the auto sector will further cool valuations down. Buy.