Suprajit Engineering : Transcript10Nov2023

	November 15, 2023
	SEL/SEC/ 2023-2024/65
BSE Limited	National Stock Exchange of India Ltd
Department of Corporate Services	Exchange Plaza, C-1,Block-G,
P. J. Towers, 25th Floor, Dalal Street,	Bandra Kurla Complex, Bandra (E)
Mumbai- 400 001	Mumbai- 400 051
Ref: 532509	Ref: SUPRAJIT

Dear Sirs,

Sub: Investors Q2 FY 24 Earning call Transcript.

Transcript of the Investors Earning call held on Friday, November 10, 2023 is enclosed herewith.

Same is also available on the website of the Company at www.suprajit.com.

Kindly take the aforesaid information on record in compliance of SEBI (Listing Obligations and Disclosure Requirements), Regulations 2015.

This is for your information & record.

Thanking you

Yours faithfully

For Suprajit Engineering Limited

MEDAPPA

GOWDA JANTIKAPU

Digitally signed by

MEDAPPA GOWDA JANTIKAPU

Date: 2023.11.15 08:53:50 +05'30'

Medappa Gowda J

CFO & Company Secretary

Encl : as above

"Suprajit Engineering Limited Q2 FY24 Earnings Conference

Call"

November 10, 2023

MANAGEMENT: MR. AJITH KUMAR RAI - FOUNDER & CHAIRMAN,

SUPRAJIT ENGINEERING LIMITED

MR. N.S. MOHAN - MANAGING DIRECTOR & GROUP

CHIEF EXECUTIVE OFFICER, SUPRAJIT ENGINEERING

MR. AKHILESH RAI - DIRECTOR & CHIEF STRATEGY

OFFICER, SUPRAJIT ENGINEERING LIMITED

MR. MEDAPPA GOWDA - CHIEF FINANCIAL OFFICER &

COMPANY SECRETARY, SUPRAJIT ENGINEERING

LIMITED

MODERATOR: MR. MUMUKSH MANDLESHA, ANAND RATHI SHARES

AND STOCKBROKERS LIMITED

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	Suprajit Engineering Limited
	November10, 2023
Moderator:	Ladies and gentlemen, good morning and welcome to the Suprajit Engineering Limited Q2 FY24
	Earnings Conference Call hosted by Anand Rathi Shares and Stockbrokers.
	As a reminder, all participant lines will be in the listen-only mode and there will be an
	opportunity for you to ask questions after the presentation concludes. Should you need assistance
	during the conference call, please signal an operator by pressing star, then zero on your touchtone
	phone. Please note that this conference is being recorded. I now hand the conference over to Mr.
	Mumuksh Mandlesha from Anand Rathi Shares and Stockbrokers. Thank you. and over to you,
	sir.
Mumuksh Mandlesha:	Happy Dhanteras and Diwali Festive. Cheers to the management and participants.
	On behalf of Anand Rathi Shares and Stockbrokers, I welcome you all to the Suprajit
	Engineering Q2 FY24 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 - M.D. and Group CEO; Mr. Akhilesh Rai - Director and Chief Strategy Officer,
	and Mr. Medappa Gowda J- CFO and Company Secretary.
	Request Ajith, sir to give an introduction review about the results and then we can follow up
	with the query session. Over to you, sir.
Ajith Kumar Rai:	Thank you, Mumuksh. Good morning, everybody and again, Happy Diwali and Dhanteras.
	Thank you for joining us on our Q2 and First Half Results Con Call.
	We will start with some initial remarks from our team and then we'll take on questions. We'll
	start with Mohan - our M.D. and CEO, followed by Akhilesh Rai and then by Medappa.
	So, I first hand it over to Mohan. Go ahead.
N.S. Mohan:	Thank you very much. A very good morning and wish you all a Happy and Prosperous Deepavali
	and Dhanteras.
	As usual, what I will do is give you a Market and General Business Update first and then take
	you through the Individual Units.
	In India, as you know, the passenger vehicles segment did well. But importantly for us, the two-
	wheeler segment is still struggling. And very specifically, the entry level and the commuter
	segment is still not yet out of roads. Potentially, the failure of the monsoon could have had this
	effect. But however, even in October, it hasn't been great, and this was probably due to the short
	period and I really feel that the festive season will kick in some amount of good news. November
	shows some potential and we are seeing OEMs are picking up a lot in the market.

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Now, moving away from India market and into the global markets, some of you would have noticed that in the previous call, I wasn't there, I was in US and Europe for about two months, and in fact, I met quite many customers apart from visiting our plants there.

Let me start with the US market and again within that, let me split it into automotive and non- automotive market. Automotive was hit by the UAW strike and again thankfully it's behind us now. But having said that, I think it did leave a scar on our business.

The non-automotive segment has taken a very severe hit due to a combination of reasons. The housing market, high inflation, high interest rates have had this impact specifically on discretionary spendings like lawn mowers and passports vehicles. Severe summer conditions did not aid either and it did not foster the sale in these segments. I expect this effect will be a bit prolonged in the non-automotive segment in the USA.

Moving on to Europe, Europe is still yet to recover and settle down the post Ukraine war scenario and the further stability in this region hasn't helped either. However, we continue to win business in the European region, and I think it's great news for our business at SEL and SEU.

In China, one specific customer who is into non-automotive got hit due to restriction in sales to Russia and that has impacted us along with the relocation that we are right now in the midst of.

So, having said this general update, let me move into specific divisions and I will start with our Suprajit Controls Division, which is basically all our operations outside of India, except for of course Luxlite. Our turnaround at SCD is taking more time and it is facing some headwinds primarily due to the economic conditions like customs tariff, wage increases, interest rates and so on and so forth. However, our restructuring and assimilation exercise has been on schedule and the Max teams which we had initiated across all the territories are coming together and bringing in synergies.

Specifically talking about Lone Star, China, we got a new plant head and Shanghai Lone Star is facing this relocation as I mentioned, causing some significant one-time and double expenses like rentals and it is also a double whammy with slowdown in the non-automotive business there. At Siofok, that is Hungary, we have identified parts which have been stressed on profit, and we have started bringing it to India as it still makes overall good business sense for us.

As mentioned earlier, we continue to clock new business in SEU. And our concept of the front end in Europe with a back-end operation in India is getting accepted well. I think it's a very good news. In fact, I was in front of a couple of customers, and I think it is really gaining traction. I think the track record that we have had helped us to locate these low margin products out of Europe into SAL while we still continue to look for high value adds at Europe.

In the US, we successfully completed the transition of a third-party warehouse; it is called the PMI warehouse to our own existing warehouse at Brownsville. So, it brings in a lot of economic synergies there.

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We are also in the process of moving a lot of plastic injection molds from a third-party vendor who used to supply to Wescon and bring this in-house at our Matamoros plant and this obviously will improve the economics.

So, moving on to the Phoenix Lamps Division or the PLD, we grew business despite the continued LED penetration, and very importantly, the margins improved and went into double digit levels. I'm glad to say that these efforts both at the plant level and also at the business development level have yielded this kind of results in improved profitability. You may recollect that the EBITDA had dropped, and we had put together a plan to get to the double-digit level.

Division restructuring continues at Luxlite and Trifa, and Trifa liquidation is expected to be concluded by Q4.

Moving on to the Domestic Cables Division, we continue to retain our strengths in the form of our DCD. EBITDA remains stable. Our focus is clearly to go beyond cables and beyond two wheelers and these efforts continue.

With this I complete an update on the controls division, cables division and lamps division and I would like to hand this over to Akhilesh to talk about the other areas. Over to you, Akhilesh.

Akhilesh Rai:Thank you, Mohan. So, I'll start with the electronics division, as you know is an organically launched division that was only launched this year. I'm happy to say that it has made good progress and clock very good growth. The team at the plant has been literally 24/7 to manage the kind of growth we've had there. You can see in our disclosure that Q2 over Q1 was almost 150% growth in sales.

We're also happy that the division turned EBITDA positive in Q2 with just one year of operations, and as you can imagine, pretty high fixed costs.

The division started deliveries of actuators for two of the large EV two-wheeler customers and I would say that the digital cluster business is only starting to ramp up. So, you will see a lot more good strong business in the coming year and in the short term.

I'll move on to the Tech Center. This is of course one of the key parts of Suprajit and one of the reasons we were able to launch the electronics division. The tech center continues to change how Suprajit is accepted in our customers' eyes as a supplier beyond cables. We're in discussions on multiple products in the late stage of a lot of the evaluations to start productionizing products across different area. There's been a lot of interest shown by our customers in actuator systems, braking systems and of course the digital clusters that I've already discussed about.

Regarding the coming quarter and the balance year, we see the challenges that SCD continuing, mainly because of the global challenges already explained. However, DCD and Phoenix Lighting Division (PLD) will continue to perform well. The SED growth will continue. As you see today, we continue to see this as one of the strong performers within Suprajit. And we're

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actively pursuing multiple infrastructural assets to house us beyond cable projects, which a lot of our customers have shown great interest in.

The group is working on one ERP and one PLM initiatives to bring all of us under single ERP and PLM system. This will help us collaborate and find much better synergies across the group. We finalized the licenses with both SAP and PTC in the previous quarter.

The domestic business for Q3 has been strong so far, leading to some optimism and expectation for a good second half of the year. But, overall business will continue to be strong and we have clear long-term visibility on good growth.

With that, I'll hand it over to Medappa.

Medappa Gowda:Thank you, Akhilesh. Good morning, everyone.

We announced the Financial Results for the Half Year Ended 30th September 2023. The consolidated revenue for the half year ended 30th September 2023 was 1,389 crores as against 1,361 crores for the corresponding period previous year, a growth of 2%. The consolidated operational EBITDA for the half year ended September 2023 was 144 crores as against 136 crores for the corresponding previous year, recording a growth of 6%.

The standalone revenue for the half year ended September 2023 was 719 crores as against 723 crores for the previous year. The standalone operational EBITDA for the half year ended September 2023 was 125 crores as against 118 crores the previous year, recording a growth of 6%. The total debt level was 629 crores as on 30th September 2023. The cash surplus balance was 517 crores as on 30th September 2023 invested in mutual funds and bonds.

For any further queries, you may approach again directly even after this call. Thank you, all.

Moderator:Ladies and gentlemen, we will now begin with the question-and-answer session. The first question is from the line of Abhishek from Dolat Capital. Please go ahead.

Abhishek:So, how is the outlook for the second half in the domestic cable business? Second is what is the progress on the export cable business that is for the four-wheeler side if you can throw some light over there.

Ajith Kumar Rai:As for the domestic cable business, it will obviously relate to how the domestic industry will do. October, as Mohan has said, has not been greatly exciting, but November, I see that sales seem to be picking up. So, I would think that the October sales for us have been actually much ahead of the industry growth as far as I see for the month, but that is not really an indication. But I do believe that the second half will show some decent growth because historically also this is the time of maximum sales during the third quarter and generally Q4 is stronger. So, I would expect H2 to be probably slightly better than H1. In terms of four-wheeler exports, I think from SEL, the growth has been very good, the dispatch from our Suprajit automotive has been strong, the

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	order wins have been strong, but what has happened is that the existing volumes have come
	down with the customers like all our big customers have sort of reduced offtakes and there has
	been certain postponement of the new launches. Although orders have been won, the launch
	dates got postponed by three months, six months, some of them have even pushed by almost a
	year because of all the uncertainties across the world.
	So, it's the issue of timing, I think. Having said that, I think SEL had a strong growth in exports
	of cables.
Abhishek:	The second question is in the non-automotive segment, Wescon and IDC are showing weakness.
	So, most probably when can we expect the revival in the volume as well as bottom line both?
	What kind of the CAPEX you are looking for in these businesses?
Ajith Kumar Rai:	Non-automotive bottom line will depend upon the top line. The way we see it currently is that
	this year and next quarter we won't see any much change. This is the feedback that we get. I
	think Mohan, as he said been visiting a lot of customers. The customer feedback is that let's say
	a lawn mower simple thing. If it's too hot, there is no grass to mow. So, people probably postpone
	the decision of buying a lawn mower from this year to next year. Similarly, with all the global
	warming, if the snow season is weak, people don't buy, they postpone for another year. So, I
	think the postponement is typically a year in the business that we are in. So, if they do not buy
	this year, hopefully they will buy next year. So certainly, for the next two couple of quarters, we
	don't see much change and it will affect Wescon, it will affect part of our erstwhile LDC division
	and also exports out of Bangalore from our Unit-9. So, this I would say at least from what I see
	it is at least two quarter phenomena, if not more.
Abhishek:	So, the 4rh Quarter is always very much strong for the Wescon. So, -
Ajith Kumar Rai:	I agree with you. Typically, yes. Another reasoning is that people buy these things also under
	EMIs, etc., right. So, with the interest rate in US today mortgage rates I'm just giving an example
	of 7% and 8%, if somebody can afford to pay a mortgage, they will postpone everything else
	later on. These are all discretionary items. So, that is what is happening. So, I think this high
	interest rate is another reason where some of these purchasing powers have come down and there
	is going to be delay. It is not lost business, but I think it's a postponed decision as I see it.
Moderator:	The next question is on the line of Viraj from SIMPL. Please go ahead.
Viraj:	Just a couple of questions. First is on the Suprajit controls division. If you look at the overall
	sales which we did last year around 1,300 to 1,400 crores, so business largely has -
Ajith Kumar Rai:	Sorry, sorry I didn't get that number. What are you saying?
Viraj:	So, if you look at the overall sales, which we did of the entity last year around 1,300 to 1,400
	crores, the business largely has three parts; one is the automotive export, which happens to SEL
	and then you have the SENA which is non-automotive part and then the erstwhile LDC. Can

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	you just give some more detail perspective in terms of how the customer and the segment
	concentration is in each of these businesses? So just to give a perspective in Wescon, when we
	acquired it had a very high concentration in one or two sub-segments within the agri, of highway
	segment, but fast forward 2023 how has that changed in the overall business mix? And based on
	the order wins which you have, how that is supposed to change over the next two to three years?
	So, any perspective if you can give on customer and segment concentration in each of these
	businesses.
Ajith Kumar Rai:	Let me make general comments on all the three subdivisions within that I would say. The SAL
	and Suprajit Europe business is pretty strong. That model of front ending from Europe and to
	some extent from US and manufacturing out of India has been really hitting the sweet spots with
	the customers. So, we have been winning significant new contracts at very good margins. So,
	that part of the business is doing strong. Now, SENA is the one I would say is most affected at
	this moment because there's purely non-automotive business. The reason why of course the
	Suprajit Controls Division has not grown is largely because of SENA, because there has been a
	degrowth at Wescon, there has been a degrowth at Unit-9, where we are manufacturing non-
	automotive cables because of the reason that we have said it's in the power sport vehicles, it is
	in the outdoor power equipment, all those are discretionary purchases. That is where the
	significant degrowth is there, which is why overall, although actually LDC, if you put separately,
	they had some decent growth, but when you're putting them together, I think the overall growth
	has been very marginal or flat. So that is in the individual basis.
Viraj:	When it comes to, say, LDC or even the Suprajit automotive, in terms of customer concentration,
	how would that pan out? I mean you talked about the top three, US -
Ajith Kumar Rai:	One thing good about is, they're all complementary customers. The LDC purchases didn't, except
	in one or two pockets there has been now overlapping of customers. I think there has not been
	an issue. The big customers today are still I would say the top customers for us is BMW,
	Volkswagen, John Deere, a couple of these North Americans, of course through tier 1, tier 2 and
	directly Detroit customers. I think they are the big let's say top five… and of course, Tesla is
	also a big customer. So, these are, I would say, the top five customers in that.
Viraj:	In terms of the second half, if we see ex of the non-automotive business, I understand there was
	some impact in October because of the strike in US, but I mean adjusting for that, do we see any
	further deceleration in the overall sales or the new?
Ajith Kumar Rai:	I think Q3 will have some impact because what has happened is that October has been badly
	affected because of this UAW strike and the restarting has also been happening little slowly. We
	have lost almost like seven weeks or maybe even eight weeks. So, to that extent, certainly, there
	will be an impact in Q3. And Wescon also will be weak in Q3 as well if, Q3 is typically not a
	great month for Wescon in any case historically also. So, that gets further accelerated, but then
	I would say that probably Q2, Q3 are the tough quarters for us. I should see some change
	hopefully in Q4 unless market itself decelerated for whatever reason in Q4.

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Viraj:	Just two more questions. One is again on the Suprajit Controls Division margin. We did like
	something like 3%. EBITDA margin, and if I look at the subsidiary level, you know adjusting
	the consol from standalone, we have been having losses of around 17 to 20 crores for the last
	two quarters. So, again looking at the business construct, you had SENA which is always on
	double digit, Suprajit automotive earning 16 to 20, LDC also, in the last few quarters, the trend
	has moved towards mid-single digit and above. So, this drop in EBITDA is given by what -- I
	mean if you can give some perspective the quantum of one-off expenses which we incurred in
	H1 or Q2 to kind of help us understand the two business models?
Ajith Kumar Rai:	Agree. I think there are both factors. I think first of all, the deceleration in non-automotive is
	certainly a major part why the margins have been affected. It is affected more significantly in
	Wescon, but it has also been equally strong in LDC, of course. I'll come to that consolidated
	number little while. LDC also has got nearly 30% of the business was in non-automotive. That
	has also taken a hit and Wescon has taken a hit. I think there's the two places where significant
	margin erosion has happened, which is that number what you mentioned has actually happened.
	But let me also make a general comment. Now, I think slowly we are losing this SENA, LDC,
	SAL, SEU color because the way we have started working now, …I'll give you a few examples
	as well, it is working as a single division, not as separate entities. We are not looking at now
	what is the margin at SENA or what is the margin at LDC, we are looking at what is the margin
	at the controls division and what is the margin for the group. For example, PMI warehouse, what
	Mohan mentioned was for Suprajit Automotive. Now what we have done is that there is an
	additional expense to run a separate third-party thing. So, in Brownsville we had an LDC
	warehouse, so we moved everything into LDC warehouse. So, in the process as a as a group, we
	are getting additional margin because we are not going to pay to a third-party, I'm just giving
	one example. Another example is we have been underutilizing, LDCs plastic molding capacities.
	So, Wescon was buying lot of plastic parts. So, lot of those vendors have been moved out and
	those multiple components probably 100 parts have been slowly but steadily being moved to
	LDC. We had a problem with Hungary. I'm giving a few examples with one big business where
	they had a negative margin. Just recently it has been started moving to our SEL where we still
	are making some margin. So, as a group we will have better synergy. So, this Suprajit Controls
	Division will become a single entity by itself, and it will not have pieces of LDC and SENA in
	the next year or so. Because we are working out the total synergies together and in the process
	there are some expenses, for example, PMI, we have to pay them one year or whatever rental
	because it has been committed, but we are forced to move, so that is a one-time expenditure, we
	are doing it. I mean China movement, we are paying two rentals till whatever time because we
	are forced to move, but we still have to pay rental to the previous landlord. These are all not
	small costs. For example, in Luxlite or of course it's unrelated to this part of the business. There
	are expenses which is running for shutting it down. Multiple such events are happening. One of
	the reasons why also, for example, some extent controls division, margins come down is a simple
	thing on a customs duty, we were asked to pay a much higher customer duty thinking that the
	component itself is from China. Of course, we have now filed an appeal and we are confident of
	winning. But till such time we win it, we have to pay the custom duty, so it hits the P&L. I mean
	these are the things that kept happening in this quarter. That's why we have seen some changes.

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	But I think given another couple of quarters, all these things will settle down, I am pretty sure
	things should be much better than what it is today.
Viraj:	Is it possible to quantify the impact in H1 because of these additional expenses and restructuring
	and I'm sure there will be furthermore restructuring expenses?
Ajith Kumar Rai:	I'm sure there's an internal data on what it is, but we have not really been sharing it to the outside
	world, but I think till end of this year, there will be this ongoing restructuring cost, but I think
	that's when it will all probably taper off.
Viraj:	In the interim, do we see any need for infusion or any lending support to the subsidiaries?
Ajith Kumar Rai:	Not really. We are fairly well funded. I think we also have good banking limits. So, if they need
	a few million here and there, we'll always support. But I think it should be okay.
Moderator:	The next question is from the line of Amit Hiranandani from SMIFS LTD. Please go ahead.
Amit Hiranandani:	My first question is basically how much CAPEX we are planning to do in FY24 and FY25 and
	where are we going to spend this amount?
N.S. Mohan:	Like we had already told last time, we are working with the budget of about 140 crores for this
	year and the 6+6 that I was looking at very recently indicates that we should be well within that
	ballpark for 140 crores. There would be some reshuffling in investments in what we had
	originally perceived to what we are going to do, but these are minor changes, not nothing great.
Amit Hiranandani:	Can we assume this similar amount in FY25 as well?
N.S. Mohan:	Ballpark, yes.
Ajith Kumar Rai:	Actually, just to clarify, I think what Mohan said is that's actually part of it gets spilled over to
	next year also, this is an ongoing CAPEX, So, we will again be reviewing next year and will be
	coming out as to what will be required for '24 '25 and onwards, I think.
Amit Hiranandani:	Second is basically, continuing with the previous participant question on the one-off expenses,
	so any broad number can you throw what was the one-off in H1 and how much more one-off
	expected in H2 because of China plant relocation and refine at the restructuring exercises?
Ajith Kumar Rai:	I think I don't have that number with me. Maybe you can connect with Medappa later on.
Amit Hiranandani:	Second question is basically wanted to understand the reason for PLDs margin improvement and
	how much of this is sustainable?
Ajith Kumar Rai:	That's an interesting question. I think quite a few were quite concerned about the PLD division
	itself. A couple of years ago or I don't know, maybe three years ago, it was a hot subject with

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