The auto ancillary space has some quality companies that are growing at a fast pace. After sifting through all the important screeners, one company that appears to showcase value now is Suprajit Engineering.

What makes Suprajit special? The company is the market leader in the automotive cable market, enjoying more than 50 percent market share and servicing marquee clients such as Maruti Suzuki, TVS Motor, Hero MotoCorp, Bajaj Auto and Mahnidra & Mahindra.

Suprajit has also ticked all the right boxes — corporate governance, pedigree management, solid finances — and the stock has compounded over 20 percent in the last decade with a return on capital employed at 25 percent.

However, this year has not been good. The stock has fallen 20 percent in 2018.

It is not hard to see why. There was a demand shift that took place towards premium auto H7 bulbs in the last 12 months. Phoenix Lamps, a subsidiary of Suprajit, did not invest well in that line. The eventual import of machinery was delayed due to unavailability and this led to a sharp loss of business opportunities.

However, now the company has indicated to analysts that the issues facing lamps business have been resolved, utilisation of this business has ramped up and that it expects a 15 percent growth. More importantly, the company is making big strides in the auto cable exports business.

Suprajit expects revenue to double in auto cable exports over FY18-21 with new orders from European automakers such as Volkswagen, BMW, Daimler and Ford.

The company boasts a strong financial background and its revenues have more than doubled in the past four years.

In FY18, revenues rose 20 percent, profits surged 40 percent and debt has contracted. The management is optimistic about the business and have launched a Rs 100 crore expansion plan to increase capacity to over 300 million cables from 250 million cables in two years.

Most brokerages are bullish on the stock. However some feel the room for upside is limited. Both Edelweiss and Axis Capital have a 'buy' rating on the stock with a target price (TP) of Rs 340 and Rs 334, while HDFC securities has neutral with a TP of Rs 296.

On the valuations front, Suprajit is the cheapest amongst its peers trading at 16.5x FY20 compared with Jamna Auto at 18x , Subros at 17x and Exide Industries at 19.5x.

Disclaimer: This is not a stock recommendation and but a statement of fundamental facts about a company, presenting a case for value. Please make your own investment decisions.

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First Published:Jun 14, 2018 9:50 AM IST