Though we continue to believe in the long-term secular growth story of Suprajit Engineering due to its strong positioning and dominant leadership in the auto cable space, but the sharp run-up of close to 45% in the stock price in less than three months leaves little scope for any material re-rating of multiples from here. Thus, it is advisable to take home profits.
Fundamentally, the company posted a robust earnings growth of 21.2% in FY2014 in spite of tough market conditions. The company is gaining market share with India’s fastest growing two-wheeler manufacturer, Honda Motorcycle & Scooter India, and increasing after-market sales to sustain a healthy growth trend. It will be investing about Rs 60 Crore to increase its consolidated capacity to 225 million cables per annum.
At a valuation multiple of 13.6x FY2016E earnings, the stock is trading at a 50-55% premium to its historical average valuation and is largely discounting the near-term positives. However, any serious investor should keep the stock on his radar (in order to enter at a better price point) as it is one of the finest stocks in the auto ancillary sector.
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