Suprajit Engineering (SEL) has acquired 100% stake of Wescon Controls, Wichita, USA, through its wholly owned subsidiary Suprajit USA Inc from Shell Topco LP managed by a PE fund Nova Capital, UK. SEL is strategically working towards diversifying its revenue streams by acquisition of different business (earlier acquisitions being Pricol’s speedo cable biz and Phoenix Lamps). We believe this acquisition is a strategic fit for SEL business as it will help to cater non auto cable business, which currently contributes only 3% to total revenue. This is expected to increase to 20% post the acquisition. As per the estimated EV of USD 44.4mn, the deal valued at ~7x EV/EBITDA and 1.1x EV/Sales looks fair.
Post this acquisition, we foresee SEL’s topline growing by ~21-22% with marginal improvement in EBIDTA margins. However, higher depreciation and interest cost will result in only 1%/5% growth in earnings in FY17/18E. As the acquisition has been partly funded through debt, Net D/E could go up marginally to 0.7/0.3 in FY17/18E. They upgrade our TP of Rs 224 (18x SEL’s consolidated FY18E EPS) to include Wescon’s numbers. BUY