Categories Analysis, Industrials

Suprajit Engineering: A Dominant Manufacturer

Suprajit Engineering has grown to become one of the largest suppliers of mechanical cables to the domestic 2W segment with a market share of around 65%. This indicates the high share of business the company enjoys across major two wheeler OEMs. With growing revenue share from exports and aftermarket (mostly global PV players), the company has become an important supplier to domestic passenger vehicle OEMs. One of the major sources of Suprajit’s growth strategy has been acquisitions of the company. Acquisitions have helped the company grow and develop its core automotive cable business as well as diversity into new products like those in the non-auto segment and Phoenix Lamps (automotive headlight lamps).

Firm’s Critical Success Factors:

Judicious Capital Allocation:

Building a scalable organisational structure through developing management bandwidth allocation:

Effective management bandwidth allocation is necessary for  adequate integration of acquisitions and the administration of operations across different geographical locations. Suprajit has achieved success in this area by retaining the existing management of the firms it has acquired alongside making adjustments as necessary.

Continuous investment in manufacturing capacities:

Suprajit has actively taken measures to increase its capacity for producing cables, leaving little room for its competitors to profit from the expansion of the market. Even without taking into account the additions from the Wescon acquisition, it has successfully tripled its cable manufacturing capacities in the last ten years alone, reinvesting approximately 40% of its standalone cash flows in capital expenditures (excluding the acquisitions). 

The company also focused on being accessible to its key customers by having a multi-locational presence closer to them which evidently gave it a huge advantage over its peers. This presence allows close interactions and involvement in the onsite development and design of the team with OEM customers which leads to getting  embedded in the OEMs’ supply chain ecosystem, shorter response time for product development and customising customers requirements. In the domestic cables industry in India, Suprajit evidently occupies a higher number of plants when compared to its competitors.

Cost Advantages over its Competition:

In all of its product categories, including automotive cables, automotive lighting, and non-automotive cables, Suprajit has a well-planned strategy and strong vision for being a global leader.  One of the critical factors involved in achieving this goal lies in being an effective, low-cost supplier of these items while exceeding customer expectations for designs,  quality, and delivery. These factors are showcased by the firm’s improving financials:

Geographical Advantage over MNC Peers from its Indian manufacturing base:

Suprajit faces significant competition from MNC counterparts in both the Local and international markets across all of the primary businesses. The company  benefits from the following built-in cost advantages in this regard:

  • Automotive cables:   Although the company’s major rival, a Japanese supplier, operates a manufacturing plant in India for local automobile cables, it faces high costs because of the presence of a sizable number of highly compensated Japanese expats as well as high overheads. Similar to this, Suprajit supplies  from India, giving it a significant cost advantage over the majority of Japanese and Korean rivals.
  • Automotive halogen lamps: Phoenix Lamps, which houses automobile lamps, primarily competes with Osram and Phillips in the Indian and European vehicle lamp sectors. Osram and Phillips are at a cost disadvantage compared to Phoenix Lamps since they have restricted manufacturing capacity in India (in fact, Osram sold its sole Indian facility to Suprajit/Phoenix in 2019) and supply from their global locations to both the Indian and European markets.
  • Non-automotive cables: Wescon now has access to Suprajit’s Indian plants following its acquisition of the aforementioned two companies (in addition to its legacy US and Mexico plants). Due to this, it enjoys a considerable cost advantage over US/European competitors in the non-auto sector (such as Leoni).

Key Challenges:

Consequences on automotive lamps business due to the rise in Light-emitting diode:

The Phoenix halogen lamp industry faces risks as LED adoption becomes more prominent in automotive lighting. In the 2W and PV sectors, the adoption of LEDs in new car sales has grown to levels of 20–30%. LED technology is neither a field in which Phoenix Current is present, nor does it appear to be a primary area of focus for the company. The following factors, however, restrict the impact of LED adoption on Phoenix:

  • Gaining market share in the aftermarket for halogen lights is Phoenix’s primary strategy. Although it dominates the market in India, it occupies a minimal share in the market in Europe. Hence, even if the global market for halogen aftermarket lamps stays the same or begins to contract, the effect should be lessened by increasing market share.
  • Over 70% of Phoenix’s revenue comes from the aftermarket sector. In other words, the population of existing cars with conventional lighting (that uses halogen lamps) is the primary target segment for Phoenix in India and Europe .It will take many years before LEDs have any substantial impact on the market for halogen lighting and reach any significant level in the total number of cars.

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