Rationale

 The reaffirmation of the ratings takes into account Suprajit Engineering Limited's (SEL) strong market position and wellestablished relationships with all major domestic two-wheeler (2W) and three-wheeler (3W) original equipment manufacturers (OEMs). The company has a healthy market share of ~65% in the Indian 2W and ~30-35% in the Indian fourwheeler (4W) cables industry. Despite the overall slowdown in the automotive industry and the impact of the Covid-19-induced lockdown on operations in Q1 FY2021, SEL witnessed revenue growth of 5.0% in FY2021 on the back of the strong revival in volumes from Q2 FY2021 and the strong performance in H2 FY2021. The company's operating margin (OPM) expanded by 20 bps to 14.4% in FY2021 from 14.2% in FY2020 despite incurring an operating loss in Q1 FY2021. The improvement was aided by the higher scale of operations post Q1 FY2021 and various cost-rationalisation measures undertaken by the company. The ratings also continue to favourably factor in the company's diversified segmental and geographical presence, supported by its wholly-owned subsidiaries, Wescon Controls (one of the largest manufacturers of outdoor power equipment (OPE) control cables in North America) and Phoenix Lamps Limited (a halogen bulb manufacturing company with an aftermarket presence in Europe and India). The ratings also consider SEL's strong financial profile characterised by a gearing and total debt/OPBDITA of 0.3x and 1.5x, respectively, as on March 31, 2021 and interest coverage of 12.3x in FY2021. Further, SEL's liquidity position is strong aided by the cash balance and liquid investments of Rs. 378.9 crore as on March 31, 2021. The company's operations were impacted in Q1 FY2022 by the localised lockdowns owing to the Covid-19 pandemic. Further, the shortage of oxygen (required for melting glass) hampered production at Phoenix Lamps for a month in Q1 FY2022 (the Government of India had temporarily suspended the industrial usage of oxygen due to the lack of oxygen for Covid-19 patients). However, the company's market position and wallet share were not impacted since most of the OEMs had to shut down their plants amid the Covid-19-induced lockdown. The ratings remain constrained by the evolving nature of the pandemic. The near-term outlook for the automotive business continues to be uncertain, given the uncertainties related to the increase in commodity costs and the shortage of integrated circuit chips (IC chips) worldwide, which are likely to impact demand. Despite the expected multiple headwinds in the near term, SEL is likely to post healthy revenues given its strong market position, healthy diversification and continued efforts to increase its wallet share and add new products and customers to its portfolio. The Stable outlook on the long-term rating reflects ICRA's opinion that SEL will continue to benefit from its dominant market position in the domestic 2W and 3W/ 4W cables industry, its healthy market position in the OPE cables industry in North America, its diversified geographical and segmental presence, its long-standing relationship with its customer base in the domestic and export markets, its strong liquidity position and healthy financial risk profile.