A Mid Year Review and the Road Ahead

It gives me immense pleasure to keep you posted of recent milestones and developments of your company.

I am enclosing our half yearly results for your perusal. You will note that on a consolidated basis, sales has grown by 52% and pre-tax profit by 24%. Suprajit Engineering Limited (Suprajit), being a parent of two 100% owned subsidiaries, namely Suprajit Automotive Private Limited (SAL – a 100% Export Oriented Unit) and Gills Cables Limited, UK (GCL), will henceforth declare consolidated results.

I have pleasure in briefing you the current outlook and future prospects on the domestic and global front for your Company:

Domestic outlook:

Suprajit does all the domestic business through its existing 6 units in Bangalore, Manesar, Chakan and Vapi. The expansion of capacities is in advanced stage at our units in Bangalore and Manesar and will be completed in the next 6 months. The new plant at Pantnagar, Uttaranchal for our major customers will go into production in April 2007.

Recently, we have announced that Suprajit will setup an additional cable plant at Haridwar for one of our major 2-wheeler customer. This is expected to go into production in about 12 months time. Total cable capacities in all our plants are expected to be about 70 – 80 million per year, once all these projects go online.

Our growth in the domestic business is expected to be inline with the automotive sector growth of 15-20%. However, with the higher margin export business being shifted to SAL (where income tax is exempt), higher interest costs due to larger borrowings for acquisition as well as domestic expansion, higher employee costs and raw-material prices may have modest margin pressure at Suprajit in the short term. However, this should be viewed from our consolidated growth and profitability along with the globalization of your Company's business in the longer term.

New businesses are being won from the existing customers and also from the new global entrants into Indian markets. With the expansion projects in place, your Company is poised to reap benefits of rapid automotive sector growth in India.

I expect the business growth to be robust for Suprajit, going forward.

Global outlook:

SAL started commercial production in the month of May 2006 and has established an excellent manufacturing facility. Visits and audits from many Global customers have been positive. New enquires are expected to yield significant new businesses in the years to come. Currently, the margins in the export cable business are higher than in the domestic business. I expect the global business to grow at a faster pace, giving an overall stability to your Company's profitability, on a consolidated basis.

GCL, UK, since acquisition in May 2006, has restructured its operations significantly through a redundancy programme. It will relocate to a new facility by end of January 2007 in its new form as Suprajit Group's “Global Technology Centre” with a manufacturing facility in the UK and its Hungarian outsourcing business for cables. GCL is not only looking at European businesses, but with the US marketing associate – Donald J Ulrich Associates, USA, will also drive US businesses. The model of front ending through GCL as our technology centre and SAL as low cost manufacturing base has yielded new automotive businesses of US$ 7.5 million, within a short span.

Global customers expect a supply chain footprint by its suppliers to their diverse plants world-wide. We have taken the first step to develop a global supply chain model by acquiring GCL with a low cost manufacturing base at SAL. However, this is a modest beginning. Our vision is to further strengthen this model through acquisitions, JVs and global manufacturing bases in the years to come.

The higher margin non-automotive business, although modest at the moment, is taking specific shape with new customers being roped in by our non-automotive marketing associate – Global Synergix, USA.

Your Company has entered into Memorandum of Understanding with Jiang Yin Yuan Feng Communication Equipments Limited (YFC), China for a possible Joint Venture for cables in China for cost competitiveness. This MoU will be implemented whenever a major global customer expects Suprajit to have a local presence in China. Indonesia plans are under review at this moment, in view of recent downtrend in automotive manufacturing, due to significant hike in gasoline prices.

I believe, next few years would be an exciting phase in Suprajit's growth plan and equally challenging. As a shareholder, I urge you to view Suprajit from a 3-5 years perspective, as we emerge, as a customer oriented and profitable global enterprise in our business. I need your continued support in our endeavour to make Suprajit a globally competitive manufacturer in terms of quality, cost, delivery and development.

I take this opportunity to wish you and every member of your family a Happy and Prosperous New Year.

With warm personal regards,

Yours sincerely,

K. AJITH KUMAR RAI.
MANAGING DIRECTOR.