About the company:
Syrma SGS Technology Limited (“Syrma”) was incorporated on August 23, 2004. Syrma is a technology-focused engineering and design company engaged in turnkey electronics manufacturing services ("EMS"), specializing in precision manufacturing for diverse end-use industries, including industrial appliances, automotive, healthcare, consumer products, and IT industries.
As per F&S Report, among the large bouquet of EMS players in India, Syrma is one of the fastest-growing Indian-headquartered Electronics system design and manufacturing (ESDM) company.
They are leaders in high-mix low volume product management and are present in most industrial verticals. Further, Syrma is one of the leading PCBA manufacturers in India, supplying to various OEMs and assemblers in the market. Syrma is also amongst the top key global manufacturers of custom RFID tags.
The current product portfolio may be categorized as follows:
• Printed circuit board assemblies (“PCBA”): The PCBAs are used in products manufactured in the automotive, medical, industrial, IT and consumer products industries, and include box-build products
• Radio frequency identification (“RFID”) products: The RFID products are used in products manufactured in the shipping, healthcare, manufacturing, retail and fintech industries
• Electromagnetic and electromechanical parts, which include magnetic products like chokes, inductors, magnetic filters, transformer as well as high volume manufacturing assemblies: Their electromagnetic and electromechanical parts are used in products manufactured in the automotive, industrial appliances, consumer appliances and healthcare industries, among others; and
• Their products, which include motherboards, DRAM modules, solid state drives, USB drives and other memory products.
The company currently operates through eleven strategically located manufacturing facilities in north India and south India. Syrma is focused on technological innovation through their R&D capabilities. They have 3 dedicated R&D facilities, 2 of which are in India at Chennai, Tamil Nadu and Gurgaon, Haryana respectively, and one is located in Stuttgart, Germany.
As part of the business strategy to expand its market share in the EMS sector and to widen its geographical footprint in the national market, the company acquired SGS Tekniks in September 2021 and Perfect ID in October 2021.
The firm gains 54.77% of revenue from exports and the rest from India as of FY22.
Financials Snapshot
|
Particulars (Rs in Cr.)
|
FY20
|
FY21
|
FY22
|
|
Revenue from Operations
|
397.08
|
438.30
|
646.26
|
|
Total Expenses
|
347.05
|
408.14
|
606.61
|
|
EBITDA
|
69.90
|
52.93
|
64.77
|
|
EBITDA Margin
|
17.60%
|
12.08%
|
10.02%
|
|
Profit for the period
|
43.88
|
28.62
|
30.61
|
|
ROE (%)
|
55.23%
|
16.84%
|
7.83%
|
|
ROCE (%)
|
31.80%
|
19.48%
|
18.39%
|
|
Debt / Equity Ratio
|
0.82
|
0.24
|
0.24
|
Revenues have grown impressively from FY20 to FY22, however, profits have declined due to higher expenses on account of the rise in raw material prices.
Key Business Strategies
• Solidify and strengthen the core competitiveness of technology innovation.
• Pursue inorganic growth through strategic acquisitions.
• Expand the customer base and geographic reach.
• Increase the wallet share from existing customers.
• Cater to more end-use industries.
Key
Risks
·
The company generally
does not obtain firm, long-term purchase commitments from its customers and
frequently does not have visibility as to their future demand for its services.
·
The loss of its
key customer base may have a material adverse effect on the financial
conditions, cash flows, and results of operation.
·
Under-utilization
of its manufacturing capacities could impact its business, growth prospects,
and future financial performance.
·
The company depends on third parties
for the supply of raw materials and imports the majority of its raw materials. This
dependence may also adversely affect the availability of key materials at reasonable
prices thus affecting the margins.
Valuation
The company has undertaken a Pre-IPO Placement of 3,793,103 Equity Shares at a price of Rs 290/- per share, aggregating to Rs 110 Crore on 5th May 2022. However, currently, the IPO is priced lower compared to the Pre-IPO Placement.
Currently, at the upper price band of Rs. 220, the issue appears to be moderate to fully priced at a P/E ratio of 49x as compared to its listed peers and the industry’s average of 93.15x.
Samco’s Stance
Syrma operates in electronics which is one of the fastest growing industries in the country. The total electronics market in India is expected to grow at a CAGR of 25.5% and reach Rs 20,873 billion by FY26. Further, given Syrma’s long experience in the EMS sector, and its well-experienced leadership, it has been in a position to take early advantage of technological developments in the EMS sector, allowing them to promptly address evolving needs of their customers. Furthermore, the company’s strategic acquisitions will help them to increase their scale and market position, as well as strengthen its range of product offerings and customer base position.
On the financials front, the company’s margins and profitability have shrunk and remain a key monitorable for the future. Moreover, its returns ratios have also declined over the years. Considering these factors, investors are advised to SUBSCRIBE WITH CAUTION to this IPO.
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