SJS Enterprises IPO: All you need yo know!

S.J.S. Enterprises Limited (SJS) IPO opens for subscription on 1st November. The company is looking to raise up to Rs 800 crore through the public issue. Here are the details:

About the IPO

S.J.S. Enterprises IPO Date: 1 November - 3 November 2021

S.J.S. Enterprises IPO Price band: Rs 531 - Rs 542

Issue Size: Rs 800 crore (Offer for sale of Equity Shares aggregating up to Rs 800 Cr)

Post Issue Implied Market Cap: Rs 1,616 – 1,650 crore

Reservation: QIB 50%, Retail - 35%, NII 15%

Bid lot: 27 shares, and in multiples of 27 shares

Objectives of the issue

The company plan to use the fundraised for the below purposes:

• carry out the offer for sales of equity shares by the selling shareholders
• achieve the benefits of listing the equity shares on both the exchanges

About SJS. Enterprises 

• SJS was incorporated in 1987, and it is one of the leading players in the Indian decorative aesthetics industry in terms of revenue.
• It is a design-to-delivery aesthetics solution provider with the ability to design, develop and manufacture a diverse product portfolio.
• SJS also manufactures a wide range of aesthetic products that cater to the requirements of the commercial vehicles, farm equipment, medical devices, and sanitary ware industries. 
• It has supplied over 115 million parts with more than 6,000 SKUs in FY21 to around 170 customers across 90 cities in 20 different countries.
• SJS's products include decals and body graphics, 3D appliques and dials, 3D lux badges, 2D appliques and dials, domes, overlays, aluminum badges, in-mold labels, or decoration parts, lens mask assembly, chrome-plated printed, and painted injection-molded plastic parts. 
• The company has its manufacturing facilities at Bengaluru and Pune, and the annual production capacity of the Bengaluru and Pune facilities was 208.61 million and 29.50 million products, respectively.

SJS Products

Decals and body graphics - are used in two-wheelers and passenger vehicles and are applied to the body of a vehicle to enhance its appearance. The company has been manufacturing them for over 33 years.

2D appliques and dials - are used in two-wheelers and passenger vehicles as speed or revolutions-per-minute indicators in speedometer clusters. SJS has approximately 25 years of experience in manufacturing these products.

3D appliques and dials - New generation vehicles tend to use aesthetically superior 3D appliques and dials. They are the exclusive supplier of these products to top Korean passenger vehicle OEMs in India. 

3D lux badges  - are typically used in 2-wheelers and passenger vehicles to showcase a customer’s logo or brand. SJS has approximately 11 years of experience in manufacturing these products.

IMLs/IMDs - are used in many products, such as control panels in vehicles and consumer appliances, branding logos, and decorative plastics. The company has been manufacturing these products for the last two years.

Industry Peers

The industry peers of the company include Polyplastics Industries India, Classic Stripes, PRS Permacel, Monochem Graphics, Galva Deco Parts and Kongovi.

• Among the industry peers, Polyplastics Industries has the highest Operating income of Rs 450 crore. SJS is slightly above the industry's average operating income.
• Between FY14 and FY20, the maximum growth is shown by Galva Deco - the operating income CAGR was 24%. SJS is next on the list with a CAGR of 15%.
• Only three companies are into exports, and SJS is one of them with an export percentage of 15%.
• SJS has an operating EBITDA margin of 31.90%, the highest among the peers and well above the industry average of 19.20%.
• The Highest PAT margin is for Monochem Graphics - a 28% PAT margin. SJS has a PAT margin of 18% in FY20, well above the industry average.
• Highest ROCE and ROE are reported by Classic Stripes, SJS is second on the list.

Financials

• Despite the resultant slowdown in the industry and the temporary effects of COVID-19 on its operations, the company was able to grow its overall business and operations, with a growth of 16.40% in revenue from operations to ₹251.62 crore in Fiscal 2021 from ₹216.17 crore in Fiscal 2020, a 16.17% growth in EBITDA to ₹79.70 crore in Fiscal 2021 from ₹68.61 crore in Fiscal 2020 and a 15.70% growth in profit for the year to ₹47.77 crore in Fiscal 2021 from ₹41.29 crore in Fiscal 2020.
• The company’s sales to OEMs contributed 69.94%, 69.75%, and 74.26% in FY21, FY20, and FY19, respectively. The sales to Tier-1 suppliers contributed 29.70%, 29.88%, and 25.60% in the same period.
• Their sale of products and services constituted 99.64%, 99.62%, and 99.86% of their revenue from operations for FY21, FY20, and FY19, respectively.

USP

Premium products - SJS is a leading aesthetics solution provider with an extensive suite of premium products. They have demonstrated the ability to differentiate their offerings and are well-positioned to continue to benefit from the increasing trend of premiumization across the automotive and consumer appliances industries. 

Established supply chain and delivery mechanism - It has strong manufacturing capabilities supported by an established supply chain and delivery mechanism. The strength of their delivery mechanism is

demonstrated by its ability to supply products to around 175 customers in approximately 90 cities across 20 countries.

Innovative and strong product design - It has in-house design, development, and engineering capabilities that encourage innovation and improve efficiency in its manufacturing processes. They have developed capabilities to engineer products using multiple material substrates and processes, from injection molding to metal forming, with support from dedicated suppliers that adhere to their stringent quality standards.

Long-Lasting customer relationships - Company’s key customer base includes automotive OEMs, global Tier-1 automotive component suppliers, consumer durables/ appliances manufacturers, medical devices manufacturers, and sanitary ware manufacturers. Their relationship with its 10 largest customers in terms of revenue averaged approximately 15 years.

Growth Potential

Leverage market position - The future trend is to be driven by growing premiumization and a rise in the adoption of electric vehicles over the next five years. SJS plans to continue to leverage its market leadership and diverse product offerings to capitalize on EV and other trends and enhance its focus on premium products.

New technology and advanced aesthetic products - The company has started offering products that use chrome-plated, printed, and painted injection-molded plastic parts, radiator grills, and door handles. The company plans to develop and introduce IMEs and internet of things (IoT) enabled solutions that allow integration of electronic chips and circuit boards within a plastic injection molded part. 

Increase geographical footprint - SJS plans to increase its presence in existing geographies and enter new geographies based on current customer relationships. There are growth opportunities in certain select international markets, particularly in Europe and North America, and the company plans to target those areas.

Risks

Dependency on key customers - The company’s top customers accounted for 21.49%, 23.99%, and 33.59% of its revenue from operations in FY21, FY20, and FY19, respectively. Any loss of key customers or significant reduction in production and sales of, or demand for its products will adversely affect its business and financial performance.

Depending on the automotive industry - SJS depends significantly on its customers in the automotive industry and consumer appliance industry, and a decline in their performance, in India or globally, could adversely affect the business and profitability of the company.

Competitive industry - Several other enterprises manufacture one or a limited range of aesthetics and are direct suppliers to OEMs and Tier-1 suppliers. SJS operates in a highly competitive industry, and increased competition may lead to a reduction in its revenues, reduced profit margins, or a loss of market share.

INDmoney Analysis

SJS Enterprises has reported a tepid 3% CAGR rise in topline between FY19 and FY21 to Rs 252 crore, impacted by the pandemic during the period. The bottomline growth has also remained subdued at a CAGR of 12% during the same period. However, the company has been able to maintain strong operating and profit margins during this period. 

At the higher end of the price band, SJS Enterprises is priced at a PE ratio of ~35 times FY21 Earnings per share. There are no listed peers to compare this valuation with. Given the supply disruptions in the auto industry, SJS Enterprises could see an impact on its financial performance. However, the management is confident that the demand will rebound in the next 3-4 months. 

Given factors such as tepid growth in financials over the last three years, good return ratios, stable margins, uncertain outlook due to high dependence on auto industry, and high valuations, we remain ‘Neutral’ on the prospects of the issue.