Syrma SGS Technology IPO Opens: Should You Invest?

Syrma SGS Technology Limited IPO opens for subscription on 12th August. The company is looking to raise up to Rs 840 crore through the public issue. Here are the details:

Syrma SGS Technology IPO Opens: Key Details

Syrma SGS Technology IPO Date: 12 August - 18 August 2022

Syrma SGS Technology IPO Price band: Rs 209 - Rs 220

Syrma SGS Technology IPO Issue Size: Rs 840 crore (Initial Public Offering of equity shares aggregating up to Rs 766 crore and Offer for sale of 3,369,360 Equity shares)

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

Post Issue Implied Market Cap: Rs 3,721 crore - Rs 3,877 crore

Minimum Investment: Rs 14,960

Bid lot: 68 shares, and in multiples of 68 shares

Syrma SGS Technology IPO Opens Today: Objects of the Issue

The net proceeds from the IPO will be utilized for the following purposes :

• Funding capital expenditure requirements for expansion / setting up of manufacturing facilities and development of an R&D facility.
• Funding long-term working capital requirements.
• General corporate purposes.

Syrma SGS Technology IPO: Company Details

• Syrma was incorporated in 2004 and is one of India's leading exporters of electronics. It provides a high-value integrated design and production solution for internationally recognized OEMs.
• They are one of the leading Electronics system design and manufacturing companies with a focus on technology-based solutions and Original design manufacturer business.
• Syrma's business approach leads to continuous advancements in product technology, structure, and functional design to meet customer requirements and lead the industry in development.
• The company’s manufacturing facilities in Tamil Nadu are placed in SEZs, allowing them to take advantage of specific tax and other incentives in relation to the products manufactured at these facilities. 
• Syrma is the first in India to manufacture Radio Frequency Identification (RFID) products and continues to lead the industry.

Syrma SGS Technologies IPO: Key Business Details

Syrma offers high-value-added and integrated design and manufacturing solutions for internationally recognized OEMs. Below are details related to its business and products:

• EMS Product Manufactured: Printed Circuit Boards (PCBA), Zone of Autonomous Creation (ZAC), Radio-Frequency Identification (RFID), Magnetics, etc
• Key Business Segments: Industrial, Consumer Electronics, Automotive, Computer, Medical, Railways.
• Key Services Offered: Product Design, Prototyping, Product Assembly, Quality & Testing, Supply, and Logistics.
• Key customers: TVS Motor, A. O. Smith India Water Products Pvt. Ltd., Robert Bosch Engineering and Business Solution, Eureka Forbes Ltd Limited, CyanConnode Ltd., Atomberg Technologies, Hindustan Unilever, and Total Power Europe B.V.

Industry Outlook

• North America is a leader in adopting next-generation technologies and devices. North America is a leader in adopting next-generation technologies and devices.
• Electronics is one of the fastest-growing industries in India. The total electronics market in India is valued at $91 Billion in FY21, which is expected to grow at a CAGR of 25.5% to reach $282 Billion in FY26. 

India is positioned not only as a low-cost alternative but also as a destination for high-quality design work. Many multinational corporations have established or expanded captive centers in India.

Syrma SGS Technology IPO: Listed Peers

The company has a couple of listed peers - Dixon Technologies Limited and Amber Enterprises India Limited. Below is a comparison of Syrma with listed peers:

• In terms of market capitalization, Dixon Technologies is the largest company, while Syrma will be a comparatively smaller company among the three.
• The total revenue of Syrma is one-ninth of Dixon Technologies and one-third of Amber Enterprises.
• Earning Per Share (EPS) is lowest for Syrma at 5.25, while the other two have EPS in the thirties.
• Industry, in general, has a higher PE ratio. Syrma has a PE of 50.69, while Dixon has a PE of 110.76, and Amber has a PE of 75.54.

In terms of RoNW, Dixon again leads the table with RoNW of 21.94 followed by Syrma with RoNW of 13.58%.

Syrma SGS Technology IPO: Financials

• The company has reported revenue of Rs 397.08 crore, Rs 438.30 crore, and Rs 646.26 crore in FY20, FY21, and FY22, respectively. The revenue has grown at a CAGR of 27.56%, a good number.
• For FY20, FY21, and FY22, Rs 332.09 crore, Rs 306.97 crore, and Rs 353.94 crore, which accounted for 83.63%, 70.04%, and 54.77%, respectively of the revenue from operations, were attributable to exports. 
• EBITDA reported by the company is Rs 69.90 crore, Rs 52.93 crore, and Rs 64.77 crore for FY20, FY21, and FY22, respectively. The EBITDA Margin for the same period is 17.60%, 12.08%, and 10.02%, respectively.
• The profit has declined in the last two years. The profit has dropped from Rs 43.88 crore in FY20 to Rs 30.61 crore in FY22. In FY21, the net profit reported was lowest at Rs 28.62 crore.
• The profit has declined because profit margins have declined. The profit margins were 11.05%, 6.53%, and 4.74% for FY20, FY21, and FY22, respectively.
• For the last three financial years, it has posted an average EPS of 5.18 and an average RoNW of 14.85%. 

Syrma SGS Technology Limited: USPs

Leading design and electronic manufacturing services: They are 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.

Consistent track record of financial performance: The company has shown consistent growth in terms of revenue and profitability. The financial illustrates not only the growth of their operations over the years but also the effectiveness of the administrative and cost management protocols that they have implemented. 

Established relationships with marquee customers: Their product portfolio has helped them forge strong relationships with major clients. They have established and will continue to focus on strengthening long-standing relationships with well-known customers across the end-use industries that they work with.

State-of-the-art manufacturing capabilities: They currently operate through 11 manufacturing facilities spread across five states namely - Tamil Nadu, Karnataka, Himachal Pradesh, Haryana, and Uttar Pradesh. Their manufacturing facilities are equipped with modern and high-speed equipment that can handle surface mount components and through hole components.

Syrma SGS Technology IPO: Growth Potential

Strengthen their core competitiveness of technology innovation: The company plans to invest in technology infrastructure to enable further technical innovation, improve its operational efficiencies, increase customer satisfaction and improve sales and profitability. 

Inorganic growth through strategic acquisitions: They intend to continue pursuing strategic acquisitions by selectively evaluating targets or partners for strategic acquisitions and investments.

Expand customer base and geographic reach: The number of OEMs and ODMs they catered to has grown to 409 during FY22 from 288 during FY20, on a proforma basis. They are working towards tying up with the top three market leaders in each end-use industry that they intend to cater to, and have their largest wallet share.

Increase wallet share from existing customers: They plan to continue focussing on increasing contributions per customer and to work closely with them to develop a broader portfolio of products, which meet their requirements.

Syrma SGS Technology IPO: Risk Factors

No long-term commitments: Syrma's customers do not make long-term commitments with them and may cancel or change their production requirements. Such cancellations or changes may adversely affect their cash flows and financial condition.

Loss of relationship with existing customers: The company has to have strong relationships with its key customers is essential to its business strategy and the growth of business. Loss of relationship with any customers may have a material adverse effect on their financial conditions.

Promoters providing loan guarantees: Company's promoters have provided guarantees for loans availed by them, and in the event, the same is enforced against promoters, it could adversely affect promoters’ ability to manage the affairs of the company. 

Syrma SGS Technology IPO:

• Robust rise in revenues: Syrma SGS Technologies has seen a robust 28% on-year revenue growth over the FY20-22 period, aided by strong demand for electronics manufacturing services. 
• Recovery in profit: Due to lockdown amid Covid-19 pandemic, the company saw its profit decline to Rs 28.62 crore in Apr- Mar 21 period as compared to Rs 43.88 crore in Apr-Mar 20 period. In the last year profit recovered to Rs 30.61 crore. 
• Margins under pressure: The company’s margins have witnessed some pressure due to higher costs. EBITDA margin declined to 10.02% as compared to 17.60% in Apr-Mar 20 period. Net profit margin has also fallen to 4.74% as compared to 11.05% in Apr-Mar 19.
• Return ratios: Syrma had reported a Return on Capital Employed of 13.68%, higher than listed peer Amber Enterprises 6.52%, but lower than Dixon Technologies at 21.94%. 
• Reasonable valuations: At the higher end of the price band, Syrma SGS Technologies IPO is priced at 50.69 times FY22 earnings (post-issue fully diluted basis). This is lower than both Amber Enterprises (157 times) and Dixon Technologies (131 times).
• Syrma SGS Technology IPO Final recommendation: Given factors such as fastest growth in topline in the electronic manufacturing services segment, dominant position in manufacturing RFID tags, marquee customers, good runway for growth and reasonable valuation, analysts have given a ‘positive’ rating on the company’s long-term prospects.