One of the leading design and electronic manufacturing services companies in
terms of revenue in Fiscal 2021, driven by the focus on quality and customer relationships.
Given the long experience in the EMS sector, and the well-experienced leadership, SSTL has been in a position to take early advantage of technological developments in the EMS sector, allowing them to promptly address evolving needs of the customers. This has enabled consistent growth in the revenue and profitability. Company over the past 3 financial years has shown a steady growth with revenues more than doubled to Rs.1020 crores in FY22 against 438 crores in FY21 clocking a growth of whopping 132% and PAT also nearly doubled at 57 crores in FY22 against 30 crores in FY21.
State-of-the-art manufacturing capabilities
Company currently operate through 11 manufacturing facilities spread across five states namely Tamil Nadu, Karnataka, Himachal Pradesh, Haryana and Uttar Pradesh, that are supported by 849 permanent employees and 3,886 persons employed as contract labor / temporary employees and retainer ship employees (as on March 31, 2022). Presence in these states enables them to efficiently cater to the requirements of customers in north and south India. Manufacturing facilities in Tamil Nadu are located in a special economic zone and manufacturing facility in Haryana has been set up under the Electronic Hardware Technology Park scheme, which allow them to avail certain tax and other benefits in respect of the products manufactured out of these facilities.
Established relationships with marquee customers across various countries
SSTL has established long-standing relationships with marquee clients over the years and will continue to focus on strengthening these. Company’s product portfolio and service offerings have helped them build a wide customer base across many end-use industries. Company has a strong track record of technical innovation which involves working with the engineering teams of their marquee customers like TVS Motor Company, AO Smith India Water Products, Robert Bosch Engineering and Business Solution, Eureka Forbes and Total Power Europe BV and Hindustan Unilever Limited.
Pursue inorganic growth through strategic acquisitions
Company’s acquisitions include the acquisition of Tovya Automation Dec 2014, merger of 3G communications Pvt Ltd effective from April 2016 and most recently, the acquisition of SGS Tekniks in September 2021 and Perfect ID in Oct 2021.
The acquisition of Tovya Automation provided them access to various technical know-how for offering IoT related products and allowed them to meet the pre-qualification criteria applicable to certain government tenders.
Company’s acquisition of SGS Tekniks, helped it in setting up manufacturing facilities across India and in-house research capabilities in Germany.
Acquisition of Perfect ID helped it in foraying into manufacture of RFID label tags and passive inlay tags, which was in addition to their existing capabilities for the manufacture of RFID hard tags, thus expanding their RFID products portfolio.
The company may pursue similar opportunities to undertake acquisitions (i) that allow them to enhance their scale and market position; (ii) that allow them to strengthen their range of product offerings and customer base; and (iv) that add new products to their portfolio or that allow them to enter strategic businesses to capture additional revenue opportunities from their existing customer base.
To augment the wallet share from existing customers
SSTL has built long-standing relationships with some of their customers, which they intend to leverage by capitalizing on the cross-selling and upselling opportunities. They see significant potential to increase the wallet share of their existing customers on an ongoing basis. The aggregated wallet share of the Top-10 and Top-20 customers has increased by CAGR of 26.20% and 25.79% respectively, from Fiscal 2020 to Fiscal 2022.
|Particulars (Rs. in Crores)||M. Cap(Cr)||Face value (Rs.)||Total Revenue(cr)||EPS(Rs)||PE||RONW(%)|
|Syrma SGS Technologies Pvt. Ltd. LTD||3877.00||10.00||1284.00||5.25||50.00||13.58|
Dependent on third parties for raw materials supplies: Company is heavily reliant on third parties for supply of raw materials and import majority of raw materials. Any discontinuation of production by its suppliers or a failure of these suppliers to adhere to the delivery schedule.
Related Party Transaction: The Company has entered into various related party transactions and may continue to do so in the future, which may potentially involve conflict of interest.
Research & Development costs – There is no assurance that costs incurred by the company towards research and development may be effective in increasing cost efficiencies in respect of manufacturing of these products. Any failure to derive results from research and development efforts may hurt its competitiveness and profitability.
No long - term purchase agreements with customers - 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. Customers also cancel, change or delay design, production or aftermarket service quantities and schedules, or fail to meet their forecasts for a number of reasons beyond its control.
Incorporated in 2004, SSTL is a Chennai based technology-focused engineering and Design Company engaged in turnkey electronics manufacturing services (EMS) specialising in precision manufacturing for diverse end-use industries, including industrial appliances, automotive, healthcare, consumer products and IT industries. According to the F&S Report, among the large bouquet of EMS players in India, they are one of the fastest growing Indian-headquartered ESDM companies.
Over the years, company has evolved to provide integrated services and solutions to OEMs, from the initial product concept stage to volume production through concept co-creation and product realization. Company has a strong track record of technical innovation which involves working with the engineering teams of their marquee customers like TVS Motor Company, AO Smith India Water Products, Robert Bosch Engineering and Business Solution, Eureka Forbes and Total Power Europe BV and Hindustan Unilever Limited.
Company’s product portfolio includes Printed circuit board assemblies (PCBA), Radio frequency identification (RFID) products, electromagnetic and electromechanical parts, motherboards and memory products - DRAM modules, solid state, and USB drives.The company is a technological driven entity and attempts at optimizing costs for its customers with high quality cost effective manufacturing. Not limited to manufacturing, the entity is also engaged in product designing, prototyping, quality & testing, supply & logistics, product assembly and more.
SSTL currently operate through 11 strategically located manufacturing facilities in north India (i.e. Himachal Pradesh, Haryana and Uttar Pradesh) and south India (i.e. Tamil Nadu and Karnataka). Its presence in these states enables it to efficiently cater to the requirements of customers in north and south India. SSTL's manufacturing facilities in Tamil Nadu are located in a special economic zone and manufacturing facility in Haryana has been set up under the Electronic Hardware Technology Park scheme, which allows it to avail of certain tax and other benefits in respect of the products manufactured out of these facilities
On valuations front, Syrma SGS Technologies Pvt. Ltd.nologies limited price band is Rs209-Rs220 per share. If we take weighted average EPS of last 3 years of Rs.4.22 and upper price band of Rs.220, P/E comes out tot 52x and if we take EPS of FY21 of 3.32 and upper price band of Rs.220, P/E comes out to 66x which makes Syrma SGS Technologies Pvt. Ltd.nologies less expensive as compared to industry peers.
Considering steady financial performance, strong focus on R&D, capacity expansion plans, positive industry outlook with government support through PLI schemes and China plus one strategy of multinational companies, we assign a subscribe rating for the issue on medium to long term basis.
Use of Proceeds:
The total issue size is Rs. 840 crores, which is Fresh issue (91.19%) and Offer for Sale (8.81%). From the net proceeds of fresh issue, the company is expected to use
Book running lead managers:
Dam Capital Advisors, ICICI Securities and IIFL Securities Ltd
Jasbir Singh Gujral(Managing Director), Sreeram Srinivasan (Chief Executive Officer), Sandeep Tandon (Executive Chairman), JaideepTandon, JayeshDoshi, Sridhar Narayan (Non-Executive Directors), Kunal Shah, Anil Nair, Hetal Gandhi, SmitaJatia and Bharat Anand (Independent directors) Bijay Kumar Agrawal (Chief Financial Officer).
|Particulars (in Crores)||FY20||FY21||FY22|
|Employee Benefits Expenses||26.00||28.00||59.70|
|Depreciation and Amortization||9.60||12.00||19.40|
|Profit Before Tax||53.45||37.60||83.40|
|Effective Tax Rate (%)||15.00%||20.00%||32.00%|
|PAT Margin (%)||11.00%||6.00%||6.00%|