IPO Note - Syrma SGS Technology Ltd By Choice Broking
Salient features of the IPO:
• Electronic manufacturing services firm Syrma SGS Technology Ltd. (Syrma), is coming up with an IPO to raise around Rs. 840cr, which opens on 12th Aug. and closes on 18th Aug. 2022. The price band is Rs. 209 - 220 per share.
• The company has executed a pre-IPO placement on 5th May 2022, and allotted 0.379cr share at Rs. 290 per share. Total amount collected from the pre-IPO placement was Rs. 110cr.
• The IPO is a combination of fresh issue and OFS portion. The company will not receive any proceeds from the OFS portion. Of the fresh issue net proceeds, Rs. 403cr will be used to fund the capital expenditure requirement and rest Rs. 131.6cr will be utilized for funding the working capital requirement of the company.
Key competitive strengths:
•One of the leading design and electronic manufacturing services companies in terms of revenue in FY21
• Consistent track record of financial performance
• Diversified and continuously evolving and expanding product portfolio and service offerings catering to customers across various industries
• Established relationships with marquee customers across various countries
• State-of-the-art manufacturing capabilities supported by a global supplier network, with a focus on vertical integration
• Experienced promoters supported with senior management team with proven track record of performance
Risk and concerns:
• Unfavorable government policies and regulations
• Delay in expanding the capacity
• Unfavorable sales-mix
• Unfavorable forex movements
• Working capital intensive operations
Below are the key highlights of the company:
• Electronics is one of the fastest growing sectors in the country. Domestic electronics market (including production and imports of electronic products) was at Rs. 6.7lakh cr in FY21, is expected to grow at 25.5% CAGR to reach a size of Rs. 20.9lakh cr in FY26. Domestic production of electronics was at around 74% of the total electronics market in FY21, however, with government policy support, this is expected to reach around 96% by FY26.
• India with its global cost competitiveness and availability of desired talent pool is developing its electronics ecosystem. In FY21, the addressable electronics manufacturing services (EMS) market was Rs. 2.6lakh cr, which is likely to grow by around 30% CAGR to a size of around Rs. 10lakh cr by FY26.
• Founded in 1978, Syrma is one of the India’s leading exporters of electronics products. During FY20-22, it generated almost half of the consolidated revenue from overseas sales. The company provides high-value integrated design and production solution to internationally recognized OEMs. Among the large EMS companies, Syrma is one of the fastest growing electronics system design & manufacturing companies in India (Source: RHP).
• The company is one of the leading PCBA (printed circuit board assembly) manufacturers in India, supplying to various OEMs and assemblers in the market. Moreover, it is a key global manufacturer of custom RFID tags and also one of the key players in the domestic electro-magnetic market.
• Syrma is a leader in high-mix low-volume electronics products, which finds application in high growth sectors like Industrial appliances, Automotive, Healthcare, Consumer products, IT etc. Over FY20-22, average business contribution from the Industrial sector was around 40%, while Consumers, Automotive and Healthcare contributed 22%, 17% and 17%, respectively, to total operating revenue. Such wide product end-use reduces the company’s dependence on any one sector and provides a natural hedge against market instability.
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