Published on 16/08/2022 11:47:32 AM | Source: ICICI DIRECT

IPO Note - Syrma SGS Technology Ltd By ICICI Direct

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Syrma SGS Technology Ltd
Price Band: | 209-220 

Play on strong industry tailwinds…

About the Company: Syrma SGS Technology (Syrma) is one of the fastest growing electronics system design and manufacturing companies. It is engaged in the turnkey electronics manufacturing services (EMS)

* The company has a large product portfolio, which includes printed circuit boards, RFIDS, electromagnetic, electromechanical parts and other products such as SSDs, USB flash drives, etc

* Its products are primarily focused towards end-use industries such as automotive, healthcare, IT, industrial appliances and others

* Syrma’s consolidated revenues grew at CAGR of 21% over FY20-22


Key triggers/Highlights:

* India’s electronic manufacturing services (EMS) industry is likely to grow at a healthy CAGR of 30% from | 2,654 billion in FY21 to | 9,963 billion by FY26. The strong growth is expected to be driven by robust demand for electronic products across all industries (automotive, consumer products, capital goods/ power) where Syrma is present

* Syrma’s wide product portfolio aids faster customer addition and wallet share gains from existing customers

* Established relationship with diverse customer base across the world

* Increased focus on R&D to optimise current product offerings and launch of new products. The increased R&D spends to help the company increase its ODM revenue share

* Syrma is backed by a robust supplier network. Its suppliers are spread across 21 countries (apart from India), including US, Singapore and China


What should investors do? Syrma is one of the leading manufacturers in the fast growing domestic EMS industry. The company has a wide products portfolio with diverse customer base. The company’s consolidated proforma revenue grew at 21% CAGR YoY driven by consolidation of new business and customer additions across product segments. The EBITDA margin declined 583 bps YoY to 9.9% due to change in product mix and raw material cost pressure. PAT came in at | 76 crore, lower than its FY20 PAT tracking lower margins. At the upper price band at | 220, the stock is priced at 50.7x at FY22EPS of | 3.2/share (based on fully diluted post issue of equity)

* We assign UNRATED rating to the IPO


Key risk & concerns

* Lack of long-term commitments from customers

* Dependent on imports and third parties for the supply of raw materials

* Operates in a highly competitive industry wherein some of its competitors have substantially greater financial, manufacturing or marketing resources


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