Buy Syrma SGS Technology For Target 580 - ICICI Securities
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Value accretive acquisition of Johari Digital
While revenue decline in Healthcare segment has continued to impact EBITDA margins, we like two points from Syrma’s Q1FY24 result: (1) Rest of the product portfolio has continued to report industry leading growth rates, (2) order book stands at INR 35bn at end of Q1FY24 (INR 30bn at end of Q4FY23) which indicates strong order intake for the company; we are also enthused as there is strong order inflow from existing as well as new customers. While the margins are impacted due to revenue decline in Healthcare segment, we model the margins recovery to commence post recovery in Healthcare segment (Q4FY24 in our view) and acquisition of Johari. We maintain BUY with DCF based revised target price of INR 580 (implied P/E of 46x FY25E; Earlier TP: INR 425).
Q1FY24 results
Syrma reported revenue, EBITDA and PAT growth of 55.9%, 26.8% and 65.9%, respectively YoY. EBITDA margin contracted 160bps YoY due to change in revenue mix. The company’s order book stands at Rs35bn at end of Q1FY24. Effective tax was up 300bps YoY.
Segmental performance
Auto, Consumer and Industrials segments reported YoY revenue growth of 74.4%, 195.7% and 48.9%, respectively. Healthcare and IT & Railways reported revenue declined 72.3% and 40.7%, respectively YoY. We model the revenue decline in Healthcare segment to continue in next 1-2 quarters and model recovery only from Q4FY24
Value accretive acquisition of Johari
Syrma has acquired Johari at EV/EBITDA multiple of less than10x on FY23. Considering Johari’s revenues have grown at CAGR of 80% over FY21-23and it generates strong EBITDA margin of ~30%, we model Johari to be value accretive acquisition from Year 1 itself.
Retain BUY
We model Syrma to report revenue and PAT CAGR of 36.7% and 36.1% over FY23-25, respectively YoY. We maintain BUY rating with DCF based revised target price of Rs580 (implied P/E of 46x FY25E).
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