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An export focused EMS player KEY CHANGES: TARGET ….

Syrma SGS Technology Ltd (SSTL), incorporated in 2004, is a Chennai-based engineering and design company engaged in electronics manufacturing services (EMS). The company provides integrated services and solutions to original equipment manufacturers (OEMs) from the initial product concept stage to volume production through concept co-creation and product realization. SSTL currently operates through 11 strategically located manufacturing facilities in Himachal Pradesh, Haryana, Uttar Pradesh, Tamil Nadu and Karnataka. They also have three dedicated R&D facilities, two of which are located in Chennai, Tamil Nadu and Gurgaon, Haryana respectively, and one is located in Stuttgart, Germany. SSTL’s products are sold across 24 countries (apart from India), including the USA, Germany, Austria, and UK.

• The total electronics market in India is valued at ? 6,711 billion (USD 91 billion) in FY21, which is expected to grow at a CAGR of 25.5% to reach ? 20,873 billion (USD 282 billion) in FY26.

• SSTL’s revenue from operations grew at a CAGR of 21% between FY20 and FY22 from Rs.866cr to Rs1,267cr. PAT grew 17% YoY in FY22 at Rs.76.5cr due to strong operating performance.

• SSTL has an average EBITDA and PAT margins of ~12% and ~8% (3 yr. Avg FY20- FY22) with a RoE of ~15% (3 yr. Avg) over FY20-FY22.

• SSTL’s share of exports is 84%,70% and 55% in FY20, 21 and 22 respectively.

• To expand the market share in the EMS sector and to widen the geographical footprint in the domestic market, SSTL acquired SGS Tekniks in September 2021 and Perfect ID in October 2021. • SSTL has great opportunity in electronic design and manufacturing as the Chinese electronics contract manufacturing cost continues to be on the rise, and many OEM customers are moving the electronics production to other countries having similar prices, quality, and receptiveness.

• SSTL currently caters to automotive, healthcare, IT and telecom hardware, industrial products, household appliances, energy management and consumer industries.

• The company did a pre-IPO placement of 37,93,103 shares at a price of Rs. 290 per share and has garnered Rs. 110 cr. from the market.

• At the upper price band of Rs.220, SSTL is available at a P/E of 50.7x (FY22), which is available at a discount to its peers. Considering its good peer 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 a medium to long term basis.

Purpose of IPO

The IPO consists of fresh issue of Rs.766cr and an offer for sale of up to 3,369,360 equity shares (Rs.74cr) by the promoter selling shareholder. The proceeds from its fresh issuance worth Rs.403cr will be utilised for funding capital expenditure requirements for the development of an R&D facility and expansion / setting up of manufacturing facilities, funding long-term working capital requirements(Rs.131.58cr)and general corporate purposes.

Key Risks

• Out of the 11 manufacturing facilities, four of these facilities collectively contribute to more than 75% of the revenue from operations.

• Margins are under pressure for the last two financial years

About the company

SSTL is a technology-focussed 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. They are leaders in high mix low volume product management and are present in most industrial verticals. (Source: F&S Report) Further, they are one of the leading PCBA manufacturers in India, supplying to various OEMs and assemblers in the market. (Source: F&S Report). The Company is also amongst the top key global manufacturers of custom RFID tags.

SSTL’s marquee customers include TVS Motor Company Limited, A. O. Smith India Water Products Pvt. Ltd., Robert Bosch Engineering and Business Solution Pvt Ltd, Eureka Forbes Limited, CyanConnode Limited, Atomberg Technologies Private Limited, Hindustan Unilever Limited, and Total Power Europe B.V.

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