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New business wins to drive growth

SJS reported decent set of numbers in Q3 FY25. On standalone basis, revenues were slightly hurt by stunted production on the 2W side owing to seasonality and annual maintenance shutdowns at some of its clients. Still, on the back of robust PV business growth (22% yoy), the company grew more than double the underlying industries during the quarter (2W+PV industries grew at 7.1%, while SJS grew at 15.4% yoy). Consumers business grew flattish in Q3. Margins in the standalone business have grown to 31.8%, 220 bps up yoy as RM/sales as a % of sales has gone down to 37.5% from 38.8% yoy. Employee/sales ratio has also gone down to 13.6% v/s 13.9% yoy. PAT has grown by 69% yoy in Q3 FY25 on strong operating performance.

Consolidated revenues have gone up by 11.2% yoy to Rs.1.77 bn mainly on subsidiaries revenue growth while Standalone business has recorded a subdued growth as mentioned above. As per the management, subsidiaries have seen a strong growth (23.2% yoy) backed by strength in the PV segment. WPI has grown at 21% yoy in 9M FY25, while Exotech business has grown at 26% during the same period. Margins came in at 25.4% on the back of 31.8% standalone and 18.3% subsidiaries margins. PAT was healthy as it grew by 32.9% yoy at Rs.277 mn.

New client addition in exports, new product pipeline remain key to a profitable growth

SJS mentioned that they have won a big order to supply Overlays to Whirlpool’s North American plant manufacturing Dishwashers. This business is expected to continue over three years to start with, while management expects it to get renewed post that. This contract win has come on the back of earlier vendor losing its business and is substantially large as SJS shall supply to the entire production of this plant. This business is expected to start immediately. SJS had also mentioned last quarter that they have planned a New Global program in exports to be launched in North and South America and Europe from June 2025. Also SJS has won a big order from Stellantis, which is expected to assist the company to take exports contribution to 14-15% over next three years. This order is expected to start immediately and add to the numbers significantly from the current quarter. On the domestic side the company has added a marquee client in the form of TI India in the EV tractors vertical. While exports is a slightly high margin business, increasing business on the Consumer segment from the likes of Visteon, Whirlpool etc shall assist margin growth as well. New business in the form of Optical Cover Glass should raise the existing kit value of PV’s from Rs.5K/vehicle to Rs.8K-10K/vehicle.

Capacity expansion should bring in more revenues in the ensuing years

SJS has invested Rs.400 mn for its Cover Glass Greenfield facility at Hosur in Tamil Nadu, while Rs.1 bn for chrome plating and painting business at its Exotech subsidiary at Pune, which is currently functioning at 100% capacity utilization. Demand for Exotech products is high considering its cross selling with SJS and WPI clients like M&M, Tata Motors and MSIL according to us. SJS is one of the main suppliers of its products to new model launches of M&M (XEV 9e and BE6), Maruti (New Swift Dzire) and Tata Motors (Harrier Facelift) along with their existing model portfolios. Total capex including the maintenance capex shall be in the range of Rs.1.5-1.7 bn over the next three years. Management anticipates doubling the revenues of Exotech through this expansion and maintaining margins of 15-16% over medium term. We believe there is a large opportunity through this expansion and should provide strong revenue uplift for SJS. Margin should further move up through operating leverage once production ramp up happens. However, since the assembly lines are fungible, these capacities can be utilised for whichever products in demand.

Outlook and Valuation

SJS reported decent set of numbers in Q3 FY25. We believe that the trend of the company of growing faster than the industry should be maintained on the back of a) premiumization trend - transitioning to 3D dials (2x higher realization), capacitive overlays (2x higher realization), premium logos (20% higher realization), and IML/IMD products (1.5x higher realization), b) new customer additions like TI India and new businesses won from existing clients like Whirlpool and Stellantis, and c) maximizing cross selling opportunities. New launches and refreshes from the big domestic OEMs, expansion of its Consumer segment and capacities at Exotech along with introduction of the high margin Cover Glass product should take SJS to new heights. The company in Q2 had mentioned that it had off late retired its entire debt of Rs.300 mn to become debt free, which would reduce the interest costs, thus auguring well for the bottomline. On the back of these positives, we are slightly increasing our target price to Rs.1,379/- (valued at 24x FY27E earnings as compared to current PE of 17x) with an upside of 40%. Maintain BUY.

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