Buy Syrma SGS Ltd for the Target Rs.1,300 by Motilal Oswal Financial Services Ltd
Climbing up the value curve
Syrma SGS Technology (SYRMA) is undergoing a structural transformation in its business model, moving toward more value-added ventures. These changes are beginning to reflect in better revenue quality and margin expansion
* SYRMA’S foray into printed circuit boards (PCB) (via 75:25 JV with Shinhyup, South Korea) positions it well to tap a large domestic import substitution opportunity (~88% import) while benefiting from India’s 18-25% cost advantage vs. China in HDI PCB manufacturing (India’s labor cost is ~20% of China). Their facility, strategically located within the Bengaluru-Chennai-Hyderabad corridor, provides direct access to high-growth HDI demand from automotive (~22% of demand) and telecom (20% of demand), which also enables just-in-time PCB supply vs. 45-60-day import cycles.
* Further, the Elemaster JV and Elcome acquisition expand SYRMA’s presence in high-reliability (via Elemaster) and defense (via Elcome) electronics. The JV provides access to Elemaster’s global OEM ecosystem, while SYRMA’s existing PCBA and box-build capabilities are expected to strengthen Elcome’s cost efficiency, integration capabilities, and execution strength in winning defense tenders.
* In parallel, the company is rationalizing its business mix by reducing exposure to consumer electronics and telecom (lower-margin business) while scaling up highvalue segments such as automotive, industrial and MedTech. These factors, along with rising ODM contribution (18% in FY26 vs. 13% in FY25) and export scale-up (33% CAGR over FY26-28E; contribution 25% in FY26 vs. 23% in FY25) should improve revenue quality and support margin-led growth.
* Overall, we like SYRMA for its improving revenue mix, which resulted in margin expansion. Over FY26-28E, we expect SYRMA to post a CAGR of 32%/35%/39% in revenue/EBITDA/adj. PAT. We reiterate our BUY rating on the stock with a TP of INR1,300 (premised on 40x FY28E EPS).
Valuation and view
* SYRMA is well-positioned to benefit from the increasing complexity and localization of global electronics supply chains, with management estimating its blended TAM opportunity at ~USD600b. Its design-led capabilities and exportoriented manufacturing ecosystem strengthen its positioning in higher-value electronics outsourcing opportunities.
* We believe the company’s growth trajectory will remain strong, backed by:
1) its focus on low-volume, high-margin business;
2) an increase in exports;
3) increasing share of revenue in the industrial, automotive, and MedTech segments;
4) a foray into bare PCB, HDI, and CCL manufacturing
5) its expansion into new verticals, such as defense and potential entry into renewables.
* We expect SYRMA to post a CAGR of 32%/35%/39% in revenue/EBITDA/adj. PAT over FY26-28E. We reiterate our BUY rating on the stock with a TP of INR1,300 (premised on 40x FY28E EPS).
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