Buy Syrma SGS Technology Ltd For Target Rs.650 by Motilal Oswal Financial Services Ltd
Improved business mix enhances margins
Operating performance above estimates
* Syrma SGS Technology (SYRMA) reported a strong operating performance, with EBITDA up ~2x YoY in 3QFY25 and margins expanding 360bp YoY due to a favorable business mix (lower share of low-margin consumer business at 31% in 3QFY25 vs. 36% in 3QFY24) and operating leverage. Revenue grew 23%, largely led by the Automotive (38% YoY) and Industrial (37% YoY) segments.
* With the order book continuing to improve to INR53b as of 3QFY25 (up 18%/10% YoY/QoQ) and margins expanding, we expect SYRMA to witness a stronger FY26.
* We largely maintain our FY25/FY26/FY27 EPS estimate and reiterate our BUY rating on the stock with a TP of INR650 (30x FY27E EPS).
Automotive and Industrial segments drive topline growth
* Consol. revenue grew 23% YoY to INR8.7b (est. INR10b) owing to healthy growth across verticals (automotive/industrial/IT & railways/consumer/healthcare verticals grew 38%/37%/37%/6%/6% YoY).
* EBITDA margins expanded 360bp YoY to 9.1% (est. 7%), which can be attributed to the gross margin expansion of 410bp YoY to 26.7%, led by a favorable business mix. EBITDA grew 2x YoY to INR791m (est. INR704m). Adj. PAT grew 3.3x YoY to INR509m (est. INR367m).
* The order book stood at ~INR53b as of Dec’24 vs. ~INR48b as of Sep’24. The consumer/industrial/automotive/healthcare segments accounted for ~30-40%/20-22%/30%+/and the remaining portion of total orders as of Dec’24. 3Q order inflow stood at INR13.7b.
* In 9MFY25, SYRMA’s revenue/EBITDA /Adj. PAT grew 42%/56%/44% YoY.
* Gross debt increased to ~INR6.85b as of Dec’24 vs. ~INR6.03b as of Sep’24. Net debt stood at ~INR2.7b as of Dec’24 (vs. net debt of ~INR1.8b as of Sep’24).
Highlights from the management commentary
* Guidance: The company aims to achieve an EBITDA of approximately INR3b in FY25, with a 7% margin. For FY26, it targets a revenue growth rate of 30-35%, along with a focus on margin expansion. Going forward, the company plans to bring its export mix to ~25-30%.
* Order book: As of Dec’24, the company’s order book stood at INR53b, which is expected to be executed over 9-12 months. The company continues to see strong traction in the smart metering segment, adding a new client alongside existing orders from Honeywell.
* Capex: The company incurred a capex of ~INR1.8b in 9MFY25. It plans to invest ~INR2-2.25b in FY25, primarily towards an R&D center in Pune and a facility in Germany. For FY26, its targeted capex is ~INR1-1.5b
Valuation and view
* SYRMA witnessed a further recovery in margins, driven by a favorable change in the business mix in 3QFY25. However, we expect the margins to contract sequentially in 4Q, led by a higher mix of consumer business as guided by management.
* Going forward, we anticipate margins to expand from FY26 onwards, fueled by the higher contribution from the exports, ODM, and high-margin verticals. The company anticipates growing its revenue ~35-40%, led by a strong order book and healthy order inflows.
* We estimate a CAGR of 33%/42%/52% in revenue/EBITDA/adj. PAT over FY24- 27, driven by strong revenue growth and margin expansion. We reiterate our BUY rating on the stock with a TP of INR650 (30x FY27E EPS).
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