SJS Enterprises

Taking care of aesthetics

Caters to two-wheeler, passenger vehicle and consumer appliance industries

SJS enterprises is one of the leading players in the Indian decorative aesthetics industry in terms of revenue in Fiscal 2020 and as at March 31, 2021. Company is a “design-to-delivery” aesthetics solutions provider with the ability to design, develop and manufacture a diverse product portfolio for a wide range of customers primarily in the automotive and consumer appliance industries.

Company’s product offerings include decals and body graphics, 2D appliques and dials, 3D appliques and dials, 3D lux badges, domes, overlays, aluminium badges, “In-mould” label or decoration parts, lens mask assembly and chrome-plated, printed and painted injection moulded plastic parts. Company also offers a variety of accessories for the two-wheelers’ and passenger vehicles’ aftermarket under “Transform” brand.

In addition to manufacturing aesthetics products that cater to the requirements for two-wheeler, passenger vehicle and consumer appliance industries, company also manufactures a wide range of aesthetics products that cater to the requirements of the commercial vehicles, medical devices, farm equipment and sanitary ware industries.

Company has supplied over 11.5 crore parts with more than 6,000 SKUs in Fiscal 2021 to around 170 customers in approximately 90 cities across 20 countries.

Company’s key customer base includes- (1) well-known automotive original equipment manufacturers (OEMs) such as Suzuki, Mahindra & Mahindra, John Deere, Volkswagen, Honda Motorcycle, Bajaj Auto, Royal Enfield and TVS Motors, (2) Tier-1 automotive component suppliers such as Marelli, Visteon and Mindarika, (3) well-known consumer durables/appliances manufacturers such as Whirlpool, Panasonic, Samsung, Eureka Forbes, Godrej and Liebherr, (4) medical devices manufacturers such as Sensa Core and (5) sanitary ware manufacturers such as Geberit.

In the three month period ended June 30, 2021 and Fiscals 2021, 2020 and 2019, sales to OEMs contributed 66.23%, 69.94%, 69.75% and 74.26% of total revenue respectively. Sales to Tier-1 suppliers contributed 33.49%, 29.70%, 29.88% and 25.60% of total revenue respectively.

In the three month period ended June 30, 2021 and Fiscals 2021, 2020 and 2019, sales of products and services to two-wheeler OEMs and Tier-1 suppliers contributed 49.49%, 58.01%, 61.29% and 69.99%  of total sales respectively and sales of products and services to passenger vehicle OEMs and Tier-1 suppliers contributed 21.46%, 16.63%, 14.73% and 10.22% of total sales respectively.

According to the CRISIL Report, the demand for aesthetics in India is expected to grow at a CAGR of approximately 20.00% over the Fiscal 2021 to Fiscal 2026 period to reach approximately Rs 4920 crore by Fiscal 2026 and is expected to surpass volume growth in demand for two-wheelers, passenger vehicles and consumer durables over that period.

The demand for aesthetics in India in Fiscal 2021 was led by decals, stickers and aluminium badges (approximately 34.00% to 36.00% of demand), followed by chromeplated parts (approximately 23.00% to 25.00%), IMD/IML (12.00% to 14.00%) and appliques (9.00% to 11.00%).

As at June 30, 2021, the annual production capacity of the Bengaluru and Pune facilities was 20.97 crore and 2.95 crore products, respectively. In the three month period ended June 30, 2021, Company and its Subsidiary produced 2.12 crore and 0.39 crore products, respectively, resulting in capacity utilization rates of 10.14% and 13.38% respectively.In Fiscal 2021, Company and its Subsidiary produced 9.19 crore and 1.56 crore products, respectively, resulting in capacity utilization rates of 44.07% and 52.88% respectively.

Company intends to continue focusing on increasing its customer base by marketing existing products to customers who currently do not purchase its products. Given the shift towards premium and customized products and to respond to the needs of customers, company will continue to pursue business related to premium and customized products.

Company intends to increase its presence in existing geographies and enter new geographies based on current customer relationships. Over the three month period ended June 30, 2021 and the last three fiscal years, Company sold its products to around 175 customers in approximately 90 cities across 20 countries, including in North America, Italy, Russia, Japan, Thailand, South Africa and Poland. Company expects its revenues to continue to increase from markets located outside India.

In the three month period ended June 30, 2021 and Fiscals 2021, 2020 and 2019-17.55%, 16.05%, 14.89% and 9.82%, of Company’s total revenue from operations were derived from the sale of products to customers outside India respectively.

Offer and its objects

The IPO will be complete offer for sale of Rs 800 crore by existing shareholders-Evergraph and K.A. Joseph.

Price band for the IPO is Rs 531 to Rs 542 per equity share of face value Rs10 each.

Company will not directly receive any proceeds from the Offer, and all the Offer Proceeds will be received by the Selling Shareholders, in proportion to the Offered Shares sold by them.

Promoters of the Companyare K.A. Joseph and Evergraph.Promoters holds an aggregate of 30,091,960 equity Shares, aggregating to 98.86% of the pre-Offer issued and paid-up Equity Share capital.The post IPO shareholding for the same is expected to be around 50.37%.

The issue, through the book-building process, will open on 1 Nov 2021 and will close on 3 Nov 2021.

Strengths

Company is one of the leading aesthetics solution providerswith the widest product coverage across decorative aesthetics pertaining to major vehicle segments such as two-wheelers, passenger vehicles and consumer appliances.

Company’s acquisition of exotech can provide synergies in terms of opportunity to cross-sell products across a diversified customer base, while expanding into the growing chrome-plated parts business.

Consumers increasingly prefer premium, aesthetically superior and technologically advanced products for two-wheelers, passenger vehicles and consumer durables driven by rising disposable income and exposure to developed markets. Company iswell positioned to benefit from this trend.

Company has strong manufacturing capabilities supported by an established supply chain and delivery mechanism. Company’s Bengaluru manufacturing facility is flexible, allowing it to interchange capacity and product mix across various product categories and industries based on customer and operational requirements, enabling the company to offer a diverse range of products and services to customers.

Company has a strong focus on new product development (NPD). It has a dedicated NPD team and an in-house styling studio with design, development, engineering and technological capabilities, which enables it to co-design new products with customers in the product development process.

Company offers customized set of solutions to the customers, including collaborative design and product development. This helps is building long standing relationships with the clients.

As the Indian market is currently under penetrated with respect to aesthetic content in the products in comparison to global counterparts across automobiles and consumer durables, the growth of the Indian decorative aesthetics market in value terms presents a great opportunity for the company.

Rising EV adoption is likely to benefit the decorative aesthetic industry in terms of higher realizations on account of propensity for high value aesthetic product incorporation in EVs compared to internal combustion vehicles.

Companyplans to develop and introduce IMEs and internet of things (IOTs) enabled solutions which allow integration of electronic chips and circuit boards within a plastic injection moulded part. These are finding increasing use in two-wheelers, passenger vehicles and consumer durables as they are durable and offer resistance to spills, moisture and weather conditions.

Although company intends to continue to grow organically, it is open to inorganic growth opportunities in India or outside India.

Weaknesses

Sales to Company’s top customer accounted for 21.49%, 23.99% and 33.59% of its revenue from operations in Fiscals 2021, 2020 and 2019, respectively.FurtherSales to Company’s top five customers for three month period ended June 30, 2021 represented 63.91% of total revenue from operations. Loss of any of key customers could significantly impact performance.

Company depends significantly on customers in the automotive industry and consumer appliance industry and a decline in their performance, in India or globally, could adversely affect business and profitability.In the three month period ended June 30, 2021 and Fiscals 2021, 2020 and 2019, sales of products and services to two-wheeler OEMs and Tier-1 suppliers contributed 49.49%, 58.01%, 61.29% and 69.99%  of total sales respectively.

The aesthetics markets in which company operates is undergoing significant changes, with increasing focus on new products such as capacitive and food grade quality overlays. Any failure to adapt to major changes and shifts in the aesthetics industry may adversely affect business.

Company does not have long term contracts or exclusive arrangements with any of its suppliers; any major disruption to the timely and adequate supplies of raw materials may adversely affect the pricing of its products.

Company’s operations involve extending credit to its customers in respect of sale of products and consequently, company face the risk of the uncertainty regarding the receipt of these outstanding amounts. As at June 30, 2021, FY2021,FY2020 and FY2019, Company’s outstanding trade receivables were Rs 61.31 crore, Rs 59.73 crore, Rs 44.82 crore and Rs 45.76 crore, respectively, which constituted 82.56%, 23.74%, 20.74% and 19.29%, of sales respectively.

Pricing pressure from customers may affect gross margin, customers negotiate for larger discounts as the volume of their orders increase. Pursuing cost-cutting measures while maintaining rigorous quality standards may adversely affect sales and profit margins.

Company has made certain investments such as investments in mutual funds. As at June 30, 2021, the fair value of these investments measured through profit or loss was Rs 40.89 crore, which constituted 12.79% of total net equity. Any decline in the value of these investments could adversely affect financial condition.

Decorative aesthetics industry is continually changing due to technological advances which result in frequent introduction of new products and significant price competition. Company’s success depends significantly on its ability to successfully develop and commercialize new technologies or products in response to these changes.If company is unable to innovate and keep up with technological its results of operations could be adversely affected.

Company’s business is sensitive to the prices of PVC, PC, metalized polyester films, inks and chemicals, which together constituted 66.25%, 66.19%, 66.06% and 65.75% of Company’s total cost of raw materials in three month period ended June 30, 2021 and Fiscals 2021, 2020 and 2019, respectively.Any increase or volatility in the price of raw materials could adversely affect profit margins.

Valuation

For FY 2021, consolidated Proforma sales were up by 48.10% to Rs 320.14 crore compared to restated sales of FY 2020. OPM fell by 327 bps to 26.11% which led to 31.61% increase in operating profit to Rs 83.59 crore. Other income increased 95.16% to Rs 9.95 crore, while interest cost went up 112.82% to Rs 3.17 crore and depreciation increased 61.11% to Rs 20.57 crore.PBT after EOincreased 28.42% to Rs 69.80crore.Tax expense for FY2021 (proforma) was of Rs 17.82 crore compared to tax expense of Rs 13.07 crore in FY2020 (restated). Net profit rose 25.91% to Rs 51.98 crore.

The EPS(excluding extraordinary items and relevant tax) on post-issue equity works out to Rs 17.1 for FY2021 (proforma). At the upper price band of Rs 542, P/E works out to 31.69 and pre-IPO EV/FY21 proforma sales works out to 5 times.There are no listed companies in India that engage in similar business.