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Friday, 12 August 2022
CM RATING 45 /100
 

Syrma SGS Technology

One of leading PCBA manufacturers in India

Wide product basket, engineering and design capability, and a large and diverse customer base

Syrma SGS Technology, promoted by Sandeep Tandon, Jasbir Singh Gujral, Veena Kumari Tandon and Tancom Electronics, is a technology-focused engineering and design company engaged in turnkey electronics manufacturing services, specializing in precision manufacturing for diverse end-use industries.

It is among the large bouquet of EMS players in India and is one of the fastest growing Indian-headquartered ESDM companies. It has a track record of technical innovation which involves working with the engineering teams of marquee customers, and over the years, has evolved to provide integrated services and solutions to OEMs, from the initial product concept stage to volume production through concept co-creation and product realization.

In addition to its existing manufacturing, and engineering and design services offerings, the company also provides prototyping services, tester development service and repair & rework services.

The company is leader in high mix low volume product management and is present in most industrial verticals. Further, it is one of the leading printed circuit-board assembly (PCBA) manufacturers in India, supplying to various OEMs and assemblers in the market. It is also amongst the top key global manufacturers of custom RFID tags. Its manufacturing infrastructure enables it to undertake a high mix of products with flexible production volume requirements.

The product portfolio of the company is wide with applications across diverse end use industries. Its products are primarily focused toward ODMs and OEMs serving end-use industries including the automotive, healthcare, IT, industrial appliances, energy management, water purification, power supply and consumer products industries.

Client profile of the company include marquee customers such as 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 BV. Further apart from India its products are sold in over 24 countries, including the USA, Germany, Austria, and UK.

The company has 11 manufacturing facilities spread across five states namely Tamil Nadu, Karnataka, Himachal Pradesh, Haryana, and Uttar Pradesh. Aggregate annual installed capacity of the company as end of March 31, 2022, was 10120 million components per annum and 3.6 million assemblies of PCBA, 300 million tags of RFID, and 1500000 tags per month of RFID label tags, 6 million coils of magnetics, 7.2 million modules of IT products and 180 million components per annum of Zone of autonomous creations. Capacity utilization on product wise ranges between 75-87%.

The company is focused on technological innovation through our R&D capabilities. It has three dedicated R&D facilities, two of which are in India at Chennai, Tamil Nadu, and Gurgaon, Haryana, respectively, and one is in Stuttgart, Germany.

Issue

The offer comprises both Offer for Sale (OFS) by promoters and Fresh Issue aggregating Rs 766 crore. OFS involves selling of 3369360 equity shares by Veena Kumari Tandon, a promoter. Post OFS the shareholding of Veena Kumari Tandon will be 0.86% of the expanded equity.

Object of the issue

Of the total proceeds from the fresh issue about Rs 480.006 crore will be used for funding capital expenditure requirements for development of a R&D facility and expansion / setting up of manufacturing facilities and Rs 131.58 crore will be used to fund working capital requirements.

Strength

The customer base of the company is wide across various industries. It has strong long-standing relationship with most of them. During FY2022, the company catered to over 200 customers of which 16 customers have been associated with the company for over a period of 10 years. Further about 64.58% of its FY2022 revenue come from customers who have been associated with it for over three years. The number of OEMs and ODMs the company catered to have grown to 409 during FY 2022 from 288 during FY 2020. The revenue stream is also diversified in terms of end use industry. In FY2022 about 19.9% of the revenue came from automotive, 20.4% from consumer, 12.8% from healthcare, 34.8% from industrial, 10.2% from IT and 2% from railways & others. And this reduces the dependence on any one end use industry. Long standing relationship with its customers also provides significant potential to increase the wallet share from existing customers through cross selling and up selling. Aggregatewallet-share of its top 10 and top 20 customers increased by CAGR of 26.20% and 25.79%, respectively, fromFY 2020 to FY2022. Exports accounted 83.63%, 70.04%, and 54.77% of its revenue from operation in FY2020, FY2021 and FY2022, respectively.

Manufacturing operations of the company is vertically integrated and strategically located to client/market. It manufactures various electromagnetic components parts such as transformers and chokes, which are required for the manufacture of its PCBA products. This helps it to increase its efficiency in terms of cost as well as time. Similarly in case of RFID, the company apart from manufacture of RFID sensors, also manufactures customized tags and other products where these RFID sensors may be incorporated. Manufacturing facilities of the company are strategically located to efficiently cater to customers in both North and South India as well as cater to export markets with most of the facilities located in proximity to Chennai Port or airports of Chennai, Bangalore and Delhi.

Have been provisionally selected for incentives under the Production Linked Incentive Scheme(PLI) for Telecom and Networking Products, notified by the Ministry of Communications, Department ofTelecommunications, on June 3, 2021. These product linked incentives make the company eligible to manufacture productsin categories like access and customer premise equipment (CPE), IOT access devices and other wireless andenterprise equipment.In addition, the company hasbeen provisionally selected as beneficiaries for the incentives beinggranted under the PLI for White Goods (Air Conditioners & Led Lights), notified by the Ministry of Commerce& Industry, on June 4, 2021, and notified by the Ministry of Electronics and Information Technology on April 1, 2020.This will make the company eligible to make control assemblies for indoor units or outdoor units or remotes for air-conditioners and Leds.

Penetration and ownership of automobiles and consumer durables the two key end use industries are low in the country offering strong demand growth for its products. Electronics production in India is expected to grow at a CAGR of 32.3% to reach ? 20,133 Billion (US$ 272 billion) by FY2026. GOI extending strong support India has the potential to be one of the most attractive manufacturing destinations and support the objective of ‘Make in India for the World’.

Weakness

Availability of key materials (electronic components, wound components, wiring harness, plastic parts, sheet metal parts and process consumables) and at reasonable price are crucial for profitable operations of the company. Thus, shortage of any of key materials may escalate the price as well as disturb the production of the company impacting its profitability. For instance, lockdowns and social-distancing measures in the region, primarily in Taiwan, have prolonged a global shortage of semiconductors.

The company relies or supply customers on short-term purchase orders and do not have long term supply agreements providing firm commitment from customers. This makes the business working capital incentive as it needs to maintain high inventory.

Contingent liability (claims against the company not acknowledged as debt) as end of March 31, 2022, stood at Rs 7.695 crore.

In the last three fiscals, the operating and net profit margin is on steady decline.

Valuation

Sales for the fiscal ended March 2022 was up by 47% to Rs 646.26 crore. The OPM contracted by 200 bps to 8.7% and, thus, the growth at operating profit moderated to stand at 21% to Rs 56.52 crore. Eventually, PAT was up by 7% to Rs 30.61 crore hit largely by higher tax incidence.

The EPS for FY2022 based on post issue expanded equity on higher price band is Rs 1.7 and PE works out to 126.7 times.

In comparison the Dixon Technologies and Amber Enterprises are quoting at a PE of 121.1 and 70 times of their consolidated FY2022 EPS.

Syrma SGS Technology: Issue Highlights

Fresh Issue (in Rs. Crore)

766

Offer for sale (in no. of shares)

3369360

Price band (Rs.)

Upper

220

Lower

209

Post-issue equity (Rs crore)

in Upper price band

176.23

in Lower Price Band

178.06

Post-issue promoter (including promoter group) stake (%)

47.42

Minimum Bid (in nos.)

68

Issue Open Date

12-08-2022

Issue Close Date

18-08-2022

Listing

BSE, NSE

Rating

45 /100

Syrma SGS Technology : Financial Results

2003 (12)

2103 (12)

2203 (12)

Sales

397.08

438.30

646.26

OPM (%)

17.0

10.7

8.7

OP

67.69

46.76

56.52

Other income

7.81

6.18

8.25

PBIDT

75.50

52.93

64.77

Interest

7.97

4.52

3.78

PBDT

67.53

48.41

60.99

Depreciation

9.70

12.07

13.09

PBT

57.83

36.34

47.90

EO Exp

5.60

0.00

0.00

PBT after EO

52.23

36.34

47.90

Tax

8.35

7.72

17.29

PAT

43.88

28.62

30.61

PPT

0.00

0.00

0.00

Net profit

43.88

28.62

30.61

EPS (Rs)**

2.8

1.6

1.7

** on post issue equity of Rs 176.229 crore. Face Value: Rs 10

EPS is calculated after excluding EO and relevant tax

# EPS can not be annualised due to seasonality in operations

Figures in Rs crore

Source: Capitaline Corporate database