IPO Size: Rs. 800 cr – Entirely OFS

• 86% by institutional promoter PE Everstone and balance by individual promoter

Price band: Rs. 531-542 per share

Mcap: Rs. 1,650 cr, implying a massive 48% dilution

IPO Date: Mon 1^st Nov to Wed 3^rd Nov 2021, Listing 15^th Nov 2021:

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Company Overview:

Aesthetics ‘design and delivery’ solutions company for Automobile (2W, PV, CV, farm equipment) and Consumer Durables (appliances, medical devices, sanitary ware), with FY21 revenue of Rs. 320 cr, split 70:30 respectively.

Strengths:

1. Healthy margins: 29% EBITDA and 16% net margins, leading to FY21 PAT of Rs. 52 cr and EPS of Rs. 17.
2. High Cash Generating Business: Debt free balance sheet, with cash surplus of Rs. 70 cr (Rs. 22 per share), even after making a cash acquisition of Exotech for Rs. 64 cr in April 2021.
3. Although present industry size is only Rs. 2,000 cr, with highly commoditised and low entry barriers, it is expected to grow at 20% over the next 4 years. SJS enjoys 15% market share.

Concerns:

1. Patchy Historic Growth: Q1FY22 topline declined to Rs. 74 cr ver Rs. 320 cr in FY21, which was anyway a covid impacted year. High dependence on 2W in the auto sector (~50% of topline) and its slowdown has impacted past growth. Even in FY20, revenue declined 9% YoY, before jumping 17% in FY21, with capacity utilization stagnant at ~50% for past 3 years.
2. Exotech’s 20% EBITDA margins significantly lower than SJS 31%, as former’s material cost is higher. SJS’s margin was impacted by 240 bps in FY21 and further margin pressure was visible in Q1FY21, dropping a further 420 bps to 25%.
3. Expensive Valuation: PE multiple of 32x on FY21 basis is hugely aggressive, given small size of operations and patchy topline. Heavy dilution of 48% by promoters is not comforting either.