IPO Size: Rs. 840 cr 

• Rs.766 cr is fresh issue for capex (Rs. 480 cr and working cap (Rs. 132 cr)
• 9% is offer for sale (OFS) by the promoter

Price band: Rs. 209-220 per share

• Raised Rs. 110 cr in May 2022 at Rs. 290 per share from Malabar and IIFL funds

M cap: Rs. 3,877 cr, implying 22% dilution

IPO Date: Fri 12^th Aug to Thu 18^th Aug 2022, Listing Fri 26^th Aug 2022

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

Electronics Manufacturing Company

Syrma SGS is engaged in making high-mix, low-volume products, like printed circuit board assemblies (PCBA) and custom radio frequency identification (RFID) tags for industrial, automotive, healthcare and consumer use. Unlike Dixon and Amber which operate at 10-15% gross margin, Syrma’s gross margin is almost 30%, leading to 11-13% EBITDA margin over 4%-7% for the already-listed peers.

Double Digit Growth

Between FY19-22, based on proforma financials (accounting for acquisitions of SGS Tekniks and 75% in Perfect ID) revenue grew at 17% CAGR and PBT at 15% CAGR, despite covid related disruptions. FY22 revenue grew at 43% YoY to Rs. 1,266 cr, with PBT up 27% YoY to Rs. 111 cr, leading to an EPS of Rs. 5.2. While RoE declined to 14% in FY22, should trend back to 18-20% level, once both the acquisitions reach scale.

Substantial Expansion Underway

Currently operating at 75-85% utilization, company is undertaking Rs. 571 capex over 2 years, which is very sizeable, as current fixed assets as of 31.3.22, were at Rs. 234 cr. Operating at fixed asset turnover ratio of ~4x, the additional capacity can potentially triple FY22 revenue of Rs. 1,266 cr over the next 3-4 years. Thus, IPO is being undertaken to fund growth, with OFS portion being very small.

Valuation for Growth

Electronics manufacturing industry is poised for rapid growth and company post the acquisition of SGS Tekniks, which alone clocked Rs. 20 cr PAT in H2FY22, looks promising. If FY22 growth is replicated, thanks to new customers being added and cross sell opportunity for the acquisitions, FY23E EPS is seen at about Rs, translating into a PE multiple of ~31x, of current year, which is not demanding, given the growth prospects. Larger peer Dixon with Rs. 11,000 cr revenue, is ruling at PE multiple of over 100x, while Amber, with Rs. 7,000 cr revenue, is also ruling at a PE multiple of about 40x, making Syrma’s pricing at a discount.

Company is also eligible for incentives under PLI for white goods and telecom products. Moreover, last transaction price of Rs. 290 per share is 32% higher than the IPO upper end.