Unveiling the Tech Symphony: A Fundamental Analysis of Syrma SGS Technology Ltd

Brokerage Free Team • April 11, 2024 | 8 min read • 1341 views

In the dynamic world of electronics manufacturing, Syrma SGS Technology Ltd stands out as a key player, orchestrating innovations that power our electronic devices. Let's delve into a fundamental analysis of this company, exploring its operations, financials, and future prospects within the thriving Indian EMS industry.

 

Understanding Syrma SGS Technology Ltd

 

Syrma SGS Technology is a leading provider of electronics manufacturing services, specializing in a wide range of products including PCB assemblies, magnetic components, RFID technology, and more. With a focus on quality, innovation, and customer satisfaction, Syrma SGS has carved a niche for itself in the competitive electronics market.

 

Industry Overview: The Rise of Electronics Manufacturing in India

 

India's electronics manufacturing sector is on a rapid growth trajectory, fueled by government initiatives such as Make in India and Digital India. The country aims to become a USD 10 trillion economy, with electronics playing a pivotal role in this journey. The EMS industry in India is poised to reach a market size of US$80 billion in the next five years, driven by sectors like mobiles, consumer electronics, appliances, lighting, automotive, and more.

 

Company Essentials
     
MARKET CAP ENTERPRISE VALUE NO. OF SHARES
₹ 8,672.37 Cr. ₹ 8,887.32 Cr. 17.76 Cr.
P/E P/B PROFIT GROWTH
198.23 5.99 0.7974
DIV. YIELD BOOK VALUE (TTM) CASH
0.0031 81.49 ₹ 36.28 Cr.
DEBT PROMOTER HOLDING EPS (TTM)
₹ 251.23 Cr. 0.4689 2.46
SALES GROWTH ROE ROCE
0.7572 0.0553 0.0862

 

Peer Comparison

COMPANY PRICERs. MCAPCr. P/B P/E EPSRs. ROE% ROCE% P/S EV/EBITDA
Kaynes Technology 2502.6 15996.14 6.57 139.08 17.99 16.34 22.05 14.72 74.67
Syrma SGS Technology 488.35 8672.37 5.99 198.23 2.46 5.53 8.62 7.64 77.75
DCX Systems 314.75 3505.89 3.17 42.12 7.47 21.04 13.2 2.8 25.49
Insolation Energy 1676.25 3491.96 73.46 567.89 2.95 17.7 16.27 13.5 272.9
Avalon Technologies 519.75 3415.42 5.11 78.91 6.59 10.09 9.81 7.12 48.07
Apollo Micro Systems 111.7 3153.95 5.96 120.95 0.92 5.8 10.78 10.6 41.3

 

Exploring Syrma SGS Technology Ltd: A Comprehensive Company Overview

 

Syrma SGS Technology Ltd, headquartered in Chennai, is a prominent player in the electronic manufacturing services (EMS) sector, boasting a rich legacy of over four decades. The company specializes in design-led manufacturing across diverse industries such as Mobility, Hi-Tech, Healthcare, Consumer, Industrial, and more, offering a wide array of turnkey EMS solutions.

 

Diverse Offerings and Market Presence

 

Syrma SGS's EMS capabilities span the entire product lifecycle, from design conceptualization and quick prototyping to PCB assembly, box build, and customized solutions for RFID tags, high-frequency magnetic components, repair, rework, and automatic tester development services. With a robust infrastructure comprising 12 manufacturing facilities and 3 Research & Development labs, covering a vast area of 8.25 lakh sq ft, Syrma SGS is well-equipped to cater to the evolving needs of its 270+ customers spread across 20 countries.

 

 

The company serves a diverse clientele across various sectors, including consumer goods, industrial applications, healthcare, automotive, and IT. Notably, 70% of its revenue stems from the domestic market, underscoring its strong foothold in India, while exports contribute the remaining 30%. The revenue breakdown across different industries exemplifies Syrma SGS's market diversification and resilience.

 

Financial Performance and Growth Trajectory

 

Exploring Revenue and Profit Dynamics

 

Syrma SGS Technology Ltd has embarked on an impressive growth journey, as evidenced by its robust revenue growth over the past three years, boasting a remarkable 33.51% Compound Annual Growth Rate (CAGR). Although net profits have also seen an uptick, the growth rate at a 10.57% CAGR suggests a nuanced financial landscape. Notably, both operating and net profit margins exhibited a declining trend until FY22, showcasing a dip in profitability. However, FY23 saw signs of revival, hinting at a potential turnaround in the company's financial health.

 

Efficiency and Returns Metrics

 

The Return on Equity (RoE) and Return on Capital Employed (RoCE) metrics shed light on Syrma's efficiency in utilizing resources to generate returns. With a moderate RoE of 11.66% and an RoCE of 14.99% in FY23, Syrma indicates a steady but cautious approach towards optimizing resource utilization and capital efficiency. Although showing improvement, these figures still fall below industry averages, signaling opportunities for further operational enhancements.

 

Debt Management and Financial Stability

 

Maintaining a consistent debt-to-equity ratio of 0.28 over four years, Syrma has demonstrated a balanced strategy in funding operations through a blend of equity and debt. The healthy interest coverage ratio of 7.95 in FY23 underscores the company's ability to comfortably meet interest obligations from its earnings, showcasing a strong financial position and sustainable profitability.

 

Insights and Strategic Imperatives

 

Analyzing Syrma SGS's financial performance unveils critical insights into its stability and growth prospects. While challenges like rising operating expenses persist, strategic cost management and operational efficiency initiatives can bolster margins and enhance profitability. Syrma's strengths lie in its diversified product portfolio, strong cash flows, and a commitment to innovation and quality, positioning it favorably in the competitive EMS landscape.

 

Future Outlook

 

With a robust client base and a focus on emerging opportunities, Syrma SGS is primed to capitalize on industry trends and solidify its market position. Continued emphasis on operational excellence, prudent financial management, and strategic investments will be pivotal in sustaining growth momentum and delivering value to stakeholders in the evolving business landscape.

 

Pros & Cons Analysis

Pros:

 

1. Other Income: The fact that other income does not significantly affect the company's ratios suggests a stable and predictable income stream.

2. Pledge: Promoters have not pledged a significant portion of their holding, indicating a strong belief in the company's future prospects.

3. Revenue Recognition: The company's ability to convert accounting profit to cash showcases efficient revenue recognition practices.

4. Contingent Liabilities: With no significant contingent liabilities, the company's financial obligations are well-managed.

5. Working Capital: The company's working capital management appears to be under control, reflecting effective financial management.

 

Cons:

 

1. Capex vs ROCE: Significant capital expenditure may be impacting the company's Return on Capital Employed (ROCE) negatively, suggesting potential inefficiencies in capital utilization.

2. Depreciation Effect: Depreciation accounting not leading to increased profits may indicate potential challenges in asset management or profitability.

3. Retail Holding: Increased retail buying, often driven by market exuberance, could lead to volatility in share prices.

4. Share Price: The share price increase primarily due to rerating rather than fundamental growth may raise concerns about sustainability.

5. ROE Trend: A decrease in Return on Equity (ROE) compared to the long-term trend may signal weakening profitability or operational challenges.

6. Debt: While the company is expected to service its debt, the presence of debt can still pose financial risks, especially during economic downturns.

7. Current vs Historic Valuation: Trading at a discount to historic valuations might indicate undervaluation, but it could also suggest market skepticism or concerns about future growth prospects.

 

Overall, while the company demonstrates strengths in areas like revenue recognition, working capital management, and low contingent liabilities, there are concerns regarding capital expenditure impact, profitability trends, share price drivers, and debt levels that investors should carefully consider.

 

Charting Growth and Innovation

 

Syrma SGS Technology Ltd stands as a stalwart in the Electronic Manufacturing Services (EMS) industry, driven by a steadfast commitment to excellence and customer satisfaction. With a strategic blend of experience, expertise, and forward-thinking strategies, Syrma SGS is poised to elevate its position and spearhead innovation across various sectors, shaping the landscape of electronic manufacturing.

 

Strategic Growth Initiatives

 

  1. Expansive Order Book and Execution Plans: The company has amassed an impressive order book valued at Rs. 3000 crore, marking a substantial increase from previous records. In FY24, Syrma aims to execute at least 70% of these orders, showcasing a robust pipeline and operational efficiency.
  2. Approval from RDSO: Securing approval from the Research Designs and Standards Organisation (RDSO) of Indian Railways signifies a strategic breakthrough, paving the way for potential expansions and engagements within the railway sector.
  3. Capital Expenditure and Expansion Plans: With a significant investment of Rs. 170 crore in capital expenditures (Capex) during FY23, Syrma is gearing up for further expansion. The allocation of Rs. 200-260 crore for greenfield expansions in FY24 underscores the company's commitment to enhancing production capacity and capabilities.

 

Monitoring Financial Performance

 

While Syrma SGS has showcased robust revenue growth and strategic initiatives, continuous monitoring of margins remains crucial to align with increasing sales volumes and ensure sustained profitability. Investors and stakeholders are advised to closely track these key metrics as the company advances on its growth trajectory.

 

Shaping the Electronics Landscape

 

Looking forward, Syrma SGS Technology is poised to capitalize on India's growing prominence in electronics manufacturing. The company aims to leverage domestic demand while bolstering its export competitiveness through strategic partnerships, technological advancements, and sustainable practices, thereby charting a trajectory of sustained growth and success.

 

In essence, Syrma SGS Technology plays a pivotal role in shaping India's vibrant electronics manufacturing ecosystem. With a blend of innovation, reliability, and market foresight, the company continues to thrive amidst industry dynamics, contributing significantly to India's emergence as a global electronics powerhouse.

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