Syrma SGS IPO: Strong capex plan

Syrma SGS Technology Ltd is tapping the capital markets with its fresh issue of Rs766 crore and an offer for sale of 33,69,360 shares. The price band is Rs209-220 and the issue opened on Friday (August 12) and would close on Thursday (August 18).

Earlier, the company completed allocation to anchor investors of 1,14,56,261 equity shares to 15 investors through 18 entities. This included the two investors who were earlier allotted shares through a pre-IPO in May 2022 at Rs290. These were Malabar and IIFL. The fact that they invested at Rs290 and have again done so through the anchor at Rs220, is a comforting fact and becomes an important investment point for new investors.

The company is an EMS manufacturer catering to automotive, consumer, healthcare, industrial, IT and railways and other segments or verticals. It manufactures products like Printed Circuit Board (PCB) Assemblies, Radio Frequency Identification (RFID), electromagnetic and electro mechanical parts. Its customers include leading names like Total Power Europe, Eureka Forbes, AO Smith, Bosch, Atomberg, TVS and leading laptop companies. It supplies motherboard and hard disks amongst products to laptop manufacturers.

The philosophy of the company is to tie up with the dominant player in the industry or the segment. It is with this philosophy that some of the clients mentioned above are all industry leaders.

The objects of the issue are to invest in capex and roughly Rs500 crore have been set aside for the same. The company has signed up for the government's PLI (production linked incentive scheme) in the consumer appliances and telecom sectors. It would be investing Rs156 crore under the scheme. The balance amount of Rs350 crore would be fully deployed in 15-18 months. The company has an asset turnover of about 5.1-5.4 times its gross block, which gives a huge opportunity for ramping up revenues in the coming 36 months. The PLI scheme stipulates the revenue and on production only, the company gets benefits. It would be in place to expect the company to produce goods worth Rs700-800 crores with the PLI investment and about Rs1,750-1,900 with the balance investment. The company has been growing at about 18 per cent. Added with this, Syrma could be a Rs4,500 crore top line company in 4 years' time. With sustainable margins in the region of 10.5-11.5 per cent at the EBITDA levels, the company has a bright future ahead of it.

About 43-44 per cent of the revenues come from exports and this becomes a very strong point for the company. This business has customers who are sticky and will stay with the vendor as long as there are no major issues like delivery with the supplier. Syrma has scored on this point and has been steadily increasing the wallet share from customers.

The company had reported an EPS of Rs5.17 on proforma, condensed combined financial information for the year ended March 2022. The price earnings multiple based on this is 40.43-42.55. This is comparable to the listed peers Dixon and Amber, which are much more expensive.

The issue, which had opened on Friday, is already subscribed 0.37 times with further three days to go. The safety factor for investors is the added comfort that the company had allotted shares in a pre-IPO at Rs290 to marquee investors. These investors have invested in the anchor portion as well. This becomes a solid reason for investors to apply in the IPO. The share warrants subscription.

(The author is the founder of

Kejriwal Research and Investment Services, an advisory firm)