Syrma SGS, which was incorporated in 2004, is involved in the business of electronics manufacturing services, or EMS in short. It specialises in precision manufacturing (designs that require highly accurate components) and caters to various industries such as industrials, automotive, healthcare, IT, and consumer products. Its products can be categorised as:
- PCBA (printed circuit board assemblies) - used in automotive, medical, industrial, and IT industries.
- RFID (radio frequency identification) - used in shipping, healthcare, manufacturing, and fintech industries.
- Electromagnetic and electrochemical parts - automotive, industrial appliances, and consumer appliances.
- Other products such as motherboards, SSDs, USB drives, etc.
In FY22, the top three revenue-contributing industries were industrials (34.8 per cent), consumer appliances (20.4 per cent), and automotive (19.9 per cent). It has over 200 customers with some major clients such as TVS Motors, AO Smith India Water Products, Robert Bosch Engineering and Business Solutions, HUL, and more.
Syrma has 11 manufacturing facilities in India spread across five states. It is also a leader in high mix volume - manufacturing a high variety of products in small quantities. It has three R&D facilities of which two are in India and one in Germany. In 2021, Syrma completed the acquisition of SGS Tekniks, and Perfect ID. With this acquisition, the company's numbers jumped and the name was changed from Syrma Technology to Syrma SGS Technology.
Electronics is one of the fastest growing industries in India. It is expected to grow at an impressive rate of 26 per cent from FY21 to FY26. With the help of many government initiatives, domestic production is also expected to jump by 22 percentage points from 74 to 96. These friendly macro factors combined with recent acquisitions and a strong customer portfolio are expected to augur well for Syrma SGS.
- Strong customer portfolio: Syrma SGS has over 200 customers in its portfolio of which 16 have stayed with the company for more than 10 years. They also have some major clients such as TVS Motors, AO Smith India Water Products, Robert Bosch Engineering and Business Solutions, Eureka Forbes, CyanConnode, Atomberg Technologies, HUL, and Total Power Europe BV. The company also has a strong overseas presence as 43.6 per cent of its revenue comes from exports.
- Manufacturing capabilities: Syrma SGS has 11 manufacturing facilities in India spread across five states and placed strategically as facilities in Tamil Nadu are located in an SEZ (special economic zone) and a facility in Haryana is set up under Electronic Hardware Technology Park Scheme which gives them tax benefits. Facilities in Karnataka and Tamil Nadu also help them cater to exports easily. They have installed various equipment in their facilities to monitor the precision.
- Inorganic growth: Syrma SGS has been growing through inorganic acquisitions over the years. Acquisition of Tovya Automation in 2014, 3G Communication in 2016, and more recent acquisitions of SGS Tekniks and Perfect ID in 2021. These recent acquisitions have boosted the top line and bottom line as both revenue and profits jumped. The company gained additional customers and consolidated its manufacturing.
- Falling margins: While revenue has been increasing, both on a standalone and consolidated basis, margins have been falling consistently in the last three years, both on a consolidated and standalone basis. On proforma basis, EBITDA (earnings before interest, taxes, depreciation and amortisation) margin and net margin have declined by more than 5 percentage points from FY20 to FY22. This could be attributed to an increase in the cost of materials but if this continues, return on equity will decrease, given that they are raising Rs 766 crore. But, we would like to point out that these numbers are better than the industry peers.
- Manufacturing concentration: While Syrma SGS has 11 manufacturing facilities, four facilities which are located in Haryana and Tamil Nadu, contribute to 75 per cent of revenue. Two facilities in these states also help them get tax concessions. Any adverse situations in these facilities or shut down will have a massive impact on the operations.
- Competitive industry: The company faces intense competition from both domestic and international players. It competes with listed companies such as Dixon Technologies and Amber Enterprises. Dixon and Amber's Q1FY23 revenues are two times higher than Syrma's consolidated revenue.
Also read Syrma SGS Technology: How good is it? to learn how we evaluate the company on various metrics.
Disclaimer: The author may be an applicant in this Initial Public Offering