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Syrma SGS Technology to open 840 cr IPO on 12 Aug. Should you subscribe?

The Chennai-based company is engaged in the electronics manufacturing services (EMS) business. (Shutterstock)Premium
The Chennai-based company is engaged in the electronics manufacturing services (EMS) business. (Shutterstock)

  • Of the total, 50% of the offered shares are reserved for qualified institutional buyers (QIBs), while 15% of the size is allocated to non-institutional investors (NII), and the remaining 35% is kept for retail individual investors (RII).

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Syrma SGS Technology (SSTL) IPO is set to open on Friday. The 840 crore public offer will be available for subscriptions till August 18. The price band for the issue ranges from 209 to 220 per equity share. Only one promoter will be participating in the IPO through an offer for sale (OFS). The Chennai-based company is engaged in the electronics manufacturing services (EMS) business. The company will compete against Dixon Technologies and Amber Enterprises post the listing. 

The IPO size consists of a fresh issue worth 766 crore and OFS up to 3,369,360 equity shares. Under the OFS, promoter Veena Kumari Tandon will be the sole participator.

About 4,00,20,077 equity shares are offered under the IPO at a face value of 10 each.

Under the issue, the minimum bid quantity is 68 equity shares.

Of the total, 50% of the offered shares are reserved for qualified institutional buyers (QIBs), while 15% of the size is allocated to non-institutional investors (NII), and the remaining 35% is kept for retail individual investors (RII).

DAM Capital Advisors, ICICI Securities, and IIFL Securities are acting as the book-running lead managers of the IPO.

From the proceeds of the IPO, SSTL plans to use 403 crore for funding CAPEX requirements for the development of an R&D facility and expansion/setting up of manufacturing facilities. While 131.58 crore will be used for funding working capital requirements. Also, a portion of the proceeds will be utilised for general corporate purposes.

SSTL is a technology-focused engineering and design company engaged in turnkey electronics manufacturing services (“EMS"), specialising in precision manufacturing for diverse end-use industries, including industrial appliances, automotive, healthcare, consumer products, and IT industries. It currently operates through 11 strategically located manufacturing facilities in north India (i.e. Himachal Pradesh, Haryana, and Uttar Pradesh) and south India (i.e. Tamil Nadu and Karnataka).

The company leverages its various strengths such as global sourcing capabilities and long-standing relationships with our vendors to consolidate and bring down the cost of raw materials and components, and explore alternative components, vendors, materials, and processes to reduce product cost and bring products faster to market.

SSTL's s revenue increased at a CAGR of 21% between FY20 and FY22 from 866 crore to Rs1,267 crore. PAT rose 17% YoY in FY22 at 76.5 crore due to strong operating performance. Meanwhile, the company has an average EBITDA and PAT margins of ~12% and ~8% (3 yr. Avg FY20- FY22) with an RoE of ~15% (3 yr. Avg) over FY20-FY22.

On the stock exchanges, SSTL will compete against Dixon Technologies and Amber Enterprises.

As per Geojit data, SSTL's market cap is around 3,877 crore pre-IPO with an RoE of 13.1% and P/E of 50.7X at the upper price band. Whereas, its peers Dixon has a market cap of 23,016.96 crore with an RoE of 18.65% and PE of 133.84x at Thursday's closing price on BSE. Meanwhile, Amber has a market cap of 7,649.66 crore with an RoE of 3.41% and PE of 140.77x at the current price on BSE.

Should you subscribe to SSTL IPO?

Analysts at Geojit in their note stated that the company has a great opportunity in electronic design and manufacturing as the Chinese electronics contract manufacturing cost continues to be on the rise, and many OEM customers are moving electronics production to other countries having similar prices, quality, and receptiveness.

However, among the key risks, the analysts highlighted that out of the 11 manufacturing facilities, four of these facilities collectively contribute to more than 75% of the revenue from operations. Also, margins are under pressure for the last two financial years.

Despite the risks, the analysts at Geojit have given a 'subscribe' call on the IPO.

They added, "at the upper price band of Rs.220, SSTL is available at a P/E of 50.7x (FY22), which is available at a discount to its peers. Considering its good peer financial performance, strong focus on R&D, capacity expansion plans, positive industry outlook with government support through PLI schemes and China plus one strategy of multinational companies, we assign a “Subscribe" rating for the issue on a medium to long term basis."

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