Syrma SGS Technology Q1 - Strong Revenue Guidance; Weak Margin In The Quarter To Stay Low In FY25: Systematix

Systematix Research Report

Syrma SGS Technology Ltd.'s Q1 operating performance (15% gross margin, 3.8% Ebitda margin) was marred by strong revenue growth in the lower margin consumer business (up 165% YoY) and slow ramp up in other verticals. Order book stood healthy at Rs 45 billion (added Rs 12 billion worth orders in Q1, mainly in auto and industrial verticals).

A Rs 1.35 billion capex aimed in FY25 on a design center in Germany (Rs 350 million capex, to go onstream in August 2024) and Pune facility (Rs 1 billion capex, expected to start commercial production in Q3 FY25).

An assembly plant in Germany will help build relationships with European customers. After reporting strong revenue in Q1, management has guided for a robust 45% growth in FY25 while keeping Ebitda margin outlook low at 7%. It has hired McKinsey to guide in achieving robust growth.

After a ~Rs 4 billion capex in FY24 (including Johri acquisition), Rs 1.5-1.8 billion is planned in FY25E. Despite higher revenue, we cut earnings estimates by 2-4% on lower margins than earlier estimated.

We now expect 37%/46%/44% CAGR in revenue/Ebitda/PAT over FY24-26E with Ebitda margin ~7%. On earnings cut and low return on invested capital of 15%, we maintain Hold with a lower target price of Rs 478 (38 times FY26E P/E, earlier Rs 514 at 40 times). Better return on capital employed is key to support the valuation.

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