Syrma SGS Technology LtdQ1 FY23Industrial Manufacturing

Syrma SGS Technology Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 1

Margin

Category 3

Fundraise

N/A

Order

Yes

Capex

Yes

3 of 4 growth signals are positive.

Revenue guidance

Category 1

→Management envisions growth superior to the industry average with a focus on organic growth.
→Last year saw 45-50% growth; this year 62-63%; projected 30-45% growth in the coming year.
→The order book as of March 2023 stood at INR 3,000 crores, with 70-75% execution expected within the current financial year.
→Eight to ten new large domestic and global customers onboarded, expected to significantly contribute to revenue growth starting financial year 2024-25.
→Key verticals driving growth include automotive (both combustion and EV), industrial, consumer, telecom, healthcare, and infrastructure electronics.
→Expansion into new verticals like railways and defense without requiring additional capability, aiding growth.
→With design-led engineering focus and marketing expansion in the US and Europe, the company targets sustained double-digit EBITDA margins alongside strong revenue growth.

Category 3

→Management aims for growth superior to industry average, targeting 30-45% revenue growth in coming years (Page 19).
→Double-digit EBITDA margins expected to be maintained sustainably (Pages 14, 15, 19).
→Order book robust at INR 3,000 crore with 70-75% expected to be executed in current financial year, supporting revenue growth (Page 13).
→Focus on organic growth through design-led engineering and diversification across industry verticals to reduce customer concentration risk (Page 19).
→Capacity expansion capex of Rs. 200-250 crore planned for FY24, mainly for FY25 growth, supporting margin expansion through operating leverage (Pages 16, 19).
→Long-term gross margin expected to stabilize around current levels with potential for improvement through better sourcing and value engineering (Pages 14, 15).
→EPS growth supported by both revenue expansion and margin sustenance; management projects continued profitability increase (Pages 5, 19).

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→The company has raised IPO money recently and currently has adequate cash reserves.
→Capital expenditure (capex) plans of Rs. 200-250 crores for the upcoming year are fully funded from existing cash.
→There is no indication of immediate plans for new equity or debt fundraising.
→Management is focused on organic growth using operating profits and existing funds.
→They emphasize a progressive dividend policy while maintaining enough funds for growth.
→The company plans to use operating profits for dividends without compromising on growth or capital needs.
→Capex for FY24 is largely for FY25 growth; current capacities suffice for near-term growth.
→No mention of new fundraising rounds or debt issuances in the near term.

Yes

→Order book as of March 31, 2023, stands at approximately INR 3,000 crores (Page 3).
→This compares with INR 2,100 crores as of December 31, 2022, and INR 1,200 crores as of March 31, 2022 (Page 3).
→In the last quarter, sales revenue was about INR 700 crores; thus, INR 1,400 crores remained before new orders during the quarter (Page 8).
→New orders of INR 1,500 to 1,600 crores were added during the quarter, taking the order book to INR 3,000 crores (Page 8).
→Approximately 70%-75% of the current order book will be executed within the financial year 2023-24; the remainder will spill over into FY 2024-25 (Pages 7 and 13).
→Order book is diversified across automotive (20%-25%), consumer (30%-35%), industrial (20%), IT (7%-8%), and others including railways (Pages 8 and 7).

Yes

→Capex of Rs. 200-250 crores planned for FY 2023-24, already funded.
→Current installed capacities plus minor additions sufficient for FY 2023-24 growth; major capex cycle targeted for FY 2024-25.
→Greenfield expansion capex of Rs. 200-260 crores planned for FY 2024.
→Investment in R&D center in Germany, including setting up a prototype line to serve new customers.
→Upfront expenditure on HR systems, HR initiatives, and IT infrastructure to support accelerated growth.
→Focus on organic growth with openness to logical additional opportunities, including potential acquisitions or partnerships related to Chinese companies entering the market.
→Aim to maintain double-digit EBITDA margins while scaling operations.
→Capacity expansions aligned with expected 35%-40% growth and onboarding of new customers across sectors.

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