Syrma SGS Technology IPO opens: Should you subscribe to the issue?

New Delhi: The Rs 840 crore initial public offering (IPO) of Syrma SGS Technologies kicked off for subscription on Friday, August 12. The company will sell its shares in the range of Rs 209-220 per equity share.

Syrma SGS is a technology-focused engineering and design company engaged in turnkey electronics manufacturing services (EMS), specialising in precision manufacturing for diverse end-use industries.

The company aims to raise Rs 766 crore via issuance of fresh equity shares, whereas existing shareholders and promoters will offload 33,69,360 shares aggregating to about Rs 71 crore.

In May 2022, Syrma undertook a pre-IPO placement of 37,93,103 equity shares, amounting to around 3 per cent equity, at Rs 290 per share amounting to Rs 110 crore.

The issue can be subscribed till Thursday, August 18. Investors can subscribe to the issue by bidding for a minimum of 68 shares and in its multiples thereof.

The net proceeds from the fresh share issue will be utilised for funding capital expenditure requirements to expand manufacturing and R&D facilities and to fund long-term working capital requirements.

The Chennai-based company, which was incorporated in 2004, serves various industries including industrial appliances, automotive, healthcare, consumer products, and IT industries.

The company posted a 43 per cent revenue growth at Rs 1,267 crore in FY22 compared to the year ending March 2021. The company's net profit grew 17 per cent to Rs 76.46 crore for March 2022.

Up to 50 per cent of the total offer is reserved for qualified institutional buyers, and 15 per cent for non-institutional investors. The remaining 35 per cent stake is allocated to the retail investors.

DAM Capital Advisors, ICICI Securities, and IIFL Securities are the book-running lead managers for the offer, whereas Link Intime India is the registrar to the issue.

Brokerage firms have mixed opinions on the counter. However, the majority of them have suggested subscribing to the issue with a word of caution over the fully priced valuations in the growing sector.

Let us have a look at what brokerages have to say and recommend about the initial public offering (IPO) of Syrma SGS Technology:

Angel One: Neutral
The post-issue P/E works out to 66.8x FY22 EPS and its consolidated PAT CAGR of about 15 per cent over FY20-22 on the back of the acquisition. "However, standalone performance is not impressive," it added.

The company has a diverse product portfolio but it believes that these positives are captured in the valuations commanded by the company, it added with a 'neutral' rating on the issue.

Geojit Financial Services: Subscribe
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.

The brokerage pointed out that 11 manufacturing facilities, four of these facilities collectively contribute more than 75 per cent of the revenue from operations and margins are under pressure for the last two financial years.

Choice Broking: Subscribe With Caution
The IPO is valued at a 24.1 per cent discount to the pre-IPO placement price, which may be considered favourable by the retail investors. But the company has demanded an EV/Sales multiple of 2.5x, which is at a premium to the peer average.

"The issue seems to be fully priced. Considering the high growth potential in the electronic manufacturing sector, we are recommending a 'Subscribe with Caution' rating for the issue," said the brokerage.

KR Choksey: Subscribe
"We believe the increasing scope of the EMS sector and the company's diverse product portfolio is ideal for capturing the growth opportunity for the company," said the brokerage firm.

Innovation & R&D remain the key factors for growth and we are optimistic the company is well-poised for it. The company currently has a reasonable valuation compared to its peers, it added with a subscribe rating.

Hem Securities
The company, being one of the leading design and electronic manufacturing services companies, has a consistent track record of financial performance. It is diversified and is continuously evolving and expanding its product portfolio and service offerings catering to customers across various industries, backed by strong R&D capabilities.

"It has established relationships with marquee customers across various countries & state-of-the-art manufacturing capabilities supported by a global supplier network, with a focus on vertical integration," it added with a subscribe rating on the issue.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)