Anand Rathi Bullish On This Small Cap Stock, Recommends Buy For Strong 22% Gains In 12 Months

Anand Rathi is positive on Syrma SGS Technologies Limited (Syrma SGS) in its recent report, recommends buy for a buy call for a Target Price of Rs 364. According to the brokerage's given target price, the stock is likely to give robust gains of up to 22% in 12 months. Syrma SGS is a small-cap company with a market capitalization of Rs 5,298.33 crore.

Syrma SGS Technologies is 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 has developed a niche for itself via its Flexi-mix low-volume approach, diverse industry offerings and focus on high-margin products.

Stock Outlook & Returns

The current market price (CMP) of the stock of Syrma SGS on NSE is Rs 300.70 apiece, trading 5.21% up from its previous close. Today, opened at Rs 286.10 apiece. The stock recorded its 52-week high level on 29 August 2022 at Rs 342.80 and the 52 week low level at Rs 256.40 on 26 August 2022. The stock made its stock market debut on 26 August 2022. Since its listing on the stock market, its shares have fallen 3.3%. The stock in a week surged 8.22%, whereas in 1 month it surged 8.34%. In 3 months it surged 1.6%.

 

Business Updates

Syrma's product portfolio includes (i) Printed circuit board assemblies (PCBA's)- which are used in products manufactured in the automotive, medical, industrial, IT and consumer products industries, and shall include box-build products, (ii) Radio frequency identification (RFID)- which are used in products manufactured in the shipping, healthcare, manufacturing, retail and fintech industries, (iii) Electromagnetic and electromechanical parts- which are used in products manufactured in the automotive, industrial appliances, consumer appliances and healthcare industries, among others. Syrma also produces other products, which include motherboards, DRAM modules, solid state drives, USB drives and other memory products.

Syrma currently operates through 13 strategically located manufacturing spread across five states with facilities in North India (i.e. Himachal Pradesh, Haryana and Uttar Pradesh) and South India (i.e. Tamil Nadu and Karnataka) with 2 facilities added in H1FY23 at Manesar, Haryana and Chennai, TN unit 3. As of FY22 average capacity utilization was around 75-80% whereas new plants were running at 50% capacity utilization levels.

 

Outlook

India is positioned as a destination for high-quality design work, not merely as a low-cost alternative. Embracing the ODM model of 187 partnership with EMS partners, coupled with venturing into new product segments, is propelling OEMs to pursue EMS engagement. High volumes will influence EMS / ODM to bring in the component ecosystem locally and enhance domestic capabilities for component sourcing, thus making the electronics ecosystem stronger. Industrial, Consumer electronics and appliances, Automotive, Lighting and Mobile phones are the high opportunity segment for EMS companies in India. The mobile phone has become the dominating sector in the EMS industry.

Buy for Rs 364/share target price

Going forward we expect Syrma to clock Revenue/EBITDA/PAT CAGR of 34%/44%/52% over FY22-24E owing to its strong order book, growing share of ODM revenues (27% of total in FY22) which helps it clock higher margins than its peers, high-mix-low-volume approach, diverse industry offerings and strong export focus (44% of total in FY22). Accordingly, at 32x FY24E earnings, we believe valuations are attractive as we initiate our coverage on Syrma SGS Technologies Ltd with a BUY rating and a target price of ₹364 per share.

 

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.