BoB Capital Bets On This Small Cap Stock, Recommends Buy For Robust 41% Upside

BoB Capital maintains its bullish outlook on Syrma SGS Technology Limited (Syrma SGS), recommends buy the stock for a target price of Rs 390 apiece. Considering this, the stock is likely to give up to 41% returns in 12 months. Syrma SGS Technology is an engineering and design company engaged in electronics manufacturing services. It is a small-cap company having a market capitalisation of Rs 4,880.67 crore.

Stock Outlook & Returns on Investment

The stock of Syrma SGS last traded at Rs 276.95 apiece on NSE, down 2.17% compared to its previous close. It reached a 52-week high of Rs 342.80 on August 29, 2022, and a 52-week low of Rs 256.40 on August 26, 2022.
The stock has continuously fallen, it fell 6.75% in the past 1 week, 8.07% in the past 1 month and 7.99% in the past 3 months, respectively. The stock got listed on 26 August 2022 on the stock exchange and since its listing, it fell by 10.81%, giving negative returns. 

Industrial and auto verticals to propel growth

Management indicated that demand from the automobiles segment along with consumer electricals & appliances is witnessing strong traction and expected to fuel growth for the next couple of years. In auto, the transition to electric vehicles remains a key factor behind rising demand for Syrma's core PCBA (printed circuity board assembly) business. Management also sees high-margin opportunities in the industrial and healthcare segments, and expects to beat industry growth in FY23 with operating margins in early double digits.

Capex on schedule

Given the robust demand and order book, Syrma has embarked on a capacity addition drive. The company has added three surface mounted technology (SMT) lines at a cost of Rs 1bn till date in FY23 & aims to have another two in place during later half. This apart, the greenfield and brownfield capacity additions at Bengaluru, Hosur and Chennai are on track for completion by FY25.

Government push aiding EMS growth

Favourable domestic policies as well as the global China-Pus-One strategy have provided tailwinds to India's electronic manufacturing services (EMS) industry. Syrma believes the manufacturing capabilities of domestic EMS players are now at par with global peers.

Competition to emerge but pricing pressure unlikely in near term

Management anticipates higher competition due to low entry barriers in the business, but believes the large opportunity size will keep pricing pressure at bay in the near term. Besides stronger product design capabilities and a better product mix than peers, Syrma aims to become the supplier of choice for OEMs and expects operating leverage to kick in as revenue generation scales up.

Maintain BUY

The brokerage said, "We expect Syrma to outpace industry growth given a strong order book (Rs 18bn H1FY23), new product pipeline and capacity addition. We retain BUY and a TP of Rs 390 based on 35x Sep'24E P/E, conservatively set at 15% discount to the industry multiple."

Disclaimer

The stock has been picked from the brokerage report of BoB Capital. 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.