InvestorQ : What are the key aspects that I should know about the Syrma SGS Technology IPO and is it a worthwhile investment?
Tisha Malhotra made post

What are the key aspects that I should know about the Syrma SGS Technology IPO and is it a worthwhile investment?

Aashna Tripathi answered.
1 month ago

Syrma SGS Technology is a Chennai based electronics manufacturing company, also known as an EMS company. It operates broadly in the same space as players like Dixon Technologies and Amber, although the product focus may be different. Syrma operates more on a CRAMS model.

What you must know about the Syrma SGS business

Syrma SGS Technology is an EMS offering. It basically produces printed circuit board assemblies (PCBA), Radio frequency identification (RFID) products as well as motherboards for PCs and laptops apart from memory products like DRAM modules and USB drives. It has a total of eleven manufacturing facilities spread across Himachal Pradesh, Haryana, Uttar Pradesh Tamil Nadu and Karnataka.

Details of the public issue of Syrma SGS Technology

The IPO of Syrma SGS Technology opened for subscription on 12th August and will remain open till 18th August due to a slew of holidays in between. The company is expected to finalize the basis of allotment on 23rd August and initiate refunds on 24th August. The shares will be credited to the demat accounts on 25th August while the listing on the NSE and the BSE will be on 26th August.

The IPO be a mix of a fresh issue of shares and an offer for sale (OFS). The new issue size is estimated at Rs766 crore, while the size of the offer for sale is Rs74 crore taking the total size of the issue to around Rs840 crore. The company, in consultation with the investment bankers, have set the price band in the range of Rs209 to Rs220 with minimum bid lot of 68 shares for retail investors. The issue will allocate 50% to QIBs, 35% to retail and 15% to NIIs and result in the post issue dilution of promoter stake from 61.47% to 47.41%. Based on the IPO price, the indicative listing market would be Rs3,900 crore.

Financials are still work in progress

Syrma SGS reported annual revenues growing steadily from Rs397 crore in FY20 to Rs646 crore in FY22. However, due to rising cost pressures the EBITDA has been flat to lower in this period. Supply chain pressures also played a role. As a result, the operating margins and the net margins have trended lower. The funds will be predominantly used for capex funding and setting up the R&D facility. A small portion of the fresh proceeds will also go towards working capital usage.

The company is an industry which has huge potential (EMS) segment. Valuations are also quite attractive and this is a company with a proven track record. Investors with a higher risk appetite can look at this IPO.