Thread by @investage_

India's Electronics Manufacturing sector could see unprecedented growth for decades.. ⚡📈

Let's see how Syrma SGS is placed in this ecosystem

𝗦𝗬𝗥𝗠𝗔 𝗦𝗚𝗦
[A brief analysis] 🧵🧵🧵

#sharemarket #investing #StocksToBuy
@nid_rockz @suru27

We will analyze: 👇🏻

- BACKGROUND
- MANUFACTURING CAPACITY
- REVENUE CONTRIBUTION INDUSTRY WISE
- ACQUISTIONS
- COMPANY’S PROSPECT RELATED TO INDUSTRY AND FUTURE GROWTH
- CAPEX PLAN
- STRENGTHS
- WEAKNESSES
- CONCLUSION

BACKGROUND:

Syrma was incorporated in August 2005 with its registered office at Mumbai and primary manufacturing facility at Chennai, and subsequently, added a plant in Bawal, Haryana.

CO belongs to the Tandon group, headed by the Chairman, Mr Manohar Lal Tandon. ✅

Syrma is an electronics manufacturing services (EMS) company, producing various electronic sub-assemblies and box builds for multinational companies.

Its range of products includes printed circuit boards (PCBs), magnetic disk drives and coils, and RFID tags.

MANUFACTURING CAPACITY:

The company operates eleven manufacturing facilities in North India (Himachal Pradesh, Haryana, Uttar Pradesh) and South India (Tamil Nadu, Karnataka). ✔

The manufacturing facilities in Tamil Nadu are located in a special economic zone.

The manufacturing facility in Haryana has been set up under the Electronic Hardware Technology Park scheme, which allows the company to avail of tax and other benefits. 👍🏻💲

REVENUE CONTRIBUTION INDUSTRY WISE:

AUTOMOTIVE: 14.68%
INDUSTRIAL: 23.49%
CONSUMER: 14.02%
HEALTHCARE: 44.28%
IT: 2.31%
RAILWAYS: 1.22%

ACQUISTIONS:

In NOV 20, Syrma acquired a 20% stake in SGS. Funds of Rs.92.04 crore from private equity funds and other shareholders have been infused in Syrma in FY21, partly as equity and partly as preference capital.

This has been utilised for the purpose of inorganic growth by way of acquisition of SGS.

Earlier, SGS was to be merged with Syrma, however, the merger was called off & Syrma acquired 100% stake in SGS. Erstwhile promoters of SGS now hold 9.23% share each in Syrma, totalling 37%

SGS, incorporated in 1986, is an Indian EMS company that primarily assembles PCBs for its clients.

In terms of customer and geographical profile, there is no overlap between Syrma and SGS, thereby diversifying the segment and client profile on a consolidated basis. ✅

Syrma also acquired 75% stake in Perfect ID India pvt ltd. in October 2021.

PerfectID manufactures RFID label tags and passive inlay tags, which is in addition to the existing capabilities for the manufacturing of RFID hard tags, thus expanding the RFID products portfolio 🔌

INDUSTRY AND FUTURE GROWTH: 📈

The global EMS market traditionally comprised of companies that manufacture electronic products, predominantly assembling components on PCBs and box builds for OEMs.

The market in india is highly competitive and there are more than 30 organised COs in the EMS industry, but the commercial semi-conductor fabrication operation is almost non-existent.

The competition concentration is moderate as theTop 3 COs account for about 30% of the market.

In terms of government initiatives for the sector,

the Indian Government is attempting to enhance manufacturing capabilities across multiple electronics sectors and to establish the missing links in order to make the Indian electronics sector globally competitive.

India is positioned not only as a low-cost alternative but also as a destination for high-quality design work.

Many multinational corporations have established or expanded captive centres in India. 🇮🇳

Post the COVID-19 pandemic, many global electronics manufacturers are contemplating on the China+1 strategy and looking for alternate manufacturing locations for exports business, which is advantageous to Indian manufacturers. ✅

COMPANY’S PROSPECT RELATED TO INDUSTRY AND FUTURE GROWTH:

Syrma’s presence in the ODM segment offers the company a better position and margins.

However, the company’s ability to scale up operations amid the improved demand for the sector and the capability of the company to manage the shortage of raw materials and the working capital cycle remains key to the prospects. ✅

CAPEX PLAN: 💰

CO raised Rs.926 Crores through IPO out of which Rs.571 crore will be for the capex. The capex will involve around Rs.38 crore for setting up a R&D facility in Chennai, Rs.108 crore for setting up and expanding the manufacturing facility at the Chennai Plant

Around Rs.52 crore for setting up new manufacturing facilities in HYD, around Rs.228 crore for setting up & expanding of manufacturing facilities in Manesar, around Rs.62 crore for setting up new facilities in Bawal, and around Rs.83 crore for setting up new facilities in Hosur⚡

STRENGTHS: 💪🏻

CO caters to diverse end-use industries, including industrial appliances, automotive, healthcare, consumer products and IT industries.

The industry profile includes FMCG, electronics etc on a standalone basis which stands to be further diversified with SGS catering to healthcare and automotive segment. ✔

On a standalone level, Syrma’s product profile consists of – PCBs, magnetic coils, magnetic tapes and RFID tags of which PCB assemblies and RFID tags form major portion of revenue.

CO has a strong customer base including many globally reputed companies over a long period. 💪🏻

The company has maintained strong relationships with major consumer durable company and electronics company.

The company also has strong supplier network with almost 60-65% of raw materials being imported.

WEAKNESSES:

Syrma’s RM consist of many components, including ICs, among others. Majority of the components, like chips and PCB ICs, are imported & Syrma has the liberty to choose the buyer in most cases. Most of the contracts with suppliers are back-to-back contracts

CONTD 👇🏻

Also, though the prices with most of Syrma’s customers are negotiated and agreed to initially, they are reviewed regularly ⚠

Recent times have seen a severe shortage of key components like ICs and this may also impact the operating margins and the working capital cycle of CO

Due to the high lead time for chips, which extends up to 52 weeks in some cases, the inventory-holding has increased.

The company has to make advance payments in some cases to secure the raw materials

This has increased the working capital borrowings of the company.

In the short term, this is expected to continue and the margins and working capital will remain affected by the shortage of semi-conductor chips. ⚠

CONCLUSION:

The company has a strong and healthy financial profile. The management is continuously trying to grow the company through organic and inorganic methods. ✅

The shareholding pattern of the company tells us that the demand for this company is developing in the market. The company also has a strong liquidity profile. Many ace investors have invested their capital in this company.

What is your view on the CO❓

And, that's a wrap.

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Disclaimer: This Twitter thread is for educational and knowledge sharing purposes only. We are not associated with the company in any form. This is not a buy/sell/hold recommendation of any kind. Kindly consult with your financial advisor before taking any actions.