7 things you must know about the Syrma SGS Technology IPO

The good news is that after a drought of nearly 75 days, there is an IPO hitting the primary market. Syrma SGS Technology becomes the first IPO since the Aether Industries opened last on 24th May. Since then, it is geopolitical risks that have dominated the headlines. Here is a quick take on the Syrma SGS Technology Ltd IPO. This Chennai based engineering and design company could hold the key to the revival of the IPO markets in India. It is now over the Syrma SGS Technology Ltd story.

What we read about the Syrma SGS Technology Ltd IPO?

Here are seven things you must know about the Syrma SGS Technology Ltd IPO and the points to ponder before investing in the IPO.

    1) Syrma SGS Technology Ltd  was incorporated in the year 2004 in the southern city of Chennai, long known as a favoured place for businesses seeking intellectual capital. The company is an engineering and design company which is actively engaged in electronics manufacturing services (EMS). The company provides integrated services and solutions to original equipment manufacturers (OEMs). However it is not just an outsourcing solution but more of a CRAMS solution. The value proposition offered  by Syrma SGS Technology Ltd taps each stage from the initial product concept stage to volume production stage.

    2) Syrma SGS Technology Ltd as a rather portfolio of products that it offers under its EMS offering. This covers Printed circuit board assemblies (PCBA), Radio frequency identification (RFID) products, Electromagnetic and electromechanical parts, Motherboards for PCs and laptops and Memory products like DRAM modules, solid state and USB drives. The company operates through eleven manufacturing facilities in north India (i.e. Himachal Pradesh, Haryana, and Uttar Pradesh) and south India (i.e. Tamil Nadu and Karnataka). The manufacturing facilities of Syrma SGS Technology are located in Tamil Nadu special economic zone (SEZ). The manufacturing facility in Haryana has been set up under the Electronic Hardware Technology Park scheme.

    3) The issue of Syrma SGS Technology opens on 12th August and the issue closes for subscription on 18th August. The basis of allotment of the IPO will be finalized on 23rd August while the refunds will be initiated the next day on 24th August. The demat credits will be received on 25th August while the issue would be listed on the NSE and the BSE on 26th August. The overall IPO schedule has been rather extended due to a slew of holidays during this period.

    4) The IPO would be a combination of a new issue and an offer for sale. While the new issue size is Rs766 crore, the size of the offer for sale is just around Rs74 crore taking the total size of the issue to Rs840 crore. The price band for the issue has been fixed in the range of Rs209 to Rs220 and the minimum bid lot will be at 68 shares. Syrma SGS Technology has a face value of Rs10.

    5) The company will have an indicative market capitalization of Rs3,877 crore at the upper band of the IPO indicative price. The IPO has allocated 50% to the qualified institutional buyers (QIBs), 35% to the retail investors and the balance 15% to the non-institutional investors (NIIs) or the HNIs as they are popularly called. Post the issue, the stake of the promoters will go down from 61.47% to 47.41%. The public shareholding will go up proportionately.

    6) In terms of financial performance, Syrma SGS has seen annual revenues grow steadily from Rs397 crore in FY20 to Rs646 crore in FY22. However, EBITDA has been flat to lower in this period, largely due to input costs pressures and supply chain pressures. As a result, the return margins have trended lower, but that is also because a lot of costs have been front loaded on the income statement. 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.

    7) The issue will be lead managed by DAM Capital (formerly IDFC Securities Ltd), ICICI Securities and IIFL Securities. Link In Time India Private Ltd will be the registrars to the issue. 
EMS is a high revenue and low margin business. However, as we have seen in the case of other players in similar businesses like Dixon and Amber, the valuations can be quite attractive.