SJS Enterprises Ltd IPO - Information Note

5paisa Research Team 5paisa Research Team 15th December 2022 - 06:22 pm

SJS Enterprises Ltd, a leading player in the decorative aesthetics industry, proposes to come out with an IPO of Rs.800 crore. The issue opens on 01-November and closes for subscription on 03-November. The entire issue will be an offer for sale so there will be no fresh funds coming into the company nor any dilution of equity. It will only provide an exit to the existing early investors and provide a basis for stock market valuation.

SJS Enterprises Ltd offers a plethora of such aesthetic products including 2D and 3D appliques and dials, 3D lux badges, domes, overlays, aluminium badges, in-mould labels, lens mask assembly, chrome plate printing etc. SJS Enterprises Ltd essentially caters to the automotive and the consumer durables segment.

Key terms of the IPO issue of SJS Enterprises Ltd

Key IPO Details	Particulars	Key IPO Dates	Particulars
Nature of issue	Book Building	Issue Opens on	01-Nov-2021
Face value of share	Rs.10 per share	Issue Closes on	03-Nov-2021
IPO Price Band	Rs.531 - Rs.542	Basis of Allotment date	10-Nov-2021
Market Lot	27 shares	Refund Initiation date	11-Nov-2021
Retail Investment limit	13 Lots (351 shares)	Credit to Demat	12-Nov-2021
Retail limit - Value	Rs.190,242	IPO Listing date	15-Nov-2021
Fresh Issue Size	Nil	Pre issue promoter stake	98.86%
Offer for Sale Size	Rs.800 crore	Post issue promoters	50.37%
Total IPO Size	Rs.800 crore	Indicative valuation	Rs.1,650 crore
Listing on	BSE, NSE	HNI Quota	35%
QIB Quota	50%	Retail Quota	10%

Data Source: IPO Filings

Here are some of the key merits of the SJS Enterprises Ltd business model

1) SJS is one of the leading players in the decorative aesthetics segment

2) It straddles the complete value chain from design to delivery

3) It supplies over 11.5 crore parts to over 170 customers across 20 countries

4) The ten largest customers of SJS have been loyal leaders for over 15 years

5) ROCE of 31.6% makes it a very niche value play in the segment

6) OEMs account for 66%-68% of total revenues, making it a stable business model

7) Free cash flow to EBITDA of 57% and Free cash flow to PAT of 96% makes it a very healthy profitability and cash flow scenario for SJS Enterprises Ltd

Check - SJS Enterprises IPO - 7 Things to know

How is the SJS Enterprises Ltd IPO structured?

The SJS Enterprise IPO will be a total offer for sale where the promoters will be diluting their stake through the issue. Here is a gist of the IPO offer of the company.

A) The OFS component will comprise of the issue of 147.60 shares and at the peak price band of Rs.542, the OFS value would be Rs.800 crore which will also be the size of the total IPO issue.

B) Out of the total OFS of Rs.800 crore, Evergraph Holdings Pte Ltd, the promoter company will sell shares worth Rs.710 crore while one of the promoters, Mr. K A Joseph will shares worth Rs.90 crore.

The promoter holdings will get substantially diluted post the OFS and the public will end up with 49.63% shares with promoters holding 50.37% shares post the issue.

Key Financial parameters of SJS Enterprises Ltd

Financial Parameters	Fiscal 2020-21	Fiscal 2019-20	Fiscal 2018-19
Sales Revenues	Rs.251.62 cr	Rs.216.17 cr	Rs.237.25 cr
Net Profit	Rs.47.77 cr	Rs.41.29 cr	Rs.37.60 cr
Net Worth	Rs.315.22 cr	Rs.279.65 cr	Rs.238.56 cr
Net Profit Margins	18.98%	19.10%	15.85%
ROCE	31.63%	26.44%	28.28%

_{Data Source: Company RHP}

The net margins and the ROCE hint at solid financials and have also been consistently growing over time. The EBITDA margins above 31% hint at profitable operations and that is evident from the strong customer franchise built by the company.

Also, being an OFS, there will be no dilution of equity, which shows the ability of the company to self-fund growth from internal resources.

Investment Perspective for SJS Enterprises Ltd

Being a total OFS, the issue of SJS Enterprises Ltd will not result in dilution of equity and hence shareholders earnings will be protected. Here are some merits.

a) In the kind of decorative aesthetics business that SJS is into, long term relations matter a lot. That is where the OEM links of SJS can be value accretive.

b) The design to delivery approach means that SJS Enterprises Ltd straddles the entire value chain. That gives them greater control over inputs and output as well as costs.

c) It counts among its OEM customers marque global names and domestic names like Suzuki, ,M&M, John Deere, Volkswagen, Honda, Bajaj Auto, Ashok Leyland, TVS Motors, Marelli, Whirlpool, Panasonic, Samsung, Eureka Forbes, Godrej and the list goes on.

d) Share of exports have been growing from 9.8% to 16.1% over the last 2 years. That is a good approach to de-risk the model from the Indian consumer market.

If one looks at the valuations in P/E terms, the stock is quoting at 35X historic earnings and around 31X forward earnings assuming CAGR growth rates sustaining. That is a reasonable level to pick up a stock with leadership position in its niche.