Syrma hits record high, Nuvama sees further 40% upside

Syrma’s business model strength should help the company sustain its valuation beyond the present high growth phase, said Nuvama Institutional Equities.

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Syrma SGS Technology hit a new high of Rs 540 and was trading over 8 percent higher on August 25 afternoon. Nuvama Institutional Equities has retained its “buy” recommendation on the stock with a target price of Rs 760, implying a 40 percent gain from the day’s high.

Its business model’s strength should help Syrma sustain its valuation beyond the present high growth phase, Nuvama Institutional Equities has said, adding it likes the firm’s straightforward execution-focussed strategy.

Syrma is aiming to grow significantly by expanding its size and customer reach.

It is striving for a revenue of $1 billion, a 25 percent return on capital employed (RoCE), and margin in the double digits. Margin will depend on various client sectors but, importantly on greater contribution from the higher-margin Original Design Manufacturing (ODM) segment, the brokerage firm said.

Syrma’s recent acquisition of Johari Digital should help, said Nuvama. Johari Digital is a 100 percent original design manufacturer and has a margin of more than 35 percent.

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Near-term bonanza

To add more value, Syrma recently spun-off its research and development division into a separate subsidiary, which should contribute to revenue with much higher margins, Nuvama analysts said.

The management also indicated measures such as decoupling the strategic sourcing team for raw materials from the procurement team, which is expected to lead gains by way of shorter inventory cycles and lower raw material prices. Improving original design manufacturing share is another focus area.

Read more | Syrma: Soaring demand for electronics, govt boosters to fuel high growth

Self-funding growth ability

The brokerage firm sees Syrma clocking approximately 40 percent revenue compounded annually during FY23-28.

During this phase, Syrma aims to fund 80 percent of its capital needs internally, with the rest coming from an IPO. Its strong business metrics, including a 10 percent margin, 5-6 times asset turnover, and 70-75 days of net working capital, are expected to support growth even if it reaches 30 percent beyond FY27-28, the brokerage said.

At 1.28 pm, Syrma SGS was up 8.3 percent at Rs 535.10 on the BSE. The stock has rallied 88 percent this year, so far.

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