IPO Analysis: SJS Enterprises Ltd

IPO Rating: Avoid 

About the issue: 

SJS Enterprises is one of the leading players in the Indian decorative aesthetics industry that serves a wide range of customers primarily in the automotive and consumer appliance industries. The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 10 per equity share. The issue size of the company is Rs 800 crore with an offer sale of shares worth Rs 800 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 531 to Rs 542 per equity share. The IPO opening date is November 1, 2021, while it will close on November 3, 2021. It is expected to be listed on the Exchanges on November 15, 2021. The IPO market lot size is 27 shares. A retail-individual investor can apply up to a maximum of 13 lots (351 shares or Rs 1,90,242). The net proceeds generated from the IPO will be utilized to carry out the offer for sale of equity shares by the selling shareholders; and achieve the benefits of listing the equity shares on the stock exchanges. 

SJS Enterprises IPO Details: 

About the company: 

SJS is one of the leading players in the Indian decorative aesthetics industry. The company is a 'design-to-delivery' aesthetics solutions provider with a diverse product offering for the automotive and consumer appliance industries. The company's product offerings include - decals and body graphics, 2D appliques and dials, 3D appliques and dials, 3D lux badges, domes, overlays, aluminium badges, in-mould labels, or decoration parts, lens mask assembly, and chrome-plated printed, and painted injection-moulded plastic parts. The company's subsidiary, Exotech, caters to requirements in the two-wheelers, passenger vehicles, consumer durables/appliances, farm equipment, and sanitary ware industries for chrome-plated, printed, and painted injection molded plastic parts.  

The company has its manufacturing facilities at Bengaluru and Pune and as of March 31, 2021, the annual production capacity of the Bengaluru and Pune facilities was 208.61 million and 29.50 million products, respectively. In FY 2021, the company and its subsidiary produced 91.94 million and 15.60 million products, respectively. The company has a global presence and supplies over 115 million parts to around 170 customers across 20 countries in FY 2021. 

Competitive Strengths: 

• Leading decorative aesthetics supplier with a wide portfolio of premium products 

• Strong manufacturing capabilities and established supply chain network 

• Innovative product designing capabilities 

• A strong relationship with global Tier-1 companies 

• Strong financials 

• Experienced and qualified management team 

Company Financials: 

The revenues of the company have grown with a CAGR of 3 per cent since 2019. The net profit has rose with a CAGR of 12.75 per cent since FY19. For the fiscal FY21, The ROE stood at 15.15 per cent and the ROCE stood at 31.63 per cent. The EBITDA margin was at 31.68 per cent which was in the similar range of previous year. 

Recommendation: 

The company’s key customers include some big names from the automotive industry with the likes of Maruti Suzuki, M&M, John Deere, Honda and a few others. In consumer durables, its customer base includes Whirlpool, Panasonic, Samsung and others. The company has developed a strong business relationship of about 15 years on average with its top 10 customers by revenues. According to the CRISIL Report, the demand for aesthetics in India is expected to grow at a CAGR of approximately 20.00 per cent over Fiscal 2021 to Fiscal 2026 period to reach approximately Rs 49.20 billion by Fiscal 2026 and is expected to surpass volume growth in demand for two-wheelers, passenger vehicles and consumer durables over that period. The company is heavily dependent on the automotive sector as pointed by the graph below, which forms a key risk for the company. 

The topline has been more or less flat in the last couple of years. Also, the company shareholding would witness a huge dilution of 48 per cent post IPO which is of concern. Based on the due diligence, we recommend to avoid investing in this IPO.