ICICI Securities Bullish On This Small Cap Stock, Claims Robust 29% Upside, Recommends Buy

Leading brokerage firm ICICI Securities has a "buy" on Syrma SGS Technology Limited with a target price of Rs 350 apiece. Considering the current market price of the stock and the estimated target price, the stock is likely to surge 29% from its current level. Syrma SGS Technology Limited manufactures electronic products. The Company offers disk drives, DC motors, fiber optic assemblies, memory modules, magnetics, RFID tags, power supplies and adapters, and a wide range of specialized components. It is a Small Cap company having a market cap of Rs 4,772.29 crore.

Stock Outlook & Returns of Investments

The current market price (CMP) of the stock on NSE is Rs 272.65 apiece. The 52 week high was recorded on 29 August 2022 at Rs 342.80 apiece and the 52 week low at Rs 768.69 apiece on 23 December 2022. The stock made its stock market debut on 26 August 2022 and since the date of listing, the value of the share has fallen by 12.09%. The stock in the last 1-week has fallen by 1.12%. It has fallen 2.73% in the last 1 month and 6.5% in the last 3 months, respectively.

 

Strong growth momentum to continue

Healthy growth in domestic business: With revival in automotive production and growth in production of electric vehicles, demand for PCBA is likely to increase resulting in higher growth for Syrma. However, flat demand for white goods and durables may impact growth in the near term.

Margin improvement and working capital reduction: With correction in raw material prices as well as easing of supply chain post covid, Syrma will be able to reduce the excess investments in inventory. We model inventory days to correct to 75 in FY24 from 85 as at end of FY22. We also model EBITDA margins to expand to 12.2% in FY24E from 9.9% in FY22.

No material impact on RM sourcing despite covid wave in China: Majority of raw materials for EMS companies including Syrma are sourced from China, Taiwan and other South-East Asian countries. However, there is still no impact of the rise in covid cases in China on the supply chain.

Likely near-term impact on exports: We model Syrma's exports to grow at a softer pace in H2FY23E and H1FY24E due to steep inflationary pressures in the developed markets as well as the possibility of recession. However, with steep inflationary pressures and higher costs in those markets, the scope for outsourcing will likely increase and benefit Syrma in the medium-to-long term.

Valuation and Key risks

ICICI Securities said, "We model revenue and PAT CAGRs of 33.3% and 47.9% respectively over FY22-FY25E, with RoE higher than the cost of capital. Maintain BUY with a DCF-based target price of Rs350 (implied 25x FY25E EPS)."

The key risks, according to the brokerage, are Failure of some of the new products and sharp increase in commodity prices.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.