Syrma hits record high, Nuvama sees further 40% upside

On August 25, Syrma SGS Technology achieved a significant milestone by reaching a new high of Rs 540 in stock price, demonstrating remarkable growth. As trading progressed in the afternoon, the stock continued to surge, marking an increase of over 8 percent from its previous levels.

Nuvama Institutional Equities, a prominent market analyst, has maintained its “buy” recommendation for Syrma SGS Technology’s stock. The firm has also established a target price of Rs 760, indicating a potential gain of 40 percent from the stock’s day-high value.

 

Nuvama Institutional Equities has highlighted the robustness of Syrma SGS Technology’s business model as a key factor contributing to its positive outlook. This strength is expected to enable the company to sustain its valuation even beyond the current high-growth phase. The endorsement of Syrma’s business model underscores the company’s ability to navigate market dynamics and generate enduring value.

Furthermore, the analyst praises the company’s straightforward and execution-focused strategy. This strategic approach is seen as a favorable characteristic that positions the company well for effective implementation and continued success. By emphasizing execution and practicality, Syrma SGS Technology aligns its strategies with real-world results, which likely contributes to its positive performance in the market.

The endorsement by Nuvama Institutional Equities and the stock’s notable price surge reflect the market’s confidence in Syrma SGS Technology’s growth prospects. The target price of Rs 760 suggests that the company’s stock is poised for substantial gains, underlining the optimism surrounding its trajectory and potential.

Overall, the combination of the company’s strong business model, execution-focused strategy, and the analyst’s positive assessment points to a promising future for Syrma SGS Technology in the market.

Syrma SGS Technology has set ambitious growth targets that encompass both the expansion of its scale and the broadening of its customer base. The company’s aspirations are underlined by its pursuit of achieving a revenue milestone of $1 billion. This goal aligns with its strategy to amplify its market presence and enhance its business reach.

In addition to revenue growth, Syrma SGS Technology has set its sights on achieving a robust financial performance characterized by a 25 percent return on capital employed (RoCE). This emphasis on RoCE underscores the company’s commitment to optimizing its resource utilization and generating favorable returns for its stakeholders.

Furthermore, the company aims to attain margins in the double-digit range. While these margins will be influenced by diverse client sectors, they are expected to be bolstered significantly by increased contributions from the higher-margin Original Design Manufacturing (ODM) segment.

The recent strategic move by Syrma SGS Technology to acquire Johari Digital holds the potential to propel the company closer to its ambitious objectives. Johari Digital, operating as a 100 percent original design manufacturer, is positioned with a margin exceeding 35 percent.

This acquisition is poised to positively impact Syrma’s financial performance and margin profile. The higher margins associated with Johari Digital’s operations are expected to contribute significantly to the realization of Syrma’s double-digit margin targets.

The acquisition of Johari Digital not only enhances Syrma’s financial prospects but also aligns with its overarching growth strategy. By capitalizing on Johari Digital’s expertise and margin strength, Syrma is poised to advance its position within the industry, drive revenue growth, and enhance its profitability.

Overall, Syrma SGS Technology’s pursuit of a $1 billion revenue target, coupled with a focus on strong RoCE and double-digit margins, reflects its commitment to sustainable growth and financial excellence. The acquisition of Johari Digital is anticipated to play a pivotal role in achieving these objectives, positioning Syrma for a promising future within the market.

In a strategic move to enhance its value proposition, Syrma SGS Technology recently executed a spin-off of its research and development (R&D) division, establishing it as a distinct subsidiary. This initiative is projected to yield valuable contributions to the company’s revenue, particularly through the attainment of significantly higher margins.

By isolating and dedicating resources to its R&D arm, Syrma is poised to tap into innovative opportunities, drive technological advancements, and deliver products and solutions that align more precisely with evolving market demands.

Moreover, Syrma’s management has unveiled a series of proactive measures aimed at further optimizing its operations and driving efficiency gains. A notable step involves decoupling the strategic sourcing team responsible for raw materials from the procurement team.

This strategic separation is expected to yield multiple advantages, including the streamlining of inventory cycles and the potential to secure raw materials at more favorable prices. Shorter inventory cycles lead to improved turnover rates and better working capital management, while securing raw materials at competitive prices can contribute to cost savings and margin enhancement.

Syrma’s strategic agenda also emphasizes the expansion of its original design manufacturing (ODM) share. By strengthening its foothold in the ODM segment, the company is poised to benefit from higher-margin operations and bolstered profitability. This focus on expanding its ODM offerings reflects Syrma’s commitment to delivering innovative and custom solutions that cater to the specific requirements of its clients.

The confluence of these strategic initiatives underscores Syrma’s commitment to value creation, operational excellence, and sustainable growth. The establishment of a dedicated R&D subsidiary, coupled with the implementation of measures to optimize sourcing and procurement, is expected to amplify operational efficiency and financial performance.

Concurrently, the expansion of the ODM share aligns with the company’s aspiration to capture higher-margin opportunities and position itself as a key player in the dynamic market landscape.

Syrma’s strategic outlook, marked by these initiatives, not only reflects its commitment to continuous improvement but also underscores its proactive response to evolving market dynamics and customer needs. By focusing on innovation, efficiency, and enhanced value offerings, Syrma is poised to navigate the industry landscape effectively and achieve its growth ambitions.

Nuvama analysts project a robust growth trajectory for Syrma SGS Technology, forecasting an approximate 40 percent compounded annual revenue growth during the period spanning FY23-28. This projection reflects the company’s strategic initiatives, market opportunities, and overall positive industry outlook.

In order to fuel its growth ambitions during this phase, Syrma has outlined a financing strategy that includes self-sustenance for 80 percent of its capital requirements, with the remaining 20 percent expected to be sourced from an initial public offering (IPO). This approach underscores the company’s prudent financial planning and the confidence it has in its ability to generate internal resources to fund a substantial portion of its growth initiatives.

Syrma’s strong business metrics further underpin its growth prospects. With a 10 percent margin, 5-6 times asset turnover, and an efficient net working capital cycle of 70-75 days, the company’s operational efficiency is expected to be a catalyst for its growth trajectory. These metrics serve as indicators of the company’s ability to efficiently convert its resources into revenue, manage working capital effectively, and generate profits.

Importantly, Nuvama analysts highlight that Syrma’s positive business metrics are expected to support its growth even if it achieves a revenue increase of 30 percent beyond FY27-28. This demonstrates the company’s resilience and adaptability, positioning it to navigate potential challenges while maintaining its growth trajectory.

As of 1.28 pm, Syrma SGS Technology’s stock has surged by 8.3 percent to Rs 535.10 on the BSE. Notably, the stock has exhibited substantial momentum throughout the year, rallying by 88 percent thus far in 20XX. This strong performance underscores the market’s confidence in Syrma’s growth strategy and its ability to capitalize on emerging opportunities within the industry.

The positive outlook provided by Nuvama analysts, along with the impressive stock performance, highlights Syrma SGS Technology’s strategic vision, execution capabilities, and potential to achieve its growth targets. The company’s focus on generating internal resources, backed by strong business metrics, positions it well to pursue sustained growth and create value for its stakeholders.