Syrma SGS Technology Ltd is a prominent Indian engineering and design company that focuses on electronics manufacturing services (EMS). The company specializes in providing a range of products for various industries, including automotive, healthcare, railways, consumer electronics, and industrial sectors. Syrma SGS is known for its technical innovation, offering clients end-to-end services from product concept to large-scale production. This “high mix, low volume” approach allows the company to produce specialized products in smaller quantities for diverse applications, making it well-suited to meet unique customer requirements.
Product Portfolio
Syrma SGS Technology’s product offerings cover multiple categories, with products like printed circuit board assemblies (PCBA), radio frequency identification (RFID) components, and electromagnetic parts forming the core of its portfolio.
- Printed Circuit Board Assemblies (PCBA): The PCBA serves as the backbone of many electronic devices, connecting electronic components in devices such as medical equipment, automotive electronics, and consumer products.
- Radio Frequency Identification (RFID): RFID technology enables wireless communication and tracking. Syrma SGS supplies RFID components for a variety of applications like inventory management, supply chain logistics, and healthcare.
- Electromagnetic and Electromechanical Parts: These components, including transformers and magnetic filters, support industries like automotive, healthcare, and consumer electronics. They are essential for devices requiring power conversion or electromagnetic functions.
- Information Technology Components: The company produces IT components like motherboards, DRAM modules, and storage devices used in computers, laptops, and data storage systems.
Industry Verticals
Syrma SGS’s diverse client base spans multiple industries:
- Consumer Electronics: Syrma SGS serves the consumer sector with fiber-to-home devices, water purifiers, and RFID applications. The company produces customized products that meet customer specifications.
- Industrial Applications: With products like smart energy meters and solar controllers, Syrma SGS supports the industrial sector by providing solutions for 5G infrastructure, power supplies, and smart city projects.
- Automotive and Electric Vehicles (EV): The company produces electronic components for both conventional and electric vehicles, with a focus on the two-wheeler segment. Products include light controllers, fuel control units, and charging infrastructure components.
- Healthcare: Through its RFID solutions and products like digital X-ray machines, Syrma SGS has expanded into healthcare. The 2023 acquisition of Johari Digital Healthcare strengthened its position in this sector.
- Railways and IT: The company supplies components for railway signaling systems, braking systems, and IT products like memory modules and assemblies.
Financial Performance and Growth
Syrma SGS has shown notable growth over the past five years. In FY24, the company achieved revenue of ₹3,154 crore, marking a 54% year-over-year increase. Key contributors to this growth included the consumer, automotive, and industrial segments, which collectively accounted for 87% of sales. The company’s exports, primarily to Europe and the USA, comprised 26% of its revenue, slightly down from 30% in FY23 due to softness in the healthcare sector.
In Q1 FY25, Syrma SGS reported significant revenue growth of 93% year-over-year, reaching ₹1,160 crore. The company’s order book, valued at ₹4,500 crore as of June 30, 2024, is diversified across its business verticals, with substantial contributions from the consumer, automotive, and industrial segments.
Key Acquisitions and Expansions
Syrma SGS has pursued strategic acquisitions to enhance its capabilities and expand market presence. In 2021, it acquired a full stake in SGS Tekniks for ₹366 crore and a 75% stake in Perfect ID for ₹34 crore. These acquisitions allowed Syrma SGS to increase production capacity, expand its supplier network, and improve procurement costs through consolidated purchases. The acquisition of Johari Digital Healthcare in 2023 for ₹229 crore strengthened its presence in the healthcare sector.
Currently, the company operates 11 manufacturing facilities in northern and southern India and has three dedicated R&D centers in Chennai, Gurgaon, and Stuttgart, Germany. This infrastructure provides Syrma SGS with the ability to innovate, increase production capacity, and meet the evolving needs of its diverse customer base.
Profitability and Margins
Despite impressive sales growth, Syrma SGS’s profitability metrics show some challenges. In FY24, EBITDA increased by 5.7% to ₹198.5 crore, with an EBITDA margin of 6.3%, down from 9.2% in FY23. This margin contraction was due to a shift in product mix and a decrease in the contribution from high-margin Original Design Manufacturing (ODM) services. In Q1 FY25, the EBITDA margin further declined to 3.84%, attributed to the growing share of low-margin consumer products.
Net profits (PAT) remained flat at ₹124 crore in FY24. The company’s PAT margin contracted from 6% in FY23 to 3.94% in FY24, primarily due to a change in tax regime. In Q1 FY25, PAT declined by 28.2% year-over-year, resulting in a PAT margin of 1.75%. The drop in profitability reflects the increased focus on lower-margin consumer products, a factor that could affect long-term financial stability if not addressed.
Cash Flows and Capital Expenditure
In FY24, Syrma SGS reported a net cash outflow of ₹114 crore from operations, largely due to increased inventories and trade receivables. Investment activities resulted in a cash outflow of ₹28 crore, as the company allocated funds to acquire subsidiaries and purchase equipment. Financing activities provided an inflow of ₹155 crore, primarily through short-term borrowings.
Capital expenditure (capex) for FY24 stood at ₹250 crore, with investments directed toward expanding facilities in northern and southern India. For FY25, the company has provided capex guidance of ₹150 crore, with ₹75 crore already spent in Q1.
Efficiency Ratios
The company’s asset turnover ratio, which measures sales generated per unit of assets, stood at around 1x. This ratio reflects Syrma SGS’s “high mix, low volume” production model, which generally results in lower asset turnover. Efficiency in working capital management has helped Syrma SGS maintain its operational stability, although the free cash flow remained negative in FY24 due to high capex requirements.
Solvency and Leverage
In FY24, Syrma SGS’s debt-to-equity ratio rose to 0.36x due to increased short-term borrowings. The company’s interest coverage ratio decreased to 5.03x, reflecting a reduction in operating profits. Although the current ratio stood at 1.23x, indicating a reasonably balanced short-term liquidity position, the company’s solvency depends on its ability to manage debt efficiently as it continues to expand.
Market Position and Industry Potential
The Indian electronics market, driven by government initiatives and the emergence of the “China+1” strategy, is expected to grow at a CAGR of 22%, reaching ₹29 lakh crore by FY28. The shift toward domestic production could position India as a preferred electronics manufacturing destination. The growth in sectors like electric vehicles, telecom, and smart appliances also provides opportunities for companies like Syrma SGS to expand their product lines and customer base.
Additionally, the company stands to benefit from increasing demand in the electronic mobility sector, projected to grow at a CAGR of 42.8%, and the telecom electronics market, with routers and modems playing a key role. Syrma SGS’s foray into high-growth sectors, such as electric vehicles, smart meters, and medical electronics, aligns well with the expanding market potential.
Future Outlook and Strategic Goals
Looking ahead, Syrma SGS aims to align with the industry’s projected growth. The company has onboarded several new customers in FY23, with full-scale production expected to begin in FY24 or FY25. This development could drive revenue growth, supported by recent expansions and the planned entry into new verticals such as lighting, aerospace, and defense.
The acquisition of Johari Digital Healthcare positions Syrma SGS to enhance its healthcare product line. With demand for electronic components in electric vehicles expected to grow significantly, the company’s expansion into this sector presents a strong growth opportunity. The company has also received approvals for Production Linked Incentive (PLI) schemes in the telecom and white goods sectors, which could contribute to future growth.
Syrma SGS is also exploring the OSAT (Outsourced Semiconductor Assembly and Test) business, which could open new revenue streams and strengthen its market position. Its production capacity nearly doubled in FY24, reaching 63 lakh components per hour, reflecting its preparedness to meet future demand.
Conclusion
Syrma SGS Technology Ltd has established itself as a leader in India’s EMS sector through strategic acquisitions, a diversified product portfolio, and a strong commitment to innovation. While the company faces challenges related to profitability and fluctuating product mix, its focus on high-growth sectors and expansion into new verticals bode well for the future. Syrma SGS’s strategy of broadening its customer base, tapping into export markets, and targeting the booming EV and telecom sectors positions it for sustained growth in India’s evolving electronics manufacturing landscape.
