Syrma SGS Shares Surge 11% on Strong Q3 Earnings

Introduction

Shares of Syrma SGS Technology Ltd. experienced a significant rally, climbing as much as 11% on Friday, January 30, following the announcement of robust third-quarter financial results that surpassed market expectations. The electronics manufacturing services (EMS) company demonstrated strong growth in revenue and profitability, driven by solid performance across all its business verticals. The stock's performance also marked a milestone, positioning it for its best January since its market debut in September 2022.

Stock Market Reaction

The market responded positively to the earnings report, with Syrma SGS shares hitting an intraday high of ₹802. Although the stock later pared some of its initial gains, it maintained a strong position, trading at ₹767.85, up 6.1%, around mid-morning. This surge contributed to a 9% gain for the stock in January, the first time it has delivered positive returns in the first month of the year since its listing. Over the past year, the company's stock has appreciated by 42%, reflecting sustained investor confidence.

Stellar Financial Performance

Syrma SGS reported a consolidated revenue of ₹1,264 crore for the third quarter, a substantial 45% increase from the same period in the previous year. On a sequential basis, revenue grew by 10%. The company's operational efficiency was evident in its margin expansion. The earnings before interest, tax, depreciation, and amortisation (EBITDA) margin widened to 12.6%, an increase of 350 basis points year-on-year and 250 basis points quarter-on-quarter. Profit after tax (PAT) saw a remarkable jump of over 108% year-on-year to ₹110.31 crore. The results also included an exceptional item of ₹3.3 crore related to labour code adjustments.

Key Financial Highlights

Broad-Based Segment Growth

The company's growth was not confined to a single segment but was distributed across its diverse portfolio. The automotive segment grew by 44%, while the consumer vertical saw a 43% increase. The industrial segment posted a 45% rise. Other key areas also performed well, with the healthcare and IT segment growing by 48% and the railways business expanding by an impressive 65%. This broad-based performance underscores the strong demand for EMS across various industries.

Export Business Performance

Exports continued to be a significant contributor to Syrma SGS's growth. Export revenue, which constitutes 26% of the company's total revenue mix, grew by 24% year-on-year. This sustained growth in international markets highlights the company's competitive position and its ability to cater to global demand, providing a beneficial revenue mix.

Analyst Commentary and Outlook

Brokerage firm Morgan Stanley maintained an 'equal-weight' rating on Syrma SGS with a target price of ₹712 per share. The firm's analysts described the third-quarter earnings as strong and margin-led, noting that both revenue and EBITDA were meaningfully ahead of their estimates. They highlighted the robust export growth and the rising mix benefit as key positives. The report also pointed out that the profit after tax beat expectations, aided by higher margins and a lower tax rate.

Key Monitorables for the Future

While the results were strong, analysts have pointed to a few areas for investors to monitor. Morgan Stanley noted that the working capital intensity has increased. Looking ahead, the brokerage suggested that future acquisitions and approvals under the government's Production-Linked Incentive (PLI) schemes will be key factors influencing the company's growth trajectory. Syrma SGS stated that the EMS sector continues to witness strong traction, and the company aims to grow in line with the industry's expansion.

Conclusion

Syrma SGS Technology's third-quarter results reflect a period of strong execution and favorable market conditions. The significant year-on-year growth in revenue and profit, coupled with margin expansion and robust performance across all segments, has reinforced investor confidence. While the company navigates challenges such as managing working capital, its strong market position and the positive industry outlook suggest a continued focus on capitalizing on growth opportunities in both domestic and export markets.