SJS Enterprises IPO: Worth A Shot?

“Design is intelligence made visible” - Alina Wheeler. If given a choice to buy a Honda Unicorn and Honda Hornet which one would you choose? We bet, even though both bikes have the same engine, most of us would choose Honda Hornet as it is more stylish, more sporty and more comforting. Most of us prefer aesthetically pleasing over others, don’t we? 

But why are we suddenly talking about design and stuff when our topic for discussion is SJS enterprises? Are we digressing? HELL!!! NO!! In fact, SJS enterprises is one of the leading players in the Indian decorative aesthetics industry. And today, we are going to have a look at the Indian aesthetic market through this IPO. 

Let’s have a look at what is included in the aesthetic market and the key details about the offer you should know.

Industry Overview

Logos, decals, stickers, IMD/IML, optical plastics, chrome-plated parts, appliques, overlays all are included in aesthetics. 

According to CRISIL’s report, the aesthetics industry in India generated ₹19.9 billion in revenue in FY 2021 and the industry is projected to grow at a CAGR of approximately 20% to reach approximately ₹49.2 billion by FY 2026. Of this, about 90 - 94% demand will be driven by the automobile sector and the rest will be taken care by consumer durables. 

But why will this industry grow? 

We as consumers are more attracted towards aesthetically superior products and as disposable income increases, we would prefer premium products. For eg. Earlier we had analog dials on our bikes but nowadays, we have digital displays. 

Earlier we had TFT displays in cars but now we have TFT displays with touch. Now, chrome plated logos have changed to 3D lux logos and traditional overlays are replaced with capacitive touch overlays.

So, as generations will go by, technologies will change.

Company Overview

SJS enterprise designs, develops and manufactures aesthetic products that they supply to; automotive OEMs which manufacture and assemble two-wheeler and passenger vehicles, Tier-1 automotive component suppliers as well as consumer appliance industries.

Revenue Streams

The company supplied over 115 million parts to around 170 customers across 20 countries in FY 2021. In Fiscals 2021, sales to OEMs contributed 69.94% and sales to Tier-1 suppliers contributed 29.70% respectively to the company's revenue from operations.

If we have a look at the revenue breakup of the company in 2021, 58.01% revenues came from 2-wheeler OEMs, 16.63% came from passenger vehicles and the rest came from the consumer appliances segment. 

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. 

SJS used only 44.07% and 52.88% of its and subsidiary’s capacity. That means the company can increase utilization.

Subsidiary

This company strategically acquired Exotech recently in April 2021. From SJS’s point of view, they could enrich their product offerings and tap growth opportunities in new geographical areas with this acquisition. 

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/ moulded plastic parts.

Promoters and management

MD K.A. Joseph is one of the Promoters and has over 34 years of experience in the aesthetics printing business. Sanjay Thapar joined the company in 2015 as CEO and has over 30 years of experience in the automotive industry. 

Evergraph Holdings Pvt. Ltd. has controlling stake in this business.

Financials of SJS Enterprises Ltd.

Let’s have a look at the financials of the company. Although the topline of the company hasn’t increased much, we can see that profits are increasing year-on-year.
This means that the company is optimizing its operations. Revenues reduced in 2020 owing to COVID-19 lockdowns.

On the balance sheet front, total assets have been continuously increasing but a close look at the balance sheet tells us that current assets are increasing. More specifically, current investments and cash are on rise. 

That indicates that maybe the company isn’t finding any avenue for capital allocation or the company is accumulating cash for future purposes. If you look at the plant's capacity utilization, it is around 50%, so the company doesn’t need to invest much in capex in the coming years as capacity utilization can be increased.

Overall, PnL seems good as profits are increasing, balance sheet assets are increasing but in the form of liquid assets and the company has low debt. SJS is able to generate free cash flows. Summing all up, we can say, it has average to good financials.

IPO Details

Let’s have a look at the details of this IPO. BTW, you can use our very own ticker for this purpose.

Objectives of offer

SJS doesn’t have any major objectives for this IPO. The company didn’t even issue new shares. One of the promoters, Evergraph, is reducing its position in the company that's the reason for this IPO. Post IPO the promoter holding would reduce from 98.86% to 50.37%. Moreover, SJS wants to achieve the benefits of listing its equity shares on the stock exchanges.

What’s so good about the company

• SJS is one of the leading aesthetics solution providers with an extensive suite of premium products.

• Company has a strong financial position and track record of financial performance. 

• As generations pass by, aesthetically pleasing products are more preferred. 

• SJS is increasing its offerings portfolio and to extend its product portfolio it acquired Exotech.

• Industry transition from combustion engine to EVs won't affect SJS as the company is powertrain agnostic.

Risk factors involved in company

• Top five customers represent 62.66%, 59.73% and 65.90% of the company’s revenue from operations in Fiscals 2021, 2020 and 2019 respectively. Loss of any of our key customers can affect SJS’s business. But SJS has maintained long lasting relations with their customers for more than a decade now. 

• Company is heavily dependent on the automotive and consumer appliance segment. Cyclical nature of the automobile industry can affect the business of the company.

• Evergraph, one of the company's major promoters, has pledged 62.86% of the pre-offer paid-up Equity Share with Vistra ITCL (India) Limited. To understand more about red flags of pledging shares do read our blog on it.

• As the company doesn’t have any agreements with suppliers for raw material, inflation can affect profit margins of the company.

• This is not an IPO but a pathway for one of the promoters to reduce their position in the company. This is like the IPO of CarTrade as no new shares are issued in the IPO.

• Semiconductor chip shortage has largely affected global supply chains including automobile and electronics segments. As we told you earlier, the automobile sector heavily affects this company. But this will impact revenues of the company only for a short while.

Conclusion

Well, S.J.S is a company having good to average financials but the promoter has pledged his shares. This stock is an auto ancillary and will be subject to cyclical business nature. Moreover, naming this as IPO is completely baseless as there’s no new issue. It should be just called offer for sale (OFS) where Evergraph is reducing its stake. Anyways this is all we analysed about this company. Maybe your analysis can differ from ours as “value lies in the eye of the beholder.”

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*Disclaimer: The stock discussed above aren't recommendations from Finology, they are only picked to make you understand the concept.