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SJS Enterprises: Leading player in a niche high-growth market

30 Jun 2023 , 10:20 AM

Recommendation: Buy

Target Price: Rs. 700

IIFL expects SJS to clock strong organic growth, driven by expansion in underlying industries, shift to higher-value solutions, and focused scale-up in exports. SJS has seen a steady flow of new orders/customers, which gives confidence to analysts at IIFL Securities that its outperformance versus underlying industries will continue. SJS is using strong FCF in the standalone business to acquire smaller players, to increase scale and expand breadth of product offerings. Analysts at IIFL Securities forecast 18% growth in revenue and earnings over FY23-26. Acquisition of Walter Pack (announced, not concluded, not built in estimates) would be accretive to EPS. Analysts at IIFL Securities have initiated coverage on the stock.

Consistent outperformance versus underlying industry

Analysts at IIFL Securities expect SJS to benefit from recovery in 2Ws (FY23 2W volume 21% below FY19) and steady growth in PV and Consumer Durables. In addition, SJS should continue to outperform underlying industry volumes (2W, PV), as it has done in the past. SJS is introducing new-age, premium products (IML/IMD, 3D appliques, lens mask assemblies, etc.) to improve value mix, drive growth. As per management, there is scope for kit value per vehicle/appliance to grow 1.5-2.0x in 2Ws and 3-4x in PV and Consumer Durables.

Strong flow of new orders/customers; exports well placed for step-jump

SJS has seen a steady flow of orders from new and existing customers. The fact that SJS has a wider product portfolio now (post acquisition of Exotech and potentially, Walter Pack) should help SJS cross-sell to existing customers. Exports were on a growth path (2x in 3 years, FY19-22) before weak macro led to weakness in FY23. Management is focused on growing exports by widening its geographic presence. Expansion of Exotech’s capacity (currently only domestic) will also help grow exports.

Significant scope for EPS accretive acquisitions, supported by strong FCF in standalone

SJS Standalone has a history of strong FCF. This should continue in FY24-26, given low capex needs (FY23 capacity utilization 60-65%). SJS is using surplus cash to make acquisitions (Exotech in 2021, Walter Pack announced in 2023) to increase scale and expand breadth of product offerings. Since its acquisition by SJS (FY21-end), Exotech’s revenues are up ~2x and Ebitda more than 2.5x in two years. Similarly, Walter Pack also has significant scope for growth.

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