Syrma SGS earnings beat as robust order book supports margin-led growth

Investment View and Valuation

Motilal Oswal Financial Services Limited (MOFSL) retains a BUY rating on Syrma SGS Technology and raises its earnings estimates following first-quarter FY27 operating performance that exceeded expectations. The broker believes earnings momentum is supported by a favourable business-mix shift, operating leverage and stronger growth in the higher-margin automotive, industrial and MedTech businesses.

MOFSL raised its FY27E and FY28E EPS estimates by 6% and 9%, respectively. It forecasts FY26-28 revenue, EBITDA and adjusted PAT compound annual growth of 38%, 41% and 46%, respectively. The target price of Rs 1,770 is based on 50 times FY28E EPS.

1QFY27 Financial Performance

Syrma SGS reported consolidated revenue of Rs 15.9 billion in 1QFY27, up 68% year on year and above MOFSL's estimate of Rs 14.0 billion. EBITDA increased approximately 87% year on year to Rs 1.6 billion, compared with the broker's estimate of Rs 1.3 billion. EBITDA margin expanded 100 basis points year on year to 10.2%, ahead of the 9.5% estimate. Adjusted profit after tax nearly doubled to Rs 1.0 billion, versus MOFSL's estimate of Rs 788 million.

Higher ODM contribution and a lower employee and other-expense mix supported the margin improvement. ODM share increased to 17% in 1QFY27 from 13% in 1QFY26.

Order Book and Growth Outlook

The order book stood at Rs 67 billion in June 2026, up 23% year on year from Rs 55 billion and compared with Rs 66 billion in March 2026. Its business composition was as follows:

Management reiterated FY27 guidance for revenue growth of above 35% and an EBITDA margin of 10.5-11.0%, while indicating that performance could exceed this guidance. It also expressed confidence in sustaining revenue growth above 35% through FY29. Healthy end-market demand remains supportive, although supply-chain constraints and longer component lead times are the main challenges.

Segment Performance and Expansion Opportunities

Automotive, which represented 25% of sales, grew 78% year on year in 1QFY27. Consumer, accounting for 34% of sales, grew 68%. IT and railways, healthcare and industrial together represented 42% of sales and grew three times, two times and 31% year on year, respectively. Exports comprised 24% of sales and increased 62% year on year.

Management expects FY27 export growth of 30-40% and is targeting export revenue of Rs 15-16 billion over the medium term. Europe accounts for 40% of exports and the United States for 22%.

ODM revenue nearly doubled to Rs 2.69 billion, led by healthcare, defence, consumer and industrial. Healthcare had an order book of nearly Rs 5 billion, added two CDMO/design customers during the quarter and is expected by management to grow approximately 50% in FY27. Management expects defence growth of 25-35%. Industrial growth moderated because of the timing of defence maritime orders and slower smart-meter execution.

Syrma added 18 new customers in 1QFY27. MOFSL's investment thesis is based on execution of the order book, a larger export and ODM mix, increasing industrial, automotive and MedTech revenue, entry into bare PCB, HDI and CCL manufacturing, defence expansion and further customer additions.

PCB Project and Kaga Electronics Joint Venture

The PCB manufacturing project was 65-70% complete and is expected to begin commercial production in April 2027. Initial capex is approximately Rs 4 billion, of which Rs 1-1.3 billion had been incurred. Funding is expected to come from internal accruals, 50-60% debt and government incentives.

Management expects the initial PCB EBITDA margin to be near 10%, rising to 15-18% at steady state, excluding PLI benefits. Syrma also formed a 60:40 joint venture with Kaga Electronics, with each partner initially investing approximately Rs 250 million. The venture is expected by management to generate Rs 3-5 billion of revenue over four to five years.

Key Risks and Monitorables

• Component shortages and longer component lead times could affect execution.
• Elevated inventory and higher working-capital requirements remain monitorable.
• Short-term borrowings increased by Rs 3.4 billion during the quarter.
• Management reported net cash of Rs 1.22 billion, supported by cash and investments exceeding Rs 8 billion.