S J S Enterprises Ltd IPO

Strengths

• Leading aesthetics solution provider with an extensive suite of premium products in a growing industry According to the CRISIL Report, SJS is one of the leading decorative aesthetics suppliers with the widest product coverage across decorative aesthetics pertaining to major vehicle segments such as two-wheelers, passenger vehicles and consumer appliances. In addition, it also manufactures a wide range of aesthetics products that cater to the requirements of the commercial vehicles, medical devices, farm equipment and sanitary ware industries. Company has diversified its product portfolio in sync with evolving technology trends. It is well positioned to continue to benefit from the increasing trend of premiumization across the automotive and consumer appliances industries.

• Strong manufacturing capabilities supported by an established supply chain and delivery mechanism SJS’s manufacturing facilities are located in Bengaluru and Pune, spread across an area of approximately 235,000 and 68,350 square feet, respectively. As at March 31, 2021, the annual production capacity of the Company and its subsidiary’s manufacturing facility was 208.61 million and 29.50 million products, respectively. Annual production capacity of its Bengaluru facility can be increased to 208.61 million products without significant additional capital expenditure. This facility has additional land to undertake further expansion, if required. SJS enjoys long-term relationships with its suppliers and equipment vendors. Its products weigh less and are easier to transport. The company supplies its products to around 170 customers in approximately 90 cities across 20 countries, which is supported by seven warehouses. Its subsidiary delivers its products to approximately 60 locations in western, southern and central India, and has a warehouse located in Tamil Nadu.

• Strong innovation and product design and development capabilities SJS offers a customized set of solutions to its customers, including collaborative design and product development, which along with innovation and adoption of new technologies has been important to its business model and growth. It possesses in-house design, development and engineering capabilities which encourages innovation and improves efficiency in its manufacturing processes. As at March 31, 2021, SJS had a team of 46 personnel for new product development, representing approximately 9.43% of its total on-roll manpower. This included a dedicated design and development team of 6 people. Its subsidiary also has a design department which includes computer-aided-design (“CAD”) engineers, program managers and tooling managers to manage any new product lifecycle. SJS is a “design-to-delivery” destination for its customers.

• Long standing customer relationships SJS has developed long-standing relationships with several customers. As at March 31, 2021, the company’s relationship with its 10 largest customers in terms of revenue averaged approximately 15 years. This is attributable to its collaborative design and product development approach and high product quality. SJS has been able to attract new customers and significantly expand its customer base over the last three fiscal years in India and abroad. SJS engages regularly with its customers to review its performance in a number of other areas such as quality, delivery and cost.

• Strong financial position and track record of financial performance SJS’s EBITDA, EBITDA Margin, RoE and RoCE have remained relatively stable across cycles. In FY21, SJS’s revenues grew 16.40% to ₹2,516.16 million, EBITDA grew 16.17% to ₹797.04 million and PAT grew 15.70% ₹477.65 million. As at March 31, 2021, SJS had a strong balance sheet with low leverage levels, with borrowings (current and non-current) of ₹92.07 million, which only comprised working capital facilities. As at March 31, 2021, its aggregate cash and cash equivalents stood at ₹216.12 million, bank balance other than cash and cash equivalents were ₹159.94 million and investments in mutual funds were worth ₹1,190.72 million.

• Experienced and qualified management team SJS benefits from the experience and industry expertise of its senior management. K.A. Joseph, its Managing Director and one of the promoters, has been instrumental in the establishment and growth of SJS’s business. Company has a professional management team with extensive experience across various industries and a proven track record. This team has been instrumental in the development of the company’s strategy and business. The average experience of SJS’s mid-level management is approximately 21.3 years.

Growth strategy

• Leverage market position to capitalize on favorable industry trends The Indian aesthetics products industry generated ₹19.90 billion in revenue in FY21, according to the CRISIL Report. According to the report, as the Indian market is currently under penetrated with respect to aesthetic content in the products in comparison to global counterparts across automobiles and consumer durables, the growth of the Indian decorative aesthetics market in value terms is expected to surpass volume growth in demand for two-wheeler, passenger vehicle and consumer durables over FY21 to FY26. Accordingly, while demand in India from two-wheelers, passenger vehicles and consumer durables is expected to grow at a CAGR of 10.00% to 12.00% each in volume terms over FY21 to FY26 period, the demand for aesthetics is expected to grow faster, i.e., at a CAGR of approximately 20.00% over the same period. Company expects the global aesthetics industry to follow a similar trend. SJS has the experience in the aesthetics industry and track record of supplying premium products, and is well positioned to take advantage of favorable trends in this industry. Company will continue to leverage its market leadership and diverse product offerings to capitalize on industry trends and enhance its focus on premium products.

• Focus on development and introduction of new technologies and advanced aesthetic products SJS’s design and development skills, engineering capabilities and domain knowledge have enabled it to foray into certain advanced product categories and technologies which often have high entry barriers and few competitors. It intends to develop and introduce IMEs and internet of things (IOTs) enabled solutions which allow integration of electronic chips and circuit boards within a plastic injection moulded part. These are finding increasing use in two-wheelers, passenger vehicles and consumer durables sectors.

• Increase share of business with existing customers and acquire new business SJS intends to strengthen its relationships with its existing customers and explore opportunities to gain new customers. It has demonstrated the ability to grow, adapt and integrate its products in response to its customers’ needs. The company’s robust account management processes and marketing expertise will drive this strategy.

• Increase global footprint to drive export revenues In FY21, 20 and 19, export revenues formed 16.05%, 14.89% and 9.82%, respectively, of SJS’s revenue from operations. It plans to increase its presence in existing geographies and enter new geographies based on current customer relationships. Company believes that there are growth opportunities in certain select international markets, particularly in Europe and North America, and it can benefit from the opportunity offered by global OEMs and Tier-1 suppliers in the automotive industry and the customer appliances industry. It will focus on expanding its penetration in the two-wheeler automotive segment in Asia.

• Integrate its subsidiary and enhance opportunities SJS completed acquisition of Exotech on April 5, 2021 which has enhanced its product portfolio, increased its manufacturing capabilities and augmented its customer base. SJS will leverage its existing capabilities, product offerings and customer base to capitalize on opportunities in Exotech’s markets. It has started offering products that use chrome-plated, printed and painted injection moulded plastic parts, such as wheel covers, radiator grills and door handles, post the acquisition. It expects that the combination of decorative printing and injection moulding with plastic chrome-plating capabilities will enable it to provide diversified aesthetic products to customers. The acquisition has also helped reduce the risk of product substitution for the company. SJS will continue to take steps towards the integration of its subsidiary’s business, including integration of employees, uniformity of business processes and sourcing of raw materials to achieve benefits of economies of scale.

• Expand business through strategic inorganic growth opportunities SJS will continue to evaluate, and selectively pursue, inorganic opportunities where products, resources, capabilities, operations and strategies are complementary and that will diversify its product portfolio, provide it access to a wider customer base, helps it expand into new markets and geographies and consolidate its existing capabilities. These opportunities could be by way of strategic alliances, acquisitions, joint ventures, technological collaborations, partner tie-ups and other strategic and business combinations.

Risk factors

• High dependence on top customer (21.49% of FY21 revenues) and top 5 customers (62.66% of FY21 revenues)

• High dependence on customers in the automotive industry and consumer appliance industry

• Highly competitive industry

• Absence of long term contracts or exclusive arrangements with any of the suppliers

• Pricing pressure from customers could impact SJS’s financials

• Any sharp, unexpected increase in raw material costs

• Risks related to fluctuations in foreign currency exchange rates

• Adverse developments in any of the key exports markets

• Withdrawal of export incentives given by the government