S J S Enterprises IPO review (May apply)

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Review By Dilip Davda on October 27, 2021

•    SJS is a leading player in the Indian decorative aesthetics industry.
•    It has posted almost static financial data for the last three fiscals.
•    Massive dilution of over 48% and fully priced IPO.
•    This is a pure long term investment bet for cash surplus investors. 

ABOUT COMPANY:
SJS Enterprises Ltd. (SJS) is one of the leading players in the Indian decorative aesthetics industry in terms of revenue in Fiscal 2020 and as of March 31, 2021, offered the widest range of aesthetics products in India, according to the CRISIL Report. It is a "design-to-delivery" aesthetics solutions provider with the ability to design, develop and manufacture a diverse product portfolio for a wide range of customers primarily in the automotive and consumer appliance industries. The Company supplied over 115 million parts with more than 6,000 SKUs in Fiscal 2021 to around 170 customers in approximately 90 cities across 20 countries. 

SJS differentiates itself on the basis of the wide range of product portfolios, quality of product offerings, product design and development capabilities and the strength of relationships with customers located across various industries globally. In addition to manufacturing aesthetics products that cater to the requirements for the two-wheeler, passenger vehicle and consumer appliance industries, it also manufactures a wide range of aesthetics products that cater to the requirements of commercial vehicles, medical devices, farm equipment and sanitary ware industries. SJS's product offerings include decals and body graphics, 2D appliques and dials, 3D appliques and dials, 3D lux badges, domes, overlays, aluminium badges, "In-mould" label or decoration parts ("IML/IMD(s)"), lens mask assembly and chrome-plated, printed and painted injection moulded plastic parts. The company also offers a variety of accessories for the two-wheelers' and passenger vehicles' aftermarket under the "Transform" brand.  

The company has developed long-standing relationships with several customers. As of June 30, 2021, the Company's relationship with its 10 largest customers in terms of revenue averaged approximately 15 years. It also credits customer loyalty to the ability to offer "design-to-delivery" aesthetics solutions with the use of sophisticated equipment and the application of new techniques.

ISSUE DETAILS/CAPITAL HISTORY:
To avail listing benefits and provide an exit to some of its stakeholders, SJS is coming out with a maiden secondary offer worth Rs. 800 cr. (approx. 14760144 shares). The company has fixed the price band of Rs. 531 - Rs. 542 for a share having a face value of Rs. 10 each. The issue is opening for subscription on November 01, 2021, and will close on November 03, 2021. Minimum application is to be made for 27 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 48.49% of the post issue paid-up capital of the company. 

Joint Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., Edelweiss Financial Services Ltd. and IIFL Securities Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company raised further equity at Rs. 100 per share in December 2017. It has also issued bonus shares in the ratio of 9 for 1 in March 2017. The average cost of acquisition of share by the promoters/selling stakeholders is Rs. 9.95 and Rs. 88.15 per share. 

Being a purely secondary issue, post-IPO SJS's paid-up equity capital will remain the same at Rs. 30.44 cr. (30437904 shares). Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 1649.74 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, SJS has (on a consolidated basis) posted turnover/net profits of Rs. 240.76 cr. / Rs. 37.60 cr. (FY19), Rs. 221.27 cr. / Rs. 41.29 cr. (FY20) and Rs. 255.15 cr. / Rs. 47.77 cr. (FAY21). For the first three months of FY22 ended on June 30, 2021, it has earned a net profit of Rs. 9.50 cr. on a turnover of Rs. 75.29 cr. 

For the last three fiscals, on a consolidated basis, SJS has posted an average EPS of Rs. 14.42 and an average RoNW of 15.12%. The issue is priced at a P/BV of 5.16 based on its NAV of Rs. 105.05 as of June 30, 2021. 

If we annualise FY22 earnings and attribute it to post-issue fully diluted equity, then the asking price is at a P/E of 43.42. Thus the issue is fully priced discounting all near term positives. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, SJS has no listed peers to compare with. 

DIVIDEND POLICY:
As disclosed in the offer document, SJS has paid a dividend of 40% for FY21, 16.5% for Q1 of FY22 and 20% for the period from July 01, 2021, till the filing of RHP. It will follow a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
Three BRLMs associated with this issue have handled 45 issues in the last three years, out of which 18 issues closed below the issue price on the listing dates. 

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