S.J.S. Enterprises Ltd (Ashish Kacholia Portfolio Stock) has clean & clear visible growth triggers. Buy for TP of Rs 593 (+33%): SMIFS

S.J.S. Enterprises Ltd
Technology agnostic, niche, clean & clear visible growth triggers!

We recommend BUY as the next leg of growth will come from the combination of 1) cross-selling Exotech-SJS products to each other clients, 2) selling higher realization new generation products developed in-house (2-3x higher price than traditional ones), 3) aims to grow exports faster, 4) premiumization in Auto/Consumer durables, and 5) mining existing accounts along with acquiring new customers in domestic as well as overseas. Top risks: 1) subdued export markets, and 2) uncertain supply chain situation for OEMs. We are of the opinion that SJS at ease will be able to achieve PAT growth @18% CAGR FY22-FY25e with sustainable margin of about 25%+ level. Over & above, the team is aggressively hunting for inorganic acquisition, which can add a new wing in either technology, futuristic products, markets and/or customers. SJS is a technology agnostic company with no risk of EV transition. We valued the company by assigning 20x multiple to FY25e EPS of Rs 29.7 to arrive at fair value of Rs 593 apiece

Competitive advantage is keeping SJS in the fast lane

► SJS offers 11 product categories with 6,000 SKUs that makes it one-stop shop for all decorative aesthetics requirements. Hardly any company in the world offers so many product categories and can manufacture so many SKUs under one roof.

► Aesthetics industry is labour intensive one, and SJS is having natural advantage of being in India & producing at large scale with lower cost. Hence, it is competitively placed vs. Intl. competitors. Provides quality products at competitive price and still earns higher margin than domestic.

► The company keeps adding new high realization/margin products. This, along with large-scale manufacturing and RM purchasing power makes it unique & cost competitive.

► Continued product innovations & quality helped SJS in maintaining average 15 years of relationship with its 10 largest clients. Due to strong relations with existing clients, SJS has been winning repeat businesses from its top clients. Further, it plans to increase customer base by marketing its products.

New generation products, premiumization along with exports will be the main driver of growth

► New generation products viz. 3D dials, IML/IMD, Lens mask assembly, among others contribute ~16% of the consolidated revenue (target is 25% in 3-4 years). The realization of new products are 2-3x higher than traditional products, and SJS has been winning new orders.

► OEMs are shifting preference from ‘2D to 3D dials’, ‘Traditional to Capacitive overlays’, ‘Analog to touch based systems’, increasing amount of chrome-plated parts, etc. for a premium look.

► Exports will be one of the important growth drivers, and the SJS aim is to take export revenue to 25% of the consolidated topline (from ~13% of the consolidated revenue in FY22).

► Due to its natural advantage of being present in India, SJS is able to provide quality products at competitive rates vs. international competitors and winning more business from clients.

► SJS is getting orders from its key clients for international markets. Added new client Alladio, which is one of the leading home appliance manufacturer in Latin America Cross-selling Exotech-SJS products to each other clients to accelerate growth faster

► Exotech manufactures largely chrome-plated & painted products majorly for PV & consumer appliance customers. Strong relations of SJS with existing clients will continue to support Exotech in getting new orders. Whirlpool (SJS existing client) gave Exotech its 1st export order.

► We can sense similar traction in the coming years as Exotech is more than doubling its capacity to generate revenue of Rs3.0bn in the next few years from estimate of Rs1.3bn in FY23e. SJS & Exotech sees strong demand traction.

► Similarly, SJS plans to cross-sell its own bouquet of products to Exotech’s clients. Bull’s eye on the new acquisition

► In the process of evaluating inorganic acquisition. The intention is to acquire that company which can provide either technology, new products, new markets, or new customers with ROCE of 20%+. SJS is ready to take some debt (if required) for acquiring a good company Attractive valuation & recommendation

► SJS showcased its outperformance in the past years and visible growth triggers are clear for coming years. We trust that due to its niche business, new products and competent management team, the company will be able to drive growth higher than the industry.

► There is no listed player, hence SJS should get scarcity premium. The stock is trading at 15x FY25e EPS of Rs 29.7. Assigned 20x to FY25e EPS to arrive at a fair value of 593 per share