A company is said to be ‘fundamentally strong’ when it portrays a specific set of characteristics, viz, strong and consistent financial performance, lower leverage ratios, and many more.
Listed below is one such fundamentally strong stock associated with the ‘Semiconductor’ industry that one could add to their watchlist for a potential upside of 35 percent:
Syrma SGS Technology Limited
With a market capitalization of Rs 7,086.53 crores, the stocks of Syrma SGS Technology Limited, an engineering and design company, started their trading session on Friday at Rs 399.05 and currently trade at Rs. 400.25, gaining around 0.49 percent compared to the previous close of Rs 398.30 apiece.
Motilal Oswal, one of the well-known Domestic Brokerages, gave a ‘Buy’ recommendation on the stocks of Syrma SGS Technology Limited and gave a target price of Rs 535 exhibiting a potential upside of approximately 34 percent.
The investment rationale for providing such a recommendation pertains to the company’s strong revenue growth, aggressive sales in the American and European regions, favorable operating leverage scenario, etc.
Having a glance at the consolidated financials, the company’s prime business indicators, viz, its operating revenues as well as after-tax profits, reported positive movements with the former increasing from Rs 706 crores during Q3FY24 to Rs 1,134 crores during Q4FY24, and the latter, keeping the timeframe the same, rising from Rs 20 crores to Rs 45 crores.
On a contrasting note, the company’s ratio analysis portrays a slight dip in its return ratios with the return on equity (RoE) decreasing from 7.74 percent during FY23 to 6.65 percent during FY24 and the return on capital employed (RoCE), during the same period, dipping from 11.91 percent to 11.14 percent.
As per the latest presentations, the company’s management guided revenue growth of approximately 40-45 percent in FY24 and EBITDA margins of around 7 percent. In addition, the company estimates a compounded annual growth rate (CAGR) in revenues and EBITDA of 38 percent and 48 percent respectively.
The semiconductor company has also increased its Surface Mount Technology (SMT) capacity to around 6.3m components from 3.2m earlier. The company incurred a capex of around Rs 2.5 Bn in FY24 and expects a capex of around Rs 1.5-1.8 Bn in FY25 towards the Pune design center and other ongoing expansions.
Incorporated in 2004, Syrma SGS Technology Limited is a technology-focused engineering and design company engaged in turnkey electronics manufacturing services. The company also specializes in precision manufacturing for diverse end-use industries, including automotive, healthcare, industrial appliances, consumer products, and IT among others.
Written by Amit Madnani
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