S.J.S. Enterprises
S.J.S. Enterprises is coming out with a 100% book building; initial public offering (IPO) of 1,50,65,913 shares of Rs 10 each in a price band Rs 531-542 per equity share.
Not less than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not more than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on November 1, 2021 and will close on November 03, 2021.
The shares will be listed on BSE as well as NSE.
The face value of the share is Rs 10 and is priced 53.10 times of its face value on the lower side and 54.20 times on the higher side.
Book running lead manager to the issue are Axis Capital, Edelweiss Financial Services and IIFL Securities.
Compliance Officer for the issue is Thabraz Hushain W.
Profile of the company
The company is one of the leading players in the Indian decorative aesthetics industry in terms of revenue in Fiscal 2020 and as at March 31, 2021, offered the widest range of aesthetics products in India. The company 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 around 90 cities across 20 countries. It differentiates itself on the basis of the wide range of its product portfolio, quality of its product offerings, product design and development capabilities and the strength of its relationships with customers located across various industries globally.
In addition to manufacturing aesthetics products that cater to the requirements for two-wheeler, passenger vehicle and consumer appliance industries, the company 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. Its 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. It also offers a variety of accessories for the two-wheelers’ and passenger vehicles’ aftermarket under its ‘Transform’ brand.
Proceed is being used for:
Industry overview
The aesthetics component industry in India generated Rs 19.9 billion in revenue in Fiscal 2021 and the industry is projected to grow at a CAGR of round 20% to reach approximately Rs 49.2 billion by Fiscal 2026. The demand for aesthetic components is expected to grow by approximately 17% in Fiscal 2022, as the demand and production of two-wheelers, passenger vehicles and consumer durables recover from the pandemic shock. Global aesthetic component industry in US and EU (inclusive of UK) generated $2.7 billion in calendar year 2019 from passenger vehicle segment. Global aesthetic component industry growth is expected to be driven by growing premiumization and rise in adoption of electric vehicles over next five years.
Automotive sales and production are cyclical and are sensitive to changes in general economic conditions and other factors beyond the control of automobile OEM or component suppliers such as consumer demand, consumer confidence, inflation, employment and disposable income levels, credit availability, interest rate levels, demographic trends, technological changes, increasing environmental, health and safety regulations, changes in government policies, political instability, fuel prices, product mix shifts favoring other types of vehicles, disruptions in the automotive supply chain, labor relations and general industry conditions, any of which may negatively affect the demand for vehicles and, as a result, products and services.
The Indian decorative aesthetics suppliers cater to leading automotive original equipment manufacturers such as Maruti Suzuki, Hyundai, Tata, Mahindra, Hero Motocorp, Honda Motorcycles, Ashok Leyland etc. In addition, decorative aesthetics suppliers also supply to global independent Tier-1 automotive component suppliers such as Marelli, Visteon, Continental, Pricol Mindarika, Jay Ushin and Brembo. The industry also serves aesthetic requirements of consumer appliances companies such as Whirlpool, Electrolux, Panasonic, Samsung, LG, Godrej, Carrier, Voltas and Faber. The Indian decorative aesthetics industry comprises of few players with diversified product portfolio having presence across most of the OEMs however there are several other enterprises which are into manufacturing of one/ limited range of decorative aesthetics and are direct suppliers to OEM/ tier I component manufacturers suggesting the fragmented nature of business.
Pros and strengths
Leading aesthetics solution provider: The company 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. Customers prefer to work with aesthetics suppliers with an established track record and the ability to offer a wide array of products and capabilities. In Fiscal 2021, the company supplied over 115 million parts with more than 6,000 SKUs in Fiscal 2021 to around 170 customers in around 90 cities across 20 countries.
Strong manufacturing capabilities: The company manufactures its aesthetics products from manufacturing facilities located in Bengaluru and Pune in India spread across an area of approximately 235,000 and 68,350 square feet, respectively. As at June 30, 2021, the annual production capacity of the company’s and its Subsidiary’s manufacturing facility was 209.70 million and 29.50 million products, respectively and their capacity utilization rates were of 10.14% and 13.38%, respectively, during the three month period ended June 30, 2021, and their revenue from operations during this period were Rs 568.07 million and Rs 174.62 million, respectively. Further, as at March 31, 2021, the annual production capacity of the company’s and its Subsidiary’s manufacturing facility was 208.61 million and 29.50 million products, respectively and their capacity utilization rates were of 44.07% and 52.88%, respectively, in Fiscal 2021, and their revenue from operations during Fiscal 2021 were Rs 2,516.16 million and Rs 685.26 million, respectively. It incurred capital expenditure in Fiscals 2018 and 2019 for its Bengaluru facility, and its annual production capacity can be increased to 209.70 million products without significant additional capital expenditure. Also, its Bengaluru facility has additional land to undertake further expansion, if required, to capitalize on the growth of the industry.
Strong innovation and product design and development capabilities: The company 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. The company’s designers conceptualize and co-develop new designs for its customers at the design studio within the company’s Bengaluru facility which has advanced equipment. It possesses in-house design, development and engineering capabilities which, encourages innovation and improves efficiency in its manufacturing processes.
Long-standing customer relationships: The company’s key customer base includes automotive OEMs, global Tier-1 automotive component suppliers, consumer durables/ appliances manufacturers, medical devices manufacturers and sanitary ware manufacturers. It has developed long-standing relationships with several customers. As at June 30, 2021, the company’s relationship with its 10 largest customers in terms of revenue averaged around 15 years. This is attributable to its collaborative design and product development approach and high product quality. It also credit its customer loyalty to its ability to offer “design-to-delivery” aesthetics solutions with the use of sophisticated equipment and application of new techniques. The company also been able to attract new customers and significantly expanded its customer base over the last three fiscal years in India and abroad.
Risks and concerns
Derive portion of revenues from export sales: A portion of the company’s revenues is dependent on export of its products to Asia, the United States, Europe, Africa, the Middle East and Latin America, which constituted 29.96%, 10.11%, 45.77%, 3.39%, 1.76% and 9.01%, respectively, of the company’s revenue from operations from rest of the world (exports) in Fiscal 2021. In the event the company is unable to effectively address or comply with changes in foreign laws, or meet the conditions stipulated in its licenses, it may be subject to penalties and other regulatory actions, which could adversely affect its reputation, business, prospects, result of operations and financial condition.
Cyclical and seasonal nature of automotive sales and production: The company’s business, results of operations, financial condition and cash flows are affected by levels of global production of passenger vehicles and automotive parts. Automotive sales and production are cyclical and are sensitive to changes in general economic conditions and other factors beyond its control such as consumer demand, consumer confidence, inflation, employment and disposable income levels, credit availability, interest rate levels, demographic trends, technological changes, increasing environmental, health and safety regulations, changes in government policies, political instability, fuel prices, product mix shifts favouring other types of vehicles, disruptions in the automotive supply chain, labour relations and general industry conditions, any of which may negatively affect the demand for vehicles and, as a result, products and services. Its sales are also affected by inventory levels and production levels of automotive manufacturers. The length and timing of any cycle in the automotive industry cannot be predicted with certainty. It cannot predict when manufacturers will decide to either build or reduce inventory levels or whether new inventory levels will approximate historical inventory levels. This may result in variability in demand for its products and, as a result, its sales and profitability.
Dependent on third party transporters: The company uses third party transporters in its operations. Its success depends on the smooth supply and transportation of its finished products and the various raw materials required for its manufacturing facilities, which is subject to various risks, uncertainties and other hazards beyond its control such as unavailability of vessel space, port congestion, inadequate port infrastructure, accidents, adverse weather conditions, strikes and civil unrest, which could adversely affect supplies from its suppliers. In addition, raw materials and finished products maybe lost or damaged in transit for various reasons including occurrence of accidents or natural disasters. There may also be delay in delivery of raw materials and finished products which may also adversely affect its business and results of operations. A failure to maintain a continuous supply of raw materials and just-in-time delivery for its finished products could materially and adversely affect its business, financial condition and results of operations.
Operate in a highly competitive industry: The aesthetics products industry is highly competitive, involving a few players with diversified product portfolios having presence across most OEMs; however, there are several other enterprises which manufacture of one or a limited range of aesthetics and are direct suppliers to OEMs and Tier-1 suppliers, evidencing the fragmented nature of the aesthetics industry. Certain segments within the aesthetics industry, particularly decals, graphics and logos, are highly commoditized and have low barriers to entry or exit, leading to a market with a certain degree of fragmentation. Increased competition from other organized and unorganized aesthetic product and solution providers may lead to a reduction in its revenues, reduced profit margins or a loss of market share.
Outlook
S.J.S. Enterprises is one of the leading players in the Indian decorative aesthetics industry. The company is a 'design-to-delivery' aesthetics solutions provider with a diverse product offering for the automotive and consumer appliance industries. The company's product offerings include - decals and body graphics, 2D appliques and dials, 3D appliques and dials, 3D lux badges, domes, overlays, aluminum badges, in-mold labels, or decoration parts, lens mask assembly, and chrome-plated printed, and painted injection moulded plastic parts. On the concern side, the company derives a portion of its revenues from export sales to certain countries and could be adversely affected by any adverse changes in the conditions affecting these markets. Further, any change in the benefits and incentives under certain export promotion schemes applicable to the company or a delay in disbursement of benefits under such schemes may adversely affect its results of operations.
The issue has been offered in a price band of Rs 531-542 per equity share. The aggregate size of the offer is around Rs 800 crore to Rs 816.57 crore based on lower and upper price band respectively. On the performance front, the company’s profit for the year increased by 15.70% to Rs 477.65 million in Fiscal 2021 from Rs 412.85 million in Fiscal 2020. Meanwhile, the company’s total income increased by 15.31% to Rs 2,551.54 million in Fiscal 2021 from Rs 2,212.73 million in Fiscal 2020 primarily due to result of an increase in its revenue from operations. With its experience in the aesthetics industry and track record of supplying premium products, the company is well positioned to take advantage of favourable trends in this industry. Its growth in recent periods is the result of growth in its share of business with its existing customers, gaining new customers, expansion of its product portfolio and geographic expansion of its business, among others. The company plans to continue to leverage its market leadership and diverse product offerings in order to capitalize on these industry trends and enhance its focus on premium products. It also intends to continue enhancing its operational efficiencies, to increase economies of scale, better absorb its fixed costs, reduce its other operating costs and strengthen its competitive position.
