The SJS Enterprises stock has had a good run since our ‘buy’ recommendation in end-October 2022 at ₹440. It has more than doubled from there, gaining 135 per cent at close last Friday (August 9). Incidentally, the stock touched its 52-week high of ₹1,097 intra-day on Friday, before closing lower at ₹1,032.

Prospects continue to remain sanguine, but valuations have expanded by a little over 40 per cent now, compared with October 2022 levels. The stock now trades at about 34 times its trailing 12-month consolidated earnings and about 27 times FY25 earnings. While existing investors can continue to hold this small-cap stock (market cap of ₹3,200 crore), considering the run-up as well as the higher valuations now, fresh exposures need not be taken at this juncture.

Riding on autos

Supplying aesthetic products such as decals (stickers), appliques/dials, logos, aluminium badges, in-mould decoratives, as well as optical plastics and lens mask covers predominantly to the auto industry, SJS has been riding the upturn in domestic new vehicle sales post Covid. While the standalone business is tilted towards two-wheelers (2Ws), by virtue of two acquisitions made in 2021 (Exotech) and 2023 (Walter Pack India or WPI), the standalone business now brings only half the revenues.

With the acquired businesses focusing on passenger vehicles (PVs), both PVs and 2Ws now bring about a third of the consolidated revenues each. Exotech added chrome plating capabilities to its product line-up. WPI specialises in In-mold decoratives (IMD), labelling (IML) and electronics (IME). SJS counts Suzuki, Bajaj Auto, Royal Enfield, TVS Motors, Honda, Maruti Suzuki, Hyundai and Tata Motors among its clients in the automotive segment.

The continuing trend of premiumisation — be it the preference for higher cc bikes or SUVs — has been a tailwind for SJS, as these demand higher aesthetics. Over the years, expansion in product line through the organic and inorganic route has helped the company cross-sell products, improve content per vehicle supplied as well as earn better margins.

It is precisely this strategy that the company plans to deploy once again as the cyclical upturn in auto sales, especially in the PV segment, has peaked out.

After robust growth in FY22 and FY23, PV volume growth slowed to high single digit in FY24. Into FY25, this has further tapered off to 3 per cent growth in the April-June period. Post the WPI acquisition, the kit value supplied per PV has improved to ₹3,500-5,000, from ₹1,200-1,500 initially. The company is aiming for a 3-4x growth in kit value per vehicle in future, aided by its focus on new generation products such as wheel cap/aluminium badges, IML interiors, optical plastic/touch screen cover glass.

Supplies to new launches, which may see good volumes even as offtake of older products slows down, will also stand SJS in good stead. The fact that 2Ws sales still remain robust is good news for the company. Put together (ie 2Ws and PVs combined), the company expects to grow at 1.5 times the growth rate of the industry, thanks to these factors.

New generation products across segments constituted 25 per cent of the consolidated revenues as of Q1FY25. As displays get larger and larger, packing in more elements such as rear-view cameras and infotainment systems, to further add to the content per vehicle, SJS has entered the cover glass business (cover glass for displays) as a tier-2 supplier for PVs. This business is expected to show up significantly in the revenues beginning FY26.

What shields SJS from the cyclical nature of the auto industry is its exposure to the consumer durables space, which fetches 23 per cent of the revenues. It is also looking at doubling exports revenue contribution from the current 7.5 per cent levels.

Strong financials

Revenue from operations came in at ₹188.6 crore in Q1FY25, 61 per cent higher than the June 2024 quarter, while reported profits grew 57 per cent to ₹28 crore. The growth figures exclude the impact of WPI integration in Q1FY24. If WPI’s proforma number for Q1FY24 are taken, the year-on-year growth comes down to 23.3 per cent and 14.6 per cent respectively at the top and bottom-line levels.

EBITDA margins in Q1FY25 came in at 26.6 per cent, as against 26.1 per cent a year ago (27.3 per cent with WPI). Going forward, however, the company expects to maintain EBITDA margins at around 25 per cent at the consolidated level as it ramps up new technology products.

While SJS was free of long-term debt and was a net cash company in FY23, it took on debt to fund the WPI acquisition (total consideration of ₹240 crore) in FY24. However, it is back to being a net cash company in Q1FY25.

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