SJS Enterprises Ltd - Designed to outperform | MNCL Research Update

We revise our target price on SJS Enterprises upwards to Rs1,930 to account for an increase in revenue/ margin estimates, valuation roll-forward to Sept’27E and target multiple expansion. SJS delivered another quarter of strong industry outperformance, driven by the ramp-up of dispatches to the newly added Hero account, robust traction in the chrome plating business, and a healthy export performance. While the near-term outlook at WPI remains cautious, we believe the legacy business and SJS Decoplast would continue to exhibit strong growth momentum. SJS deserves premium multiple given its robust performance (24 consecutive quarters of outperformance), impressive financial metrics – evident in RoE/RoCE at 18-20%, EBITDA margins at 24%+, and healthy OCF/EBITDA conversion of ~75% (five-year average). Our estimates currently exclude any contribution from potential acquisition and the collaboration with BOE Varitronix, which remains optionality. While we remain positive on the company’s earnings consistency and execution strength, we move to Accumulate following the sharp rally.

Revenue beats expectations:

Legacy business revenues (decals, logos, dials, etc) increased by 36% yoy to Rs1.43bn, driven by ramp up of dispatches to Hero and improved exports. Amongst subsidiaries, SJS Decoplast reported 20% yoy increase in revenue to Rs563mn, while WPI delivered revenue of Rs418mn (+4% yoy, +20% qoq), reflecting a gradual sequential recovery while largely remaining flattish versus its average run-rate over the past five quarters. On a consol. basis, revenue grew by 25.4% yoy to Rs2.41bn (MNCL estimates of Rs2.27bn). The automotive segment of SJS delivered 29.5% yoy growth, sharply outperforming the 9.5% yoy growth in the base industry (2W + PV) production volumes, while the consumer segment grew 16% yoy.

Margins further improve:

SJS reported consol. margins at 28.3%; +236bps yoy. The margin expansion was primarily attributable to better product mix and operational efficiencies.  Effectively, SJS reported consolidated EBITDA of Rs684mn; +36.8% yoy. Consolidated PAT grew by 48.4% yoy to Rs430mn, aided by higher other income and lower finance cost.

Staunch outperformer, trend to persist:

SJS continues to outpace industry growth, supported by the premiumization trend, increasing wallet share among existing customers, and progressive scale-up with new domestic and overseas clients. We believe the company is well placed to sustain its outperformance. The addition of Nissan as a client reinforces management’s focus on export and is expected to support the target of achieving 15% revenue contribution from exports by FY28E. We maintain a positive outlook on the long-term prospects of SJS, supported by (i) preferred premiumization play, underpinned by its integrated one-aesthetic-shop capability, (ii) demonstrated track record of consistent outperformance versus industry, and (iii) strong earnings visibility at both SJS standalone and Exotech. Capacity expansion is on track, with the Pune chrome plating facility and capex in standalone business expected to be operational by 3QFY26. We have revised our earnings estimates for FY26/27E by 9%/ 11% resp. to account for higher revenue/ margin. Potential acquisition and revenue from collaboration with BOE Varitronix remain optionality to our estimates.

Valuation and risks:

With robust earnings visibility, we factor in revenue/EBITDA/PAT CAGR of 18%/21%/24% respectively over FY25-28E. We now value SJS at 30x (vs. 28x earlier) 2QFY28E earnings to arrive at TP of Rs1,930 (vs. Rs1,530 earlier). The increase in TP is due to valuation rollover, upward adjustment to our revenue and margin estimates as well as increase in target multiple. Recommend BUYING in dips. Risks: Poor exports recovery, slowdown in premiumization.

Company website: https://www.sjsindia.com/

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Analyst:

• Smit Shah - Research Analyst, Institutional Equities (NISM-202300068297)

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