India’s leading decorative aesthetics company, SJS enterprises is tapping the primary market with a Rs.800 cr. public offering. Upstox’s Aastha Sethi caught up with the company’s Executive Director and CEO, Sanjay Thapar who spoke about the IPO and the company’s future plans. Excerpts from the interview.
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Upstox: SJS Enterprises is a successful company operating in a niche sector. Could you give us a quick roundup of the IPO details.
Sanjay Thapar: We have an IPO aggregating ₹800 Crore, which is entirely an offer of sale for the existing shareholders. So, Evergraph is selling ₹710 Crore worth of equity. Joe who's one of the co-founders of the company is selling ₹90 Crores (of equity). We have set a price band of ₹531 to ₹542 per share. The issue opens on the 1st of November and closes on Wednesday, the 3rd of November.
Upstox: Could you tell us more about your core business?
Sanjay Thapar: SJS is the leading player in India in the aesthetic and decorative parts industry. We are growing much faster than the underlying industry we serve. The business segments we serve include consumer appliances, which is about 40 percent of our sales; 70 percent comes from the automotive industry, of which two wheelers are about 50 percent and 20 percent is from four wheelers. So these are the end-user segments. Our products meet the requirements for these industries. And we are, as I said, growing much faster (than these industries) because we have a very wide portfolio of products that we supply. Financially, we are a very, very strong company. And we are an industry leader in terms of margin profile.
Last year, we completed an acquisition…this was in the early part of this year. So, last year's pro forma financials we delivered a top line of ₹320 crore. Our consolidation EBITDA for FY’21 was ₹93.5 crore, that's about 29.2 percent EBITDA. Our PAT was ₹52 crore in FY ‘21, which is about 16.2 percent with exceedingly strong financial results. Our ROCE and ROE were about 27 percent and 16.5 percent respectively.
We invested two years ago in a brand-new, state-of-the-art plant and are poised to grow in a strong manner.
Upstox: Could you speak to us about your key products and your customer profile?
Sanjay Thapar: So, the products that we make, as I said, for two wheelers, we do a lot of body graphics. These are these stickers that you see on the fuel tank and the plastic parts of a bike. No bike is complete without this.
These are very high durability parts with an outdoor life of about five to seven years, even ten years, without any fading or peeling off. We make a lot of 3D Lux badges. These are badges that go on the fuel tanks of bikes for the brand identity. We supply these to a lot of vehicles. We also do what are called Lens mask assemblies.
There's a shift that's happening in two wheelers, from a normal speedometer, which had a dial…a plain, flat, two dimensional dial, that is now being replaced by a digital cluster. And all these digital clusters require a lens mask assembly to protect the electronic display. SJS is a leader in this market.
So, we do lens molding. We also do printing on the lens and do an overmolding. So, this is a part that an increasing number of bikes are going to use and as I said, we supply these parts to OEMs in two-wheeler manufacturers in India, and export as well.
For cars, our product portfolio is largely badges and a lot of groom parts, which go on the front radiator grill, inside door handles, outside door handles, even aesthetic parts that go on the chrome parts, and that go on bikes as well. We also make a lot of wheel caps and a lot of wheel covers that are painted for cars that don't have alloy wheels. We also do graphics.
The graphics are limited in a car, but we also do some special graphics, like mold label parts. This is a past plastic part, which has a layer of printing on it. You use that as an insert or injection to mold the plastic, and a lot of these cars- you would see the high-end cars- have door trims. And on the dashboard, you have inserts with some patterns or the wood grain finish that you have in the AUDIs and BMWs of the world.
So, Indian car companies are also using these parts to improve the aesthetics of a car. We are in the right position to supply these parts as well, and of course the instrument clusters of these cars require what are called 3D dials.
There's a transition that's happening. Indian car companies earlier used flat, two dimensional dials. They're now moving into 3D dials. And we are a dominant player in the country to make these 3D dials, both for the domestic and export markets.
Also inside the car, you see a lot of infotainment and navigation systems. You have a lot of screens. And the screen sizes are becoming larger and larger. So all these require a special grid of aesthetic parts, which are called optical lenses. There are very special optical properties in terms of haze. In terms of transmission, you don't want any reflection. You don't want any fingerprints so there are anti-glare anti-reflection, anti-fingerprint coatings. We have been working on these for the past three years and we have very niche products and we are very, very strong in this business.
In appliances, you need overlays for control panels in a washing machine and a refrigerator. So, we do a lot of overlays as well, to control the wash cycle and also to introduce capacitive touch overlays, which is the new requirement of the industry.
So all in all, we have many multiple products, addressed across multiple market segments and that makes SJS a unique company.
Upstox: Is your investor, Evergraph holdings completely exiting their stake or would they still retain some stake in the company. And also, what about the promoters? How much holding would they retain after the offer?
Sanjay Thapar: Post the IPO, depending on the price band at the higher end of the price brand Evergraph will still have about 34.8 percent stake. And, Mr. Joseph will have about 15.5 percent stake. So together they will still have about 50.3 percent stake at the higher end of this price band.
They are (invested) long-term in the company and moving forward. They're part of the promoter group. So of course, they're going to continue with the company.
Upstox: What is the reason for approaching the markets?
Sanjay Thapar: Primarily, Evergraph is a private equity company. So this is to provide a partial exit to Evergraph PE funds, to scale-up a business, though they like this business very much. So, part of their stake, they're offloading in this OFS, and Mr. K. Joseph- one of the original co-founders of the company - he's monetizing about five percent of his stake. So, that's the basic purpose of the IPO.
Upstox: Despite the pandemic, you have seen a growth in the profits. Do you expect this momentum to continue?
Sanjay Thapar: Yes, the momentum for SJS will continue. Even last year when the pandemic had a huge impact across business segments - consumer appliance and automotive industry declined by about 12-14 percent in revenues - we grew by 16.5 percent, thanks to our increasing share of wallet with customers from new products launched by SJS.
Even if the base industry volumes decline, we grew as we supplied appliances - per car or per motorcycle, that is in fact increasing - resulting in us significantly outperforming the market. So, we expect this to continue with our customers. We supply to all the marquee customers, you know, Bajaj auto, Royal Enfield, TVS motors, and Honda two wheelers.
We have seen growth traction with these companies. In cars, we are a tier two supplier. So we supply dials to companies like Magneti Marelli, Visteon corporation, GN, Nippon, Seki. These supply instrument clusters to car companies. The final products, of course, would go to Maruti Suzuki, Hyundai, Kia and Mahindra.
Many of these customers are our tier-two customers. Especially for the dial business that we have, and appliances, of course, we have all the marquee names, like Whirlpool, Panasonic, Samsung…..So, we have a very strong traction.
Upstox: Now the auto sector is your largest customer base. We did see a number of automakers stop production or announce no-production days because of the semiconductor shortage. Will that impact your order book or your revenues?
Sanjay Thapar: So what SJS benefits from the fact that we have a very diversified portfolio across industry segments. We cater to two wheelers, four wheelers and consumer appliances. So in consumer appliances, for us, there has been no impact due to the semiconductor chip shortage.
We are, by and large, unscathed. In terms of two wheelers, they are impacted to some extent and four wheelers to a larger extent. However, our sales, as I said, are increasing due to the increased content in these vehicles. So, irrespective of the volumes coming down or a reduction, we are in a very large manner compensated for the top line, because of increased revenue from these (other requirements).
So when the volumes do come back, we expect to see a tremendous upside. And having said that, on an overall basis for the automotive industry, there are the supply side constraints in terms of the manufacturing of vehicles that have been impacted because of chips, and the waiting period for all these new launches that have happened are extremely long.
So, we are very optimistic that in terms of growth, the industry demand stays intact. It's a matter of time before the industry bounces back and the solution to the chip shortage will happen over the next few months.
Upstox: You acquired a company early this year to expand your offering. So will we see more such acquisitions in the near future?
Sanjay Thapar: We will put this to good use in terms of looking at acquisitions. So yes, we will actively look at scouting opportunities and at the right price, we will look at acquisitions, both in India and overseas.
Upstox: You have a significant presence overseas through your warehouses at multiple locations. So any plans to expand on that?
Sanjay Thapar: Certainly. So the products that we supply are light and easy to ship. We already have a large traction with the global marquee customers - Whirlpool corporation for example - is a global company.
We have a very strong market share with them in India. We hope to serve their global plants as well. We are suppliers to Samsung, which is again a large global company. We supply to Visteon, which has multiple plants overseas. So we have a very strong relationship with them. That business will grow for us.
Our exports have continued to grow and these warehouses really supply very quickly to the customers. So, we pride ourselves on quality, cost, and delivery. So, proximity to customers will help us and we'll continue to look at new locations to serve our customers.