Syrma SGS Technology Limited (SYRMA.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Syrma SGS Q3 FY '26 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikhil Kandoi from Axis Capital Limited. Thank you, and over to you, sir.

Thank you, Iqra. Good morning, everyone. On behalf of Axis, I welcome you all to Q3 FY '26 earnings con call of Syrma SGS Technology Limited. We have with us the entire management of the company. At this time, I will hand over the floor to Mr. Nikhil Gupta, Head of Investor Relations of Syrma to take the proceeding forward. Thank you.

Yes. Thank you, Nikhil. A very good morning to everyone. Welcome to Syrma SGS Third Quarter Financial Year 2026 Earnings Call. We have with us today Mr. J. S. Gujral, Managing Director; Mr. Jayesh Doshi, Director; Mr. Satendra Singh, Chief Executive Officer; and Mr. Bijay Agrawal, Chief Financial Officer, Syrma SGS to discuss the performance of the company during the third quarter of the financial year 2026 followed by detailed question and answer session. Kindly note during this call, certain statements that we make are forward-looking, which involve several risks, uncertainties, assumptions and other factors that can cause results to differ materially from those in such forward-looking statements. We request you to kindly refer to the disclaimer statements as presented in the earnings release for the same. With this, I now hand over the call to Mr. J.S. Gujral, Managing Director, for his opening remarks on the performance. Thank you.

Thank you, Nikhil. Ladies and gentlemen, a very good morning, and welcome to Syrma SGS Q3 FY '26 Earnings Call. The last 3 months have been good and exciting. And I'm happy to share that the company has posted robust performance on all parameters. If we look at the sales, my Q3 sales have gone up by 45% compared to last Q3 of FY '25. EBITDA has shown a very healthy growth of 101%, up from INR 79 crores to INR 159 crores. PBT and PAT have also registered corresponding good growth of about 108%. One of the redeeming features of this quarter was a 66% growth in my exports, up from INR 202 crores to INR 335 crores between Q3 FY '25 and Q3 FY '26. So if I sort of scan the 9-month performance, again, we find that the performance is in line with what we had guided and in fact, better on some of the parameters. We have achieved in 9 months revenue of about INR 3,350-odd crores with operating EBITDA of INR 370 crores, up from INR 208 crores; a PBT of INR 295 crores, up from INR 146 crores; a PAT of INR 227 crores, up from INR 113 crores; and export up by 45% from INR 576 crores to INR 837 crores. Going into some of our bit granular detail, what is satisfying and gives us confidence of maintaining this tempo of performance is almost a secular growth across all verticals -- all the sort of 4 cylinders of firing, the auto has grown by a robust margin of growth of 30%, med-tech by 31%, industrial by 29%, IT/railways because the base was very low, it has shown a robust performance of 70% growth. So this gives us the confidence that going forward, we would be able to achieve the guided figures and maybe exceed on the margin front. When we started off this year, we had guided a margin of 8%, EBITDA margin of 8%, which was revised to 9%. And now we are confident that we should be able to deliver INR 500 crores plus of EBITDA, up from INR 324 crores of last year, which would translate into a 55%, 57% growth against a targeted growth of 30%, which we had guided. Going forward, in the coming year, we believe that we are well poised to take sort of capitalize on the emerging opportunities and grow healthy growth rate across all verticals, such that we would be able to deliver a 30% growth rate in the coming year also. One of factors which we should keep in mind is that this performance has been under sort of the so-called cloud of tariff uncertainties from U.S.A. We have been hoping for the last quarter on 4, 5 months that it would settle. We are still very hopeful that in this quarter, this sort of thing that the tariff uncertainty should be out of our way. When I say over, it also applies to the entire industry. One very positive thing which has happened a couple of days back is the signing of the EU -- FTA with the EU Union. And this -- in the long run, not in the short run, not maybe in '26, '27, but in the long run, I think it bodes very well for the electronic industry in 2 ways. A, some of the end equipments, which were attracting duties, they have been rationalized or brought down to 0 or very low duties, which would enable export of end products from India, automobile as a case. Now if automobiles are exported, the electronics which go into the automobiles, we are there to service that. And for us, it creates a broad ecosystem and an environment, a positive environment that going forward, the trade with EU would see a uprise. We are very strong in EU. We have been exporting for the last 30 years. We have a plant in Germany. So I believe that in the long run, this thing, the FTA would help us in sustaining the growth of our exports, which, as I just shared, have grown by 45% over 9 months. And I expect that we should be able to cross the INR 1,000 crores, maybe close to INR 1,100 crores in the coming year. We're already sitting at INR 837 crores of exports. On the domestic front, we -- the industries which we service are seeing robust growth, and I expect the growth to continue in the coming year also. As far as the new verticals of projects are concerned, our PCB project is on track. The construction has started, and we expect the construction to be completed by about June, July. Parallelly, the equipments are being ordered, and we are on track to start the trial production by December 26, January, March '27 quarter so that we have a first 1 year of sales from the capacity which we are creating this year. Further capacities will be created based on the demand, which we believe would be very good and that we believe that the additional capacities which we have planned should come in sooner than later. We are sort of expanding our footprint in Pune, expansion of capacity in Pune. We have acquired Elcome. The deal has been closed, and we expect that, going forward, the defense vertical would contribute to the bottom line more and to the top line as a proportionate figure, a little lower because it will be about 5%, 6% of overall revenue. On a whole, I think it's been a very satisfying 9 months on the financial parameters, performance, delivery, everything. One soft thing which we believe is of a very great significance for our company and the country is that we have got the gold rating from EcoVadis which is the ESG compliance, and we are now rated among the top 5% companies globally. Last year, it was a bronze rating. So we have qualified from bronze to gold. Some of those customers are in platinum. So I think the journey is on, and we'll endeavor to do that. With that, I hand over to Bijay to run you through with the detailed number crunching. But overall, I think the team has done very well, and we are happy that we are on track and are delivering what we have guided this year. Thank you.

Thank you, sir. Good morning, everyone. I'll now take you through our brief financial performance for the quarter and 9 months ended December 2025. I can start with the update on Elcome first. During the quarter, we consummated the deal, sometime mid of December. So for about 15, 16 days, we have been able to include our consolidated financials of P&L performance of Elcome also. Considering the same, our overall total consolidated revenue for the quarter is INR 1,274 crores as against INR 891 crores corresponding quarter previously last year, registering a 45% growth year-on-year basis. Our total revenue for the 9 months is approximately INR 3380 crores, which is again 17% growth on a year-on-year basis. The robust growth for the period is contributed by higher growth in auto, industrial, healthcare and mainly export business. The consumer sector business for the quarter is approximately 31%, which is in line with our previous guidance. Our export revenue for the quarter is approximately INR 335 crores, highest ever per quarter, which has grown by 65% on a year-on-year basis. And for the 9 months, it is around INR 837 crores, which is again 45% growth year-on-year basis. Overall export business mix is approximately 25% for the entire 9-month period, which was about 22.5% for last financial year. So we can see overall export has improved by almost 250 bps in the overall revenues. Our ODM revenue for the quarter is approximately 16%. Coming to gross margin. Gross margin for the quarter is 27.4% as against 26% for Q3 of last year. The margin improvement is mainly led by our export, higher export mix, higher ODM, higher industrial and healthcare business and also lower consumer and IT, which is a relatively lower gross margin business. We, again, continue to focus our efforts on the -- we continue to focus our efforts on our operational efficiency improvement further to improve margins. Our operating EBITDA for the quarter stood at healthy INR 159 crores with a year-on-year growth of 100% and an operating EBITDA margin of 12.6%. The current quarter consolidated EBITDA also includes INR 12 crore from Elcome consolidation. So excluding Elcome and apple-to-apple basis increased INR 147 crores. Our 9-month operating EBITDA is approximately INR 370 crores, which has grown by 78% year-on-year basis, and 9-month operating EBITDA margin is approximately 11%. PBT for the quarter is INR 138 crores. And for the 9 months, it is INR 295 crores, which has grown again by 105% on a year-on-year basis. PBT margin for the 9-month period is 8.7%. Coming to PAT performance. PAT for the quarter is INR 110 crores, which has again grown by 108% year-on-year. PAT margin was 8.7% for the quarter. Similarly, for the 9-month period, PAT is INR 227 crores with INR 100 growth on a Y-o-Y basis. Overall, net working capital days investment as of December end, we are running the business at around 76 days of net working capital days investments. These numbers also include consolidation of Elcome. So if we remove it to make it apple-to-apple, net working capital investment is 68 days, which is 5 days lower than the previous quarter. So that much of efficiency we were able to bring in during the quarter. And considering the same overall operating cash flow for the entire 9-month period is now positive for the company. We again continue to focus on reduction of net working capital days by another maybe 3 to 5 days over the next 2 to 3 quarters. Moving to our debt position. We have a total gross debt of INR 529 crores as on December end. And as again saying, we are carrying a healthy treasury balance of INR 933 crores. With this, we have a net cash position of INR 404 crores as on December 8. Turning to CapEx spend. We -- it is all on track. We have been able to spend around INR 55 crores during the quarter. And for the entire 9 months, it is approximately INR 115. Coming to ROCE performance. ROCE for the quarter is approximately 16% on an adjusted basis when we adjusted for the goodwill and unutilized IPO money. We expect this to improve further up for the year when we are able to pay the full P&L benefit -- full period related full benefit of Elcome because as of now, Elcome has already included into the capital employed, but returns should also include it for that going forward. Our order book visibility as of December end is approximately INR 6,400 crores, which includes auto sector related approximately 31%; consumer business, about 25%; industrial business, 27%; and balance in healthcare, IT/railways. Just an update on the merger. We have already concluded the merger. Syrma SGS merger is all done, and now we are reporting only SGS is already merged in Syrma, so there is nothing pending on that side. Once again, we continue to focus on high-margin verticals, operational efficiency improvement, improving the overall working capital investment and thereby improving the overall operating cash flow. That is all, and thank you very much. I will now hand it over to Satendra Singh, our CEO.

Thanks, Bijay. And good morning from my side. I think we had an excellent quarter as already summed up by Mr. Gujral and Bijay in their remarks with numbers. I couldn't be happy. I think this is a combination of all the efforts made by our team across the plants, across all support functions, and most importantly, the customers. We have a very healthy strong pipeline, and we are looking forward to exciting times ahead. Our factories are getting busier, as Mr. Gujral alluded to, in his remarks. We have seen utilization improvement between quarter 2 to quarter 3, almost 5% up. And that would mean -- and that we are very closely watching for expansion of capacities. Last quarter, I had commented that we are building a factory in Bangalore. That's on track, and we are looking forward to more capacity enhancements in this year, which will obviously be required and the right structure to meet the exciting growth ahead. Strategy-wise, we remain very focused. We are working basis what we always believed in and what we continue to execute on. First things first, customer. We're listening to the customers very, very carefully, working with them, walking the walk and ensuring that we are ready as and when they want us to be ready with the capacities, with the systems, with the competencies needed to support their business. We have continued focus on the segments, which we always talk about, auto, industrial, medical, railways. We are continuing to build our capabilities. I think last week also brought in an interesting news to the trade and manufacturing ecosystem, which is the Europe-India deal. I think that's as the newspapers call it mother of all deals, I would kind of believe that this is going to be a significant impact on the way businesses are growing. It definitely will bring strong tailwinds to Indian electronics companies. And we, as Syrma SGS, have been in European market for more than 2 decades. And we have been physically present for almost a decade via our factory and engineering presence in Stuttgart. We are looking forward to building on that to ensure that our export growth, which already Bijay said, we grew almost 45% year-on-year. We are looking forward to using our position there, our knowledge of the market to ensure that we have solid growth. Last but not the least, I think we continue to be a business which is keeping -- doing all the right things required for the planet, and that's reflected in our EcoVadis rating moving from bronze to gold. There is clearly way ahead. Our endeavor would be to get to platinum, but the best -- the good part is that we are on the right track. With this, I'll turn it back to Nikhil, and thank you very much. Looking forward to exciting times together. Nikhil, over to you.

Thank you, Satendra. Over to you, Iqra, for getting into the Q&A session.

[Operator Instructions] The first question is from the line of Sumant Kumar from Motilal Oswal Financial Services Limited.

So my question is for consumer. We have seen a swing of INR 116 crores in this quarter and also in industrial, INR 120 crores. So I understand industrial is majorly driven by the smart meter. So -- but can you talk on consumer side, what is leading this kind of growth because we have focused on high-value, high-margin business for consumer, what we have discussed earlier. That is number one. Number two, what other subsegment is driving industry?

So we have done approximately INR 390 crores in this quarter, while it was INR 365 crores in the previous quarter. So there is a growth of approximately INR 23 crores, INR 24 crores over the last quarter. And this is, again, mainly largely driven by telecom business, which we are doing, the set-top boxes, GPON, IDU, ODU, that is one last thing. Additionally, the consumer sector-driven ODM business, what we are doing is like water purification and maybe some bit of RFID tags, and consumer end use, those are the products which we are doing in the consumer segment.

You see end of the day, when we started off this year, we had said that we would like our consumer sort of basket to be about 31% -- 30%, 31% of our revenue. And for this quarter, it is at about 30%. And even if I say for the whole year, it is at about 32% of the total sale. So I think we are on track. The industrial is driven by -- across the sort of applications, including exports. It's not purely driven by the energy metering, which is our domestic business, but by growth in my exports, my exports predominantly are in med-tech and industrial with a component of automotive also, which is touching around INR 100 crores. So it's the business growth across verticals and within verticals across applications. That's what is, I think, the strength and satisfaction, which we derive when we see the quality of growth that it is not driven by 1 leg, all the cylinders are firing. And within the -- within each vertical, the different applications are also growing secularly with marginal variations. Some will grow faster, some will be at a slightly lower clip than the fastest one.

So can you talk on the industrial side. What is the smart meter contribution of overall industrial in Q3? And also in IT and railways, what is the mix of railway in IT and railway in this quarter?

In this IT and railways during the quarter, we have done approximately INR 82 crores, of which railways is only INR 17 crores, INR 18 crores, and balance is IT. And similarly in the industrial breakup, smart metering is less than INR 50 crores for the quarter here.

How much?

Around INR 50 crores.

Smart meter?

Yes.

So in industrial, we have a higher proportion of telecom?

No, no. Not in exports, other applications.

Industrial has power supplies, it has exports. It has the metering.

The next question is from the line of Sameet Sinha from Macquarie Capital.

Yes. So good performance here. So if I'm looking at your full year guidance, 30%, 35% year-over-year growth requires -- so fourth quarter, you're assuming it implies about INR 300 crores to INR 500 crores sequential growth. How -- can you help us get there because that's a pretty sequent strong year-over-year acceleration that's required. Of course, Elcome will contribute. How much is Elemaster closing included in guidance? And then I have a follow-up question.

Okay. Now if you see the quarter-on-quarter performance, Q1, we had a negative revenue growth of 19%. Q2, we did 37-odd percent positive growth. So from a negative 19% -- 18%, 19% to 37%, it means implies whatever the growth is. And in Q3, this 37% has grown up to 44% or 45%. Q4 going forward, we are confident that we should be able to grow sequential or sequential target, which we did about INR 1,264 crores, we should be able to grow this figure by about INR 1,600 crores plus such that we should be sitting at anything between INR 4,850 crores, INR 4,900 crores to INR 5,000 crores. That's the range. But to me, the revenue figures are very important, but more important is the EBITDA. I think we started off the year with a guidance of INR 400 crores of EBITDA. We are already sitting at INR 370 crores in 9 months. Even if I exclude the INR 12 crores of EBITDA, which has been consolidated, it means INR 358 crores. I'm very confident that we should be able to cross the INR 500 crore mark of EBITDA for the full year. If INR 500 crores, we do that it's almost like 58-odd percent increase over the previous year. And it would have a similar positive increase in the PAT. Once the PAT goes up, it will have a similar positive impact on my EPS. So I think on the finer points of performance, I think we are delivering or exceeding what we had committed to The Street.

Just to add here, we are not expecting any revenue from Elemaster JV in the fourth quarter. And also, Elcome related, we are expecting INR 100 crores to INR 120 crores of revenue in the quarter 4. That would be included in there. Simultaneously, we are also expecting healthcare higher number in the next quarter as it is always a much more year loaded business in any year.

So the -- it seems like you have pretty high visibility into '27 as well. Can you help us think about some of these segments and key drivers are? And if you can brackets sort of growth rates for each of these segments, that would be helpful.

As I just shared that if I see my 9-month performance or my sort of 3 months performance, all my major verticals are growing at a pace of 30-plus percent. Railways and IT because of a lower base growth at about 70-odd percent. I expect this secular growth among verticals to continue. Some may grow mild, some may grow at 35%, some may grow at 28%. But on an overall basis, we believe that we are in a position to deliver a 30% growth on top line and on EBITDA in the coming year -- in the coming year '26, '27.

[Operator Instructions] The next question is from the line of Sonali S. from Jefferies.

Many congratulations for such a wonderful result to you, Mr. Gujral, Mr. Bijay and the team. So my first question is margin trajectory has been really strong this quarter. Bijay, you did talk about the levers for that. But just wanted to get in a little more detail because if I look at the product mix in Q3 FY '26 versus Q3 FY '25, I mean consumer autos were broadly in and around the same percentage of sales as they are right now. So keen to understand what led to this excellent margin and the sustainability of the same?

See, we don't -- as we have all the time been saying, we don't concentrate or point on quarter-on-quarter margins. So even if you recall, my Q4 of last year was -- I think it was about 12% EBITDA margin, Q4 of last year. And this time, it is in Q3. So let's not say that Q3 becomes the base for future projections. What we are saying is that we guide a 30% growth in absolute EBITDA, which translates into a 10% EBITDA margin going forward. What drove the margins in Q3 is my export performance. Export is a very high-margin business, and it has grown by 66%, compared to Q3 of last year. So in exports, we are up from INR 202 crores to INR 335 crores. This INR 135 crores additional sales results in a comparatively very high contribution towards EBITDA. Similarly, if I see my performance on industrial, my industrial is 31% in quarter 3, grown 46% over corresponding period of last year. So these high-margin verticals where the growth has come this quarter has resulted in 12-odd percent EBITDA. Going forward, we guide that we should be able to deliver a blended EBITDA margin of 10% for the next year.

Just to add, Sonali, here, you are right. The overall business mix is exactly the same as it was in Q3 of FY '25. So that is where when you see gross margin level, overall improvement is only 1% because of the better margin controls or maybe some bit of procurement efficiencies. And the larger part of savings is coming because of the scale improvement versus Q3 of FY '25, there's a 45% of the scale improvement, which is also helping us in the operating leverage improvement. That is where the overall EBITDA margin increase is 3.5% versus Q3 of FY '25.

Got it. Very clear. And just one last question for the PCB manufacturer we had set out the overall CapEx estimate to about INR 15 billion. How should we look at the per annum CapEx guidance considering that we'll be doing this CapEx in phases? So is about INR 3 billion per annum a fair number to go by in FY '26, '27?

Okay. So in the first phase, which would be completed by December '26 or '26, '27, we should be spending approximately INR 360 crores, 370-odd crores -- INR 360 crores to INR 400 crores, which would give us capacity of 720,000 square meters of multiyear line and 480,000 square meters of single layer PCBs. The facility, which is being created is to accommodate 2 additional multilayer lines. So the civil and the infrastructure, which we are creating, the attendant utilities and all that, they are all geared up for my full 3 ML and 1 , ML is multilayer and 1 single layer line. I personally believe that the stuffing of the multilayer lines, additional multilayer lines, would be sooner than what we had envisaged. We had envisaged that the second and the third line would come towards end of calendar '27 or beginning of FY '27, '28. I think it would be preponed because the traction or the inquiries or the interest which we are receiving from potential customers is very strong. So this year, it is about INR 360 crores to INR 400 crores. And next year, I think, on the PCB for this would be approximately the same amount and purely dependent on demand. As far as the INR 1,500 crores, you said that also included CCL and HDI and Flex. We are yet to receive the approvals of the government because we had also planned starting of those projects in '27, '28.

Overall, the INR 1,500 crores, we want to -- we are planning to spend that by FY '30.

The next question is from the line of Praveen Sahay from PL Capital.

Many congratulations for a very good set of numbers. My first question is related to the export. Because last year, I can see that the U.S. contribution for the export were on the higher side, and now even after a lot of fluctuation because of a tariff, you are doing very good in the export as well. So can you give some geographical indication from where you are getting growth? As you have already highlighted, industrial contribution in the export is the higher. And also, is that the Elcome contribution into export is also there?

No. Elcome is all domestic consumption, in domestic sales, so it was not included in the export. The export, which, for the 9 months, stands at INR 837 crores versus last full year exports of about INR 858 crores or INR 860 crores. These exports have primarily been driven by my robust growth in the industrial exports and also med-tech and healthcare. Healthcare is preeminently to U.S.A. and others are primarily to EU. Breakup-wise, you have the...

So breakup while during the quarter, we have done almost INR 103 crores on the healthcare side and about INR 178 crores on the industrial side, out of the total INR 335 crores.

Geographical also if you can...

Sorry.

Geographical bifurcation, if you can give for 9 months.

5% is U.S. and 35% is Europe. Our industrial is largely 90% is Europe.

See my med-tech business is preeminently going to USA. My RFID and EMS business is directed towards EU and maybe Mexico. And something to that. Geography-wise, I don't have the figures off and we'll have to sort of work out. But I think it should be maybe 55%, 45%, but I have to work on the figures.

All right. Sir, any number on PLI for a quarter and 9 months, if you can share?

PLI annualized number for any year is near about INR 30 crores, INR 32 crores for us, right? That's what is coming in the normal business.

And there are no abnormal variation quarter-on-quarter.