Exotech Expansion And OEM Partnerships Will Strengthen Market Leadership

Key Takeaways

• Strategic expansion and investment in production capabilities position SJS Enterprises for continued revenue growth and market leadership, enhancing margins and operational efficiencies.
  
• Focus on exports, premiumization, and technology innovation drives long-term value, while strong financial performance supports strategic growth initiatives and market diversification.
  
• Expansion plans and reliance on passenger vehicle sector pose financial risks and execution challenges, impacting margins and immediate earnings growth expectations.

Catalysts

Designs, develops, manufactures, sells, and exports decorative aesthetics primarily to automotive and consumer appliance industries in India and internationally.

• SJS Enterprises is experiencing significant growth in the passenger vehicle segment, driven by its strategic expansion of the customer base and project portfolio organically and inorganically. This positions the company to continue outperforming the automotive industry growth and is likely to positively impact revenue.
  
• The company is increasing its production capabilities with the expansion of Exotech capacity and developing a cover glass manufacturing facility, which is expected to address rising demand and strengthen market leadership in advanced aesthetic and functional products. This expansion is expected to enhance revenue and operational efficiencies, which should improve net margins.
  
• SJS’s strategic focus on exports is anticipated to increase the share of exports in the consolidated revenue to 14-15% by FY '28, driven by new order wins from key OEMs like Stellantis and Whirlpool. This is likely to contribute to revenue growth and market diversification.
  
• Consistent cash flow generation and strong financial performance provide a solid foundation for SJS to pursue strategic investments and capital expenditures in new technologies. This financial strength offers the potential to increase earnings through strategic growth initiatives.
  
• Premiumization and adoption of advanced technologies are key drivers in SJS's strategy, which is directed towards delivering long-term value. The focus on premium offerings and advanced display technologies is expected to contribute to improved market positioning and revenue growth.

S.J.S. Enterprises Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming S.J.S. Enterprises's revenue will grow by 17.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.9% today to 16.8% in 3 years time.
• Analysts expect earnings to reach ₹2.0 billion (and earnings per share of ₹64.91) by about April 2028, up from ₹1.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.5x on those 2028 earnings, up from 28.3x today. This future PE is greater than the current PE for the IN Auto Components industry at 28.4x.
• Analysts expect the number of shares outstanding to grow by 0.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.65%, as per the Simply Wall St company report.

S.J.S. Enterprises Future Earnings Per Share Growth

Risks

• The expansion plans, including the development of a cover glass manufacturing facility and capacity expansion for Exotech, entail significant capital expenditure, which could increase financial burden and impact net margins if not successfully executed.
  
• Although the company is investing in new technologies and products, such as the IME parts, these are still in the early stages and might take several years before contributing significantly to revenue, which could impact the immediate earnings growth expectations.
  
• Export sales have been impacted by subdued market conditions in Europe and North America, and any prolonged downturn in these key markets could hinder export revenue growth.
  
• The company’s domestic growth relies heavily on its strong performance in the passenger vehicle segment; any slowdown in this sector, or failure to maintain partnerships with key OEMs, could adversely affect revenue.
  
• While the company aims to increase its export business, there is considerable execution risk in achieving a 14%-15% revenue share from exports by FY ‘28; significant resources might be needed to penetrate new markets, impacting net profit margins.

Valuation

• The analysts have a consensus price target of ₹1354.667 for S.J.S. Enterprises based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹12.1 billion, earnings will come to ₹2.0 billion, and it would be trading on a PE ratio of 30.5x, assuming you use a discount rate of 13.7%.
• Given the current share price of ₹1002.95, the analyst price target of ₹1354.67 is 26.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.