Japan records surprise trade deficit in July as exports weaken further
On Wednesday, ICICI Securities adjusted its outlook on Syrma SGS Technology (SYRMA:IN) shares, lowering the price target to INR 540 from INR 600, while continuing to endorse the stock with a Buy rating. The revision reflects a recalibration of expectations due to a mix of strong sales growth in the consumer segment and a dip in overall margins.
The consumer segment, which accounts for 53% of total sales, saw a significant revenue increase of 92.9% year-over-year. However, Syrma's overall margin fell to a record low of 3.8%, a decrease from the previous year and quarter by 230 basis points and 265 basis points, respectively. This decline in margin was attributed to weaker performance in the consumer segment.
Despite the margin challenges, Syrma boasts a robust order book exceeding INR 45 billion as of June 2024, with a healthy diversification across all business segments.
The company anticipates a rebound in export activities in the second half of the fiscal year 2025, targeting export revenues of over INR 10 billion for the financial year.
ICICI Securities forecasts that Syrma will concentrate on margin expansion in fiscal year 2025, recovering to the guided levels of 7%. This expected improvement is based on two factors: a reduced contribution from the consumer segment to approximately 40% in FY25 and a resurgence in the higher-margin export segment.
The firm has also revised its earnings estimates for Syrma downward to account for a weaker-than-expected first quarter in the fiscal year 2025. Nevertheless, the outlook remains positive due to a strong order book, promising export opportunities, and ongoing capacity expansion.
The maintained Buy rating is supported by a discounted cash flow-based target price of INR 540, implying a price-to-earnings ratio of 38 times the estimated earnings for the fiscal year 2026.
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