Equitas Small Finance Bank

IPO NOTE

30-Oct-2120

Equitas Small Finance Bank

IPO NOTE IPO NOTE

S.J.S. ENTERPRISES LIMITED

S.J.S. is a design-to-delivery aesthetics solutions provider with the ability to design, develop and manufacture aesthetics productscatering to two-wheelers, passenger vehicles, commercial vehicles, consumer durables, medical devices, farm equipment and sanitaryware industries. It manufactures its products from facilities located in Bengaluru and Pune. Their product offerings include decals &body graphics, 2D appliques and dials, 3D appliques & dials, 3D lux badges, domes, overlays, aluminium badges, “In-mould” label ordecoration parts, lens mask assembly and chrome-plated, printed and painted injection moulded plastic parts. They also offers avariety of accessories for two-wheelers and passenger vehicles aftermarket under their Transform brand.

FINANCIAL HIGHLIGHTS ISSUE DETAILS

ISSUE SIZE

OVERVIEW

₹ crore

Total₹800 cr

Offer For Sale₹800 cr

Issue Date 1st Nov’21 – 3rd Nov’21

Price Band ₹531-₹542

Bid Lot 27

Issue Size ₹800 cr

No. of Shares (Post Issue) 3.04 cr

Post-Issue Implied Market Cap* ₹1,649.7 cr

Price to Earnings Ratio(FY21)*

34.5x

* At upper price band

FY19 FY20 FY21Q1

FY22

Revenue from Operations 237 216 252 74

EBITDA 64.3 68.6 79.7 18.6

Net Profit 37.6 41.3 47.8 9.5

KEY PRODUCTS• In FY21, it supplied over 11.5 crore parts with more than 6,000 SKUs (stock keeping units) to around 170 customers in approximately 90

cities across 20 countries. Its product offerings include decals and body graphics, 2D appliques and dials, 3D appliques and dials, 3D luxbadges, domes, overlays, aluminium badges, IMLs/IMDs, lens mask assembly and chrome-plated, printed and painted injection mouldedplastic parts.

• It also offers a variety of aftermarket accessories under its Transform brand to enhance the appearance of two-wheelers and passengervehicles, including vehicle body graphics, PU (polyurethane) dome logos and badges, badges for door edge protectors, chrome handlesand bumper grills.

DECALS AND BODY GRAPHICS

3D LUX BADGES 2D APPLIQUES AND DIALS DOMES ALUMINIUM BADGES

3D LUX BADGES OVERLAYS LENS MASK ASSEMBLY

3D APPLIQUES AND DIALS

CUSTOMER BASE

84%

16%

India Rest of the world

GEOGRAPHY BREAKUP(FY21)

Total: ₹252 crore

36%

18%

16%

8%

7%

4%

3%3%

3% 2%

Decals and body graphics

3D lux badges

Overlays

3D appliques and dials

2D appliques and dials

Lens mask assembly

Aluminium badges

Nickel badges

Domes

IMLs/IMDs

REVENUE BREAKUP(FY21)

Automotive OEMs (Original Equipment Manufacturers) such as Suzuki, Mahindra & Mahindra, John Deere, Volkswagen, AshokLeyland, Honda Motorcycle, Bajaj Auto, Royal Enfield and TVS Motors. Tier-1 automotive component suppliers such as Marelli,Visteon, Brembo and Mindarika. Consumer durables/appliance manufacturers such as Whirlpool, Panasonic, Samsung, EurekaForbes, Godrej and Liebherr. Medical devices manufacturers such as Sensa Core. Sanitary ware manufacturers such as Geberit.

CUSTOMER BASE

ABOUT THE COMPANY• The principal raw materials and components used for manufacturing aesthetic products by the company are plastics, aluminium,

plastic polymers such as PVC (polyvinyl chloride), inks, chemicals and adhesives. Its total cost of raw materials, accounted for 39.4%of its revenue from operations in FY21.

• The annual production capacity of Bengaluru and Pune manufacturing facilities was 20.9 crore products and 2.9 crore products,respectively. During Q1 FY21, company and its subsidiary produced 2.1 crore and 0.4 crore products, respectively resulting incapacity utilization rates of 10.14% and 13.38% respectively.

Decals Consumer durables 3D lux badges Aluminium badges Dials IMLs/IMDs

Installed capacity (in millions) 134.8 22.16 19.87 15.53 12.93 3.32

Actual Production (in millions) 60.42 9.86 7.91 6.71 5.7 1.35

Installed capacity (in millions) Actual Production (in millions)

CAPACITY UTILISATION AT BENGALURU FACILITY (FY21)

SECTOR OUTLOOK • Aesthetics products are critical in creating brand value for original equipment manufacturers (OEMs) as the consumers give

preference to products that are aesthetically superior and they hold strong relevance for discretionary consumption products,such as automobiles and consumer durables. Key consumer discretionary products where decorative aesthetic components arewidely used are two-wheelers, passenger vehicles, three wheelers, commercial vehicles, tractors or farm equipment and manymore.

• As per CRISIL, demand for two-wheeler, passenger vehicle and consumer durables is expected to grow at a CAGR (compoundedannual growth rate) of 10% to 12% each in volume terms over FY20 to FY26 period. Demand for aesthetics is also expected togrow at a CAGR of approximately 20% over the same period.

DECORATIVE AESTHETIC DEMAND (FY21)DECORATIVE AESTHETIC MARKET IN INDIA

(₹ b

illio

n)

Source: SIAM and CRISIL Research

COMPETITIVE LANDSCAPE• Certain segments within the aesthetics industry, particularly decals, graphics and logos, are highly commoditized and have low

barriers to entry or exit, leading to a market with a certain degree of fragmentation.

• Many of its competitors are larger and have greater financial resources. Its competitors enjoy economic advantages as compared toSJS business, such as patents, existing underutilized capacity, lower labour costs, lower health care costs, lower tax rates and in somecases, export or raw materials subsidies.

It was established in 1987. It supply decals to meet the

requirements of automobile companies dealing with 2-

wheelers, 4-wheelers, commercial vehicles,

construction equipment, tractors, recreational

vehicles, lawn movers and power-sport vehicles.

PRS Permacel was established in 1950. Headquartered in Mumbai, it offers customer-specific

solutions in the chosen segments of Insulation, Identification, Aesthetic Enhancements, Brand

Building and Protection.

Unique Label private limited offers diverse

solutions in high quality screen printing.

It caters to automotive dials, graphic overlays,

Industrial stickers, lables, tags, 3D domed labels and

illuminated labels.

Kongovi started operations in 1974. It is

the premier manufacturer of chrome-plated

accessories for automotive OEMs around the world. It was the first

in company in India to provide Microcrack

chrome plating in 2013.

FINANCIALS OF KEY AESTHETICS INDUSTRY PLAYERS

Particulars Operating Income PAT margin(%)

Operating EBITDAmargin (%)

FY20 (₹ crore) CAGR FY14-FY20 FY20

Polyplastics Industries India private Limited 450 13.4% 4.9 12.2

Classic Stripes Private Limited 359 1.5% 11.8 28.9

PRS Permacel Private Limited 135 8.6% (1.50) 1.9

Monochem Graphics Private Limited 108 11% 28* 24.2

Kongovi Private Limited 97 9.8% 7 17.2

Galva Deco Parts Private Limited 107 23.6% (3.6) 22.7

*Includes non-operating income

MANAGEMENT AND SHAREHOLDING The promoters of the company are:

• Evergraph Holdings Pte. Limited (77.86%)

• K.A. Joseph (20.74%)

The company was formed as a partnership firm betweenSumathi Sivakumar, K.A. Joseph and V. Srinivasanin 1987 andwas converted to private limited company in 2005.

During September 2015, Evergraph Holdings Pte Ltd, asubsidiary of Singapore-based private equity firm EverstoneCapital, had acquired majority stake in SJS. Evergraph acquired26% stake owned by Serigraph Inc, US, an American specialtyprinting company and the remaining from the promoters of thecompany. The average cost of acquisition for Evergraph was ₹88.

Shareholding Pre IPO Post IPO

Promoters 98.60% 50.37%

Public 1.4% 49.63%

Total 100% 100%

Allocation of offer Share in Issue (₹ crore)

% of Issue

QIB 400 50%

NIB 120 15%

Retail 280 35%

Total 800 100%

Selling Shareholders Share in Issue % of OFS

Evergraph Holdings 710 88.8%

K.A. Joseph 90 11.2%

(₹ crore)

STATEMENT OF PROFIT AND LOSS

Particulars Data as on 31st March (₹ crore)

2019 2020 2021 Q1 FY22

Revenue From Operations 237.3 216.2 251.6 74.3

Other Income 3.5 5.1 3.5 1

Total Income (I) 240.8 221.3 255.1 75.3

Cost of raw materials consumed 94.8 84.5 99 32

Change in Inventory of finished goods 0.3 (2.1) (1.9) (1.1)

Employee Benefit Expenses 31.7 33 36 12

Finance Costs 1.6 1.5 0.8 0.7

Depreciation and Amortization Expense 9.7 12.8 14.8 5.1

Other Expenses 42.3 37.4 42.2 13.8

Total Expenses (II) 180.5 166.9 191 62.5

Profit Before Tax (III) = (I-II) 53 54.3 64.2 12.8

Total Tax Expense (IV) 15.4 13.1 16.4 3.3

Net Profit for the Period (III-IV) 37.3 41.1 47.7 9.6

STATEMENT OF ASSETS AND LIABILITIESParticulars Data as on 31st March (₹ crore)

2019 2020 2021 Q1 FY22

Property, plant and equipment 145.2 148.8 140.9 153.9

Capital work-in-progress 0.2 0.3 4.3 4.4

Right of use assets 3.6 3.6 7.7 20.1

Other Non-Current Assets 24.2 22.2 12.2 42.8

Inventories 24.7 27.8 33.2 45

Financial assets 58 80.7 119.6 78.5

Trade Receivables 45.8 44.8 59.7 61.3

Other Current Assets 2.3 4.1 6.0 10.1

Total Assets 304 332.3 383.6 416.1

Total Equity 238.6 279.7 315.2 319.8

Non-Current Liabilities 12.5 11.9 9.2 23.4

Current Financial Liabilities 48.9 35.8 51.5 59

Other Current Liabilities 4 4.9 7.7 13.9

Total Liabilities and Equity 304 332.3 383.6 416.1

STATEMENT OF CASH FLOW

Particulars Data as on 31st March (₹ crore)

2019 2020 2021 Q1 FY22

Net cash generated from / (used in) operating activities (A)

35.8 58.3 57.9 22.1

Net cash generated from / (used in) investing activities (B)

(44.4) (32.4) (37.5) (25.1)

Net cash generated from / (used in) financing activities (C)

8.9 (18.2) (9.6) (11.5)

Net increase / (decrease) in cash and cash equivalents (A+B+C)

0.3 7.7 10.9 (14.6)

KEY METRICS

Particulars Data as on 31st March (₹ crore)

2019 2020 2021 Q1 FY22

EBITDA Margin (%) 27.11 31.74 31.68 25.03

PAT Margin (%) 15.85 19.10 18.98 12.79

Return on Equity (%) 15.76 14.76 15.15 -

Return on Capital Employed (%) 28.28 26.44 31.63 -

RISK FACTORS

• Loss of any of its key customers or significant reduction in production and sales of products or demand of products fromsignificant customers may materially and adversely affect the business and financial performance.

• If the company is not able to successfully integrate and manage Exotech or other strategic alliances or acquisitions that it mayundertake in the future, it will expose them to business and financial risk.

• It operates in a highly competitive industry and increased competition may lead to a reduction in its revenues, reduced profitmargins or a loss of market share.

• If the company fails to anticipate, identify, understand and respond timely to evolving technological and market trends andpreferences to develop new products to meet its customers’ demands and to adapt to major changes and shifts in the aestheticsindustry may adversely affect their business.

• It depends significantly on customers in the automotive industry and consumer appliance industry and a decline in theirperformance, in India or globally, could adversely affect their business and profitability.

SWOT ANALYSIS

• The company has strong manufacturing capabilities supportedby an established supply chain and delivery mechanism.

• It is one of the major aesthetics solution provider with anextensive suite of premium products in a growing industry.

• The demand for 3D appliques, dials and chrome plates isincreasing rapidly which will help the company to grow itsrevenue.

StrengthsStrong

manufacturing capabilities

OpportunitiesStrong innovation

and product design

Consumers acceptability towards

aesthetic products

ThreatsIntense competition in aesthetic products

Rapid changing technology

Weakness

Tepid growth in the past few years

Disclaimer:

This document is published for learning purposes only and nothing contained herein shall beconstrued as a recommendation on any stock or sector.

IPO NOTE

Issue Opens

Issue closes

Finalization of basis of allotment

Initiation of refunds

Credit of shares to

depository

IPO Listing Date

1st

Nov10th

Nov

11th

Nov12th

Nov15th

Nov

3rd

Nov

TIMELINES

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DISCLOSURES