Shares of SJS Enterprises, an aesthetics component company, shot up 2 percent on August 23, extending the previous day’s 4 percent gain, after Evergraph Holdings, a promoter group entity, sold a 29.5 percent stake in the company.
“The block was doing the rounds for some time now and they finally found buyers,” a dealer told Moneycontrol. “This removes a key overhang from the stock as the private equity fund would have exited some day or the other.”
ICICI Prudential Mutual Fund, Aditya Birla Sun Life MF and Sundaram MF were among those that picked up the stake held by Evergraph, a subsidiary of PE firm Everstone Capital.
Analysts and the management said SJS Enterprises is uniquely positioned to compound its topline by 25 percent between FY23 and FY26.
Everstone deal
The indicated floor price of the block deal was Rs 580 per share, marking a 6.5 times return on Evergraph's average cost of acquisition of Rs 88.15. The shares closed at Rs 641.30 on the BSE on August 22.
SJS Enterprises had noted in its initial public offering prospectus of 2021 that Evergraph lacked significant experience in the decorative aesthetics industry.
“Evergraph entered into an arrangement with Sanders Consulting, a company jointly owned by our Executive Director and CEO, Sanjay Thapar, pursuant to which Evergraph agreed to make certain payments to Sanders Consulting in exchange for non-binding strategic and operational advice," the company said in the red herring prospectus dated October 22, 2021.
The PE fund's exit was evident, more so after the stock rallied over 60 percent from a low on March 20. To cash in on the gains, ace investor Ashish Kacholia too pared some of his stake in the company on August 18. Kacholia offloaded 180,000 of the 1.38 million shares held at the end of June.
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What does SJS do?
SJS Enterprises, based in Bengaluru, is among companies that operate in the decorative aesthetics industry, designing and making logos, decals, aluminium badges, chrome-plated parts and overlays for passenger vehicles, two-wheelers and consumer durables.
The overall aesthetics component segment is growing faster than their underlying industries, according to analysts at JM Financial. The aesthetics component industry generated Rs 1,990 crore in revenue in FY21. By FY26, it is expected to reach Rs 4,920 crore, growing at a 20 percent CAGR.
The company has over 6,700 stock keeping units, manufactured and designed in-house. It’s longstanding customers include Bajaj Auto, TVS Motor, Mahindra & Mahindra, Tata Motors, Honda Cars, Whirlpool, Samsung, and Panasonic.
Focus on acquisitions
On August 16, SJS Enterprises said it acquired Suryaurja Two, a solar power generation company, for Rs 20 lakh. SJS Enterprises will now become a consumer for up to 2 MW of the unit’s solar power.
“Inorganic growth remains a core focus for SJS," the management told analysts after its Q1 results.
The acquisition of Exotech Plastics in 2021 and Walter Pack Automotive Products India in April this year helped the company go deeper into the passenger vehicle and consumer appliance segments, reducing reliance on the two-wheeler industry. Both companies offered strong synergies for cross-selling opportunities and achieving cost savings, Nuvama Professional Client Group said in a note dated August 1.
Over the past three years, the company compounded its topline by 11 percent. On the back of the acquisitions, it aims to compound its revenue by 20-25 percent over FY23-FY26. The company’s consolidated revenue rose 17 percent to Rs 433 crore in FY23.
Growth prospects
The shift towards sports utility vehicles and premium variants in autos and an increasing focus among consumer durable companies to position themselves as premium brands bode well for SJS Enterprises' growth, analysts said.
"EVs (electric vehicles) are expected to be increasingly focused on product design and branding as a differentiating factor. These trends are expected to drive higher content for SJS," JM Financial said.
JM Financial and Nuvama said the company's earnings per share can compound over 30 percent over the next two years.
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