Serma SGS Technology falls 16% after Q4 results; ICICI Securities cuts target price

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Shares of Sirma SGS Technology fell 16 per cent on May 13 after the company reported weak results for the quarter ending March 2024. Its net profit rose six per cent year-on-year to Rs 452.14 crore and revenue from operations rose 67 per cent to Rs 1,134.09 crore. Q4FY24.

However, the company's EBITDA margin declined by 222bps YoY due to higher commodity costs and changes in revenue mix.

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According to ICICI Securities, the decline in EBITDA margin is due to focus on higher volume-based automotive and consumer business with relatively lower margins and higher input prices.

The brokerage said Sirma SGS Tech's profitability during the January-March quarter was impacted due to higher depreciation and finance costs.

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“We believe a revival in the healthcare sector and operating leverage gains could lead to margin improvement in FY2025/26,” it said.

Strong revenue growth in Q4 was driven by revenue shift of approximately Rs 100 crore from December 2023 to January 2024 and higher demand momentum across sectors. The company's healthcare segment recorded a strong YoY growth of 147.6 per cent on a favorable basis, indicating early signs of revival.

Higher revenues in the healthcare segment are likely to be margin enhancing, ICICI Securities said.

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The cumulative contribution of volume-based segments of automotive and consumer has increased significantly over the last two years. This is likely to impact margins, the brokerage said. Meanwhile, the revenue contribution of the export segment stood at 23 per cent and 26 per cent in Q4 and FY24 respectively.

“We believe Sirma can continue its strong revenue growth momentum over the next two years due to strong order book and capacity expansion,” ICICI Securities said.

However, analysts have cut their earnings estimates considering lower profitability. They remained constructive on Sirma and maintained 'buy' rating on the stock, with a revised DCF-based target price of Rs 600, down from Rs 675 earlier.

Read this also Advanced Enzymes falls 6% as net profit declines in Q4

At 2:15 pm, shares of Syrma SGS Technology were trading at Rs 397.85, down 15.8 per cent on the National Stock Exchange (NSE). Over the past year, the stock has gained nearly 28 per cent, while the benchmark Nifty 50 has seen a 20 per cent rise.

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