Syrma SGS Technology shares fell over 4% on Tuesday as investors focused on margin pressure, even though Motilal Oswal initiated a 'Buy' rating with a ₹2,100 target. While the company reported strong Q2 FY27 growth, rising component costs have raised concerns about profit sustainability. The management has raised its full-year revenue guidance to 40-45%.
Syrma SGS Technology's stock fell more than 4% on Tuesday. This decline occurred despite brokerage firm Motilal Oswal initiating coverage with a 'Buy' rating and setting a target price of ₹2,100. The market reaction indicates that investors are currently prioritizing profit margins over the company's strong revenue growth.
In its financial results for the second quarter of the 2027 fiscal year, Syrma SGS reported a significant increase in business activity. Revenue grew by 73% year-on-year to reach ₹1,999.5 crore, while net profit rose by 87%. The company also holds a substantial order book of ₹74 billion, which signals continued demand for its electronic manufacturing services.
However, the company's profitability has come under pressure. The EBITDA margin, which shows how much profit a company makes from its core operations before other expenses, contracted by 34 basis points to 9.7%. The company explained that this dip was caused by rising component costs and ongoing supply chain difficulties. Since the electronics manufacturing business often involves thin margins, even small increases in raw material or logistics costs can significantly impact the bottom line, which appears to be why investors reacted cautiously.
To signal confidence in its future performance, the company's management has raised its revenue growth guidance for the full 2027 fiscal year to between 40% and 45%. Motilal Oswal's research suggests a strong long-term outlook, projecting a high compound annual growth rate for revenue and profits through fiscal year 2028. The firm's price target of ₹2,100 is based on a valuation of 49 times the projected earnings per share for fiscal year 2028.
For investors, the key challenge remains the high valuation at which the stock trades. When a stock is valued at nearly 50 times its future earnings, there is little room for error. If the company cannot manage its component costs effectively or if supply chain problems persist, profit growth may not meet market expectations. The main things for investors to watch in the coming quarters will be the company’s ability to recover its profit margins and the actual execution of its ₹74 billion order book.