ValuePickr Forum

Surya roshni ltd

SURYA ROSHNI LTD.

Cmp 178 mcap 974 crores. Promoter holding 63%. 23.67% pledged.

Company is present in interesting business segments and products are quite visible in the markets and I could not find a thread on the company and hence decided to start its thread to get feedback from other boarders.

Company has two main business divisions

Pipes and lighting and consumer durables.

Pipes contributed nearly 75% of total revenues whereas lighting and consumer durables contributed 25% of revenues in FY 19.

PIPES

In pipes division company makes GI Pipes, ERW black, section pipes, API and spiral pipes and cold rolled strips.

Manufacturing locations are at Bahadurgarh in Haryana, Malanpur in MP, Hindupur in AP and Anjar in Kutch.

GI Pipes contribute 35% to pipes revenues while 20% each is from structural pipes and black round pipes and rest consists of 14% from CR sheets and 11% from API and spiral pipes.

Company exports its products to more than 50 countries.

H1 FY 20 revenues from pipes division was at 2109 crores (vs 1994 crores for H1 fy 19) and EBITDA for the division was at 117 crores (vs 100 crores for H1 fy 19).

LIGHTING AND CONSUMER DURABLES

The products of this division consist of LED lighting (49% of segment revenues), conventional lighting (33%) and consumer durables (18%)

Company is India’s second largest lighting company.

Company entered into fans business in 2014 and kitchen appliances in 2015.

It provides electrical heaters, room heaters, dry irons, steam irons, immersion heaters. It recently launched glass cooktop.

H1 FY 20 RESULTS

H1 FY 20 revenues for the segment was at 628 crores (vs 672 crores for H1 fy 19) and EBIDTA was at 52 crores (vs 60 crores for H1 FY 19)

COMBINED H1 FY 20 RESULTS

Company as a whole (all segments combined) reported revenues of 2734 crores (vs 2665 crores for H1 FY 19) and EBIDTA of 168 crores (vs 160 crores for H1 FY 19) H1 FY 20 EPS (not annualised) was at 7.66 per share. Second half is usually better for the company historically.

Company reduced debt by 53 crores in H1 FY 20.

The order book for API and 3LPE coated segment of coated pipes stood at 480 crores largely catering to oil and gas pipelines, CGD and water pipelines (according to press release of q2 fy 20 results) and the Anjar facility has been booked for the entire financial year.

WHILE APL APOLLO WAS AFFECTED BY INVENTORY LOSSES, THE HIGHER MARGIN API AND 3LPE COATED PIPES SEGMENT HELPED THE COMPANY OVERCOME THESE INVENTORY LOSSES.

INVESTMENT THEME.

Company claims to be a beneficiary of Jal se Nal scheme and the govt thrust on city gas distribution growth.

Company has given a strategy of its thrust and priorities in its Q2 FY 20 presentation. This includes constant thrust on value added products and quality and debt reduction.

Commencement of 3LPE coating pipes has improved the margin outlook for the company as its products attract higher margins.

Increased spend on advertisement and brand building. They sponsor the Rajasthan royals team as one of the sponsors.

Move up the value chain in LED steet lights, batten, downlighters, other LED lightings.

Better working capital management.

IF ALL THESE ABOVE MEASURES RESULT IN HIGHER MARGINS AND IMPROVING ROE/ROCE, THEN COMPANY CAN BE A CANDIDATE FOR RE RATING.

NEGATIVES

High debt remains a big risk to the company.

Company has high receivables on its balance sheet. Part of it is due to supply of lighting products to govt entities, as well as exports.

Part of promoter holding is pledged.

Return ratios are sub par at 13%.

Disclosure: Token position taken to monitor the company. (My view is with change in market sentiments, companies which have reported steady numbers and have good prospects and are available at attractive valuations need to be watched.)

This is not an investment advice and anyone contemplating investment should do their own diligence.

20 Likes

Both the segments of the company have never fired together. In 2010-2011, they had started their capex journey funded by warrant issue and pref issue to promoters.now the management is being run by professional managing director, who recently got elected as an mp.the company management is quite close to the government in power.the company has been contemplating demerging the two divisions for past 10years.

Hi @hitesh2710 sir, The valuations look attractive. Results are out today. What’s your take on the results?

@Sunil_S

Surya roshni overall results have been steady. The really interesting part is the performance and margin improvement in the pipes segment. Segmental profits has grown from 38 to 54 in q3 fy 19 to q3 fy 20. Lighting and consumer durable segment has been a laggard and depends a lot on govt orders for LED lighting projects. So that will be lumpy till the time the B2C business scales up big time. That time seems some time away.

The merit in surya roshni investment thesis is the valuation differential between APL Apollo and Surya Roshni in what is largely a consolidated industry. The quality of both companies has been different and APL is far superior quality wise and financial parameter wise but I felt there was some valuation mismatch to be exploited and hence had taken a token position to see how the thesis worked. Lets see how it pans out.

3 Likes