I’m not able to understand why there EBITDA margins for steel business is not improving despite massive increase in ebitda/MT
There is substantial increase in value added product but the ebitda margins are not improving.
I have calculated volume and absolute ebitda contribution from different pipe types
Yes, absolute EBITDA/MT has increased over the last year but at the same time there is significant increase in raw material costs (significant increase in price of steel) thereby impacting gross and ebitda margins. This increased ebitda per MT is the factor of improving product mix and increased steel prices which they have been able to pass on with a quarter lag (as there has been margin improvement in steel pipe division in this quarter over the last quarter). Now since commodity prices have stablized, i think we can see further improved margins from here on . I think the number we need to track here is improving volume share of API pipes as it is the highest margin segment. They have recenty bagged around 600cr order from IOCL for api and order book being 1000cr, plus DFT facility commissioning, we can see margin improvement in steel pipe divison.
Hey everyone!
I invested in Surya Roshni when I was fairly new to the game in India (August last year), with a cost basis in the high 600s.
To me, investing in this company was a no brainer even at those levels for the following reasons:
• A sales multiple less than 1, and what I felt was a larger than justified valuation differential when compared to APL Apollo Tubes
• Significant tailwind opportunities from government programs like Har Ghar Nal Se Jal, and the expansion of gas transmission/distribution pipelines in the country
• A continuing increase in steel consumption per capita in India, especially when you consider that China’s consumption is an order of magnitude higher (64.2 kg in India versus 691.3 kg in China in 2020)
• What I saw as an “obvious” demerger opportunity, where the non-steel business could be spun off. I didn’t see any synergies between the two divisions of the company, and felt that both divisions ought to have a focused management team and wholly independent value creation plans. I felt that the lighting and consumer durables division was being neglected, and that huge opportunities in the FMEG space were not being taken advantage of.
• Lowering levels of net debt
Sadly, the stock has been the worst performer in my portfolio. I could really use a second opinion, so as to determine if there’s some hidden value in this company that the market has not realized yet, or if there are valid reasons why the stock is trading at less than half of its all time high.
Regarding the demerger bit that I mentioned earlier, I took note of a very interesting comment from the management when they shared FY22 results: “The company’s Steel Pipes & Strips and Lighting & Consumer Durables businesses are now independent and self-sustaining in terms of profitability, debt servicing and investment for growth, resulting into constant growth in revenue and profitability, coupled with upgrades in credit ratings.”
Looking forward to your thoughts on Surya Roshni 
Stock price peaked out in Oct’21 and kept on falling in line with the market even after 3 decent quarters by the company ( Q2 FY 22, Q3 FY 22, and Q4 FY22) with Q4 FY 22 being the best quarter in the company’s history. The opportunity landscape for the company is still intact in form of various Govt. schemes such as Nal Se Jal, CGD, etc. Company has also reduced the debt considerably with another ~100 Cr reduction in Q1 FY23 and is on a path to becoming net debt free which will positively impact PAT. I had heard the management talking about becoming net debt free in near future in one of the earlier con calls when the company used to conduct con calls.
The most interesting segment for the company API 3LPE coated pipes seems to be gaining traction with increasing mix in overall product portfolio and a recent big order win from IOCL. Also, the order book is steady at ~1000 Cr for the last 3 quarters which I believe can increase in the times to come once they start executing and delivering the orders. With the DFT facility also coming on stream and starting running from this quarter onwards I believe will positively impact the margins.
Lightening division is a bit of concern as every quarter it has one issue or other and even in Q1 FY23 got impacted by higher raw material and natural gas prices. But one may hope of a demerger of the Steel Pipes and Lightning division can unlock value. Even management did not deny it when asked about a potential De-merger in one of the earlier con calls.
The entire industry was impacted in this quarter mainly due to channel de-stocking due to falling steel prices. Volumes are down for all the players across the industry For Ex-APL Apollo’s volumes are down almost 23% QoQ, Rama Pipes volumes are down almost 17% QoQ, and Surya’s volumes are down almost 30% QoQ. Also, EBITDA margins of all the Steel pipe players got significantly impacted this quarter. APL Apollo’s management indicated in the con call that this phenomenon may not last for more than 6-8 weeks and will ease from next quarter onwards, so I think we may see margin improvements from next quarter onwards.
With dirt cheap valuations, the potential for growth, and on the right path to becoming debt free company, I am holding my position in Surya as of now. Will wait and watch for a couple of more quarters for improvements.
Disc: Invested, Biased
Thank you for your well thought out response @NewInvestor
This was the bit that I found perplexing, with the company reporting better results, achieving significant revenue milestones, but the stock price falling.
I agree with this as well. If you simply refer to the per capita consumption of steel in China versus India that I mentioned earlier, there is a huge upside opportunity.
So to summarize, I intend to hold Surya Roshni for at least another quarter (with a stop loss in place) for the following reasons:
Additionally, the company released an Annual Report for the last FY, and it’s a much better drafted document when compared to the FY21 report. Though anecdotal, when the investor relations output of a company gets measurably better (Annual Reports, Press Releases, etc.), it’s a leading indicator of the potential of a big jump in the stock price (since better messaging attracts more investors). And Surya Roshni did recently jump 20% in a single day.
Let’s see how the next few months go.
5_6217437139211126841.pdf (347.7 KB)
SRL wins additional orders worth 147 crores.
Out of this 123 crore worth to be delivered in next 9 months
PPT JAN 23.pdf (6.5 MB)
SYR_RR_19012023_Retail-19-January-2023-1131016868 idbi cap buy tgt 760.pdf (998.3 KB)
co seems an interesting play with low valn, leader in API n galvanised pipe segment n leading exporter, constantly reducing debt n increasing ROCE now to 24% & Ebidta to 6700 Rs per ton in last qtr, opp size increasing due to jal se nal scheme n increasing gas n oil prices leading to better margins.
Risks= MD is a BJP MP, no demerger taking place since long n inspite of promises
CONCALL TRANSCRIPT JAN 23.pdf (550.9 KB)
RM volatility.
How is promoter quality n track record for those who hold it for long ?
disc invested with a tracking qty
Shares of Surya Roshni hit a 14-month high of Rs 711.35, as they surged 10 per cent on the BSE in Friday’s intra-day trade in an otherwise subdued market. At 11:54 AM; the stock was quoting 7 per cent higher at Rs 693, as compared to 0.28 per cent decline in the S&P BSE Sensex.
The stock now trades at its highest level since October 2021. It had hit a record high of Rs 868 on October 4, 2021. The company is the largest exporter of ERW pipes, largest producer of ERW GI pipes, and one of the largest lighting companies in India.
In past six months, the stock has more-than-doubled or zoomed 101 per cent, on improved financial performance. In comparison, the S&P BSE Sensex has gained 1.5 per cent during the same period.
For October-December quarter (Q3FY23), Surya Roshni’s consolidated net profit more-than-doubled to Rs 90 crore, on strong operational performance. It had posted PAT of Rs 40 crore in Q3FY22. Revenue remained flat at Rs 2,021 crore as against Rs 2,030 crore in the previous year quarter. Earnings before interest, tax, depreciation, and amortisation (Ebitda) jumped 65 per cent year-on-year (YoY) at Rs 164 crore.
The company reported a consistent growth momentum YoY on a year-to-date (YTD) basis, driven by value-added products across the board. The substantial improvement in gross margins was led by stable input costs.
For nine months (April to December), the company’s net profit jumped 47 per cent YoY at Rs 180 crore. Ebitda rose 24 per cent YoY at Rs 366 crore and revenue grew 8 per cent YoY at Rs 5,845 crore.
The company reduced debt by Rs 71 crore in 9MFY23. Similarly, the finance cost also reduced by 28 per cent in 9MFY23 inspite of the increasing interest rate trend. Debt equity reduced to 0.30x as on December 31, 2022 as compared to 0.48x as on December 31, 2021. The company is aiming to be a debt free entity by FY24.
The management said the company continued to report a healthy set of numbers along with improvement on operational parameters on a YTD basis. The financial performance was further aided by stable input costs, festive season and continuous improvement in the product mix.
The company remains optimistic about the prospects for all its businesses. In the following years, the growth trajectory for all segments is anticipated to remain solid, driven by higher utilization of existing capacities, higher share of value-added products along with improvement in financial parameters, the management said.
Meanwhile, the company is expanding its Hindupur plant in Andhra Pradesh by 72ktpa, at a capex of Rs 75 crore. It is also looking to backward integrate to produce galvanized pipes and CR coils/pipes.
Stock of this iron & steel products company has zoomed 101% in 6 months | Business Standard News (business-standard.com)
Surya Roshni’s focus towards improving return ratios, cash generation, incurring minimal capex makes it a strong re-rating candidate, according to brokerages.
Analysts at IDBI Capital maintain a ‘Buy’ rating on Surya Roshni with a target price of Rs 760 per share. The brokerage firm raised its Ebitda estimates for FY23/FY24 by 5 per cent/18 per cent, factoring in improved product mix.
Q4-FY 23 INVESTOR PRESENTATION.
highest revenue of almost 8000 crs for full year. HIghest ever EBITDA per ton and good debt reduction. Highest quartery profit for the company.
Surya Roshni Business Summary Q4FY23:
Surya Roshni Limited reported a record top-line and profitability for FY23, with revenue reaching nearly INR 8,000 crores. The company has focused on innovation, efficiency, technology, talent, and infrastructure to stay ahead of the curve. It has maintained a lean and healthy balance sheet and aims for sustainable growth with a comfortable working capital cycle. The company has repaid all long-term borrowings and plans to become debt-free within the next one-and-a-half to two years.
In the lighting and consumer durable segment, there has been revenue growth of 7% in Q4 and 16% year-on-year. LED lighting and professional lighting have shown healthy growth rates, with professional lighting expected to benefit from improvements in the capex cycle. The company is investing in visibility enhancement, advertisement, and strengthening its distribution network to support the growth of consumer durables.
In the steel pipe and strip segment, the company faced a decline in global steel prices during the quarter but achieved its highest-ever realization per ton. It exceeded its EBITDA guidance and reported robust growth in profitability. The company has reduced debt, improved its debt-equity ratio, and maintained a positive cash conversion cycle.
The company remains confident about future opportunities and continues to focus on geographical expansion, innovation, efficiency enhancement, infrastructure, and capital to provide the best solutions to customers.
Tailwinds/Positives:
Headwinds:
When asked on the potential demerger- The CEO mentioned that it is the golden jubilee year for Surya Roshni and that the company has aspirations for growth. Serious discussions have taken place regarding the demerger, but the CEO cannot communicate any details until it receives board approval.
When asked regarding the sustainability of the margins, particularly in the API spiral and black pipe segments, the CEO explains that several factors have contributed to the improvement in EBITDA margins, **including the start of API exports to America, reduced shipping costs, and overall market realization improvement in the steel pipe segment.**The CEO believes these improvements are sustainable and expects a growth rate of 12-15% CAGR over the next 2-3 years. The company aims to eliminate working capital debt within the next 1.5 years. When asked about volume growth, the CEO states that the target for the next year is around 900,000 tons, representing a 13-13.5% growth rate. The focus is on improving EBITDA margins rather than solely increasing volumes. The CEO acknowledges the slower volume growth compared to competitors and attributes it to a decline in exports and API supply in India. However, the CEO expects improvements in these areas and anticipates better growth in export and API segments, while maintaining a minimum volume growth of 12-14% for the next year.
Lighting Division
The lighting division has not performed well in the past three years. however there is still growth potential in the market, with a significant share held by the unorganized sector. The company aims to capture a larger market share and improve its EBITDA margin by focusing on the LED segment, where market maturity and price stability are observed. There is a target of achieving a 10% EBITDA margin and ₹160 crores of EBITDA. The implementation of ATL (Above the Line) and BTL (Below the Line) strategies, along with efforts to expand the product portfolio, will contribute to this growth.
Through the Production Linked Incentive (PLI) scheme, the company plans to invest ₹25 crores over five years. These investments will drive innovation and contribute to the development of smart lighting solutions.
Regarding the vision for the lighting and electrical business, the CEO revises the target to ₹3,250 crores in sales within the next three years, with an EBITDA of ₹450 crores. The company plans to introduce a new product and strengthen its sales team to improve efficiency and expand into new markets. Despite the setbacks caused by the COVID-19 pandemic and industry cycles, the CEO remains optimistic about achieving the revised sales target by 2026.
Overall, the key opportunities lie in capturing market share from the unorganized sector, leveraging market maturity and price stability in the LED segment, and capitalizing on the PLI scheme for innovation. Steps taken to improve performance include implementing ATL and BTL strategies, expanding the product portfolio, investing in smart lighting solutions, and strengthening the sales team.
Steel pipe and strips segment performance has been flat but EBITDA has risen 70% which is commendable.
Order book healthy > 500Cr book from oil and has sector + export.
Capex on track
Lightning and consumer durables rev has grown 11.5% also margin improved here to 8.8% again due to product mix + backward integrations. festive season should be good as per management. Professional lightning grew 27% again commendable.
Every one was complaining about Lighting division this time around this has done really well.
Coz of value added products the EBITDA has been good in steel pipes.
New capex of 45 Cr ( lets look out for this one too )
Surya Roshni Q1 concall highlights -
Financial outcomes (YoY) -
Sales - 1875 vs 1839 cr
EBITDA - 116 vs 70 cr (margins at 6 vs 4 pc)
PAT - 59 vs 22 cr
EBITDA, PAT growth due better volumes, better product mix
Reduced debt by 171 cr in Q1 !!!
Debt/Equity ratio at 0.12 pc now
Intend to be debt free by next FY - big positive
FMEG segment performance -
Sales- 374 vs 335 cr
EBITDA - 33 vs 22 cr
PBT - 26 vs 14 cr
Professional lighting grew 27 pc. B2C lighting saw modest growth
Increased advertisements, marketing spends in FMEG business
Expecting further margin improvement in margins in FMEG business going fwd
Steel Pipes and Strips segment-
Sales- 1503 vs 1504 cr (due fall in RM costs)
EBITDA- 83 vs 50 cr
EBITDA/MT- 4388 vs 3103 !!!
PBT - 55 vs 16 cr
Volumes grew 20pc !!!
Domestic, export volumes up 27, 7 pc
Expect H2 to be much stronger due execution of infra projects after the monsoons are over
Confident to grow this segment by 10-12 pc for full FY 24
Steel Pipes export business was also adversely impacted by cyclones in both West and East India in Q1
EBITDA/Ton expectations for full FY to be > LY(which was 6500 LY) with high probability
Q2 EBITDA / Ton expected to be substantially better
LY’s EBITDA/Ton for Q4 was abnormally high due higher steel prices
Aiming to grow lighting division by 20 pc this FY
Board has approved a stock split from FV of Rs10 to Rs5
Company is long term debt free. Current debt is only for Working capital requirements
Surya Lighting is weak in Tier-1,2 cities vs peers. Obtains only 17-18pc of lighting revenues from these cities vs Industry avg of 35pc
Taking concrete actions to correct this situation
Surya’s mkt share in exports is increasing continuously
Disc: hold a tracking position
I just heard the conf call -
My key concerns -
The company management lacks ambition - CFO BB Singal said - “it will take 50 years for Surya to achieve distribution reach to 3lacs+ electrical outlets”. In an Economy like India where infra growth is in double digits, Surya aims to grow at 15-20%.
The company management lacks quality - If you look at the CFO, he has spent all his profession life as a CS in Surya, and now he is a CFO for last 1.3 years. A professionally sharp and a business savvy CFO might bring a different kind of drive. The CEO Raju Bista, is a Lok sabha MP from Darjeeling. Being an MP/politician is not a part time job, nor is being the CEO of a listed company. With all due respect, Mr. Bista was just reading the presentation they uploaded. He did not even answer questions, it was all the CFO. Even the board is fully of family loyalists. I do not understand this weak management setup
Disclaimer - I have a miniscule starter-position in one of my portfolios, which I certainly do not wish to add to.
Hi , I think there has been some misinterpretation from your end. In the concall he mentioned the Brand Surya has developed over 50 years and the lighting business has been there for 35 years. Currently there are around 3.5 lac Electrical outlets. And Surya is expecting 20% growth in the lighting business
He said “50 saal lage hain” not “50 saal lagenge”
The conference call transcript for Q1FY24 is out, I will summarize it:
Pipes & Tubes:
In Q1FY24, lower steel prices and economic headwinds led to flat growth yoy. But, due to a better product mix and value-added products, we got better margins. Q4FY23 was a one-off exceptional on realizations and we should not compare with that.
Volume grew 20%, with domestic +27% and Export +6%. Due to the cyclone, lost 15 days of production. API Export which is a high-margin product got impacted and dispatch was slow. Expect Q2FY24 to be better and H2FY24 even better as major projects pick-up post monsoon.
For DFT Plant we will do 30k MT for FY24 but only with 2k EBITDA/MT. We are finding the right buyers as this is a large-size product and stocking is not possible. Once, we set the tone, EBITDA will improve significantly.
Overall Utilization levels are 72% for this quarter. On average for a year, the utilization levels are 78-80%.
OB is currently at 500Cr deliverable in 1-2 months. Got steady inflow in CGD, O&G, and API Pipe Business.
Approved CAPEX of 45cr. 40Cr for CR Steel to improve surface finish quality and 5Cr for PVC Pipes. Anjar and Hindupur’s CAPEX are ongoing. With these CAPEX, volume guidance remains at 12%. We will remain at EBITDA/MT of 6500 levels (near to FY23 figure) or slightly more.
Lighting & Consumer Durable:
Favourable environment led to higher growth. 27% growth in professional lights and it will grow further due to good CAPEX cycle,
EBITDA margin at 8% for Light where earlier it was 6.4%. This improvement is due to backward integration from the PLI scheme, better product mix, and premiumization. We expect margins to improve further.
Introduced a few more products in the appliances category. Plan to add 5 new products a month i.e. 60 new products a year. We launched a few new products in anticipation of a good upcoming festival season.
Advertisement spend - plan to double in FY24. On an annual basis 20% growth in light business with better margin. Also, efforts are being done to strengthen interactions with dealers & distributors, and electricians through a series of campaigns. We have taken abroad about 400 dealers/distributors for a big launch program.
Others:
Reduced debt by 170 Cr. And intend to be debt free by next FY. There is 230 cr. Of debt but all WC only, no long-term debt. All CAPEX will be done with internal accrual going ahead.
Committee is made already for de-merger. They have completed their de-merger work also. But the board has not taken up the agenda yet. Instead, they took up a split and approved from FV of 10 to FV of 5. So, it is on board.
We did ROCE of 15.8% v/s 8.2% yoy as on Q1, ROE improved to 12.5% from 5.7%. All this is due to a better product mix i.e. premium and high-margin products.
My View:
The results are decent. Volume growth was visible in both Pipes & Tubes +20% and Light business +12%. Also, Q2 will be better and H2 will be even better as per the management. The guidance of 12% volume growth in Pipes & Tubes along with 20% growth in the lights business for FY24 is also pretty decent.
If you are waiting for the de-merger to encore value you might well remain invested as there is nothing wrong with this company that will affect the value in the medium-term. I remain invested given the fact that relative valuations are cheap i.e. 11x TTM PE v/s other pure-play steel pipes companies like Ratnamani (32x), APL Apollo (60x), etc. Yes, the business specifics are different but the gap in valuation is too huge which definitely gives a margin of safety and additional benefits of surprises going ahead.
Disclosure: Invested.
Snippets from Annual report 2023
1)DFT Plant — Large-dia section pipe facility with Direct Forming Technology (DFT) at Gwalior, adding a capacity of 36,000 MTPA of new product categories.
2)GP and CR Coils/Pipe Facility — Outlay of ₹ 75 crore at Hindupur, Andhra Pradesh to manufacture GP and CR coils/pipe. The purpose of this project is to ensure the availability of GP and CR coils at a cost lower than the market price, catering to the South Indian market.
3)Large-dia Pipe (18’’ to 24’’) — New ERW Pipe Mill to meet the increasing demand for larger diameter pipes, ranging from 18” to 24”, with an investment of ₹ 75 crore. Cater to the oil and Gas markets and significant demand generated by numerous irrigation and water distribution projects initiated by the Government of India.
Others:
