Surya roshni ltd

While results might appear good, there was a mixed-bagged commentary on Concall. The lights segment outlook was excellent but slight disappointment on Pipes business. Here is my analysis:

For Pipes:

  1. Revenue was flat due to a drop in realization levels. And H2 as usual will see greater recovery. However, disappointed due to the change in guidance of EBITDA/MT from 6,500 to around 5,500-6,000 for the whole year.

  2. Three CAPEX underway for the Pipes segment. 1) Upgradation of old Bahadurgarh Plant with 40cr. the investment will take 9 months, 2) Backward Integration at Hindupur Plant with 75cr. investment to take 1 year but got delayed due to land acquisition issues and 3) New Water Pipe Project in Bhuj with 75cr. investment to take 1 year. “All these plants to increasing profitability”.

  3. Hence, lower guidance on EBITDA/MT along with all key CAPEX getting operational only in FY25 would mean the Pipes segment will not see significant improvement in FY24.

For Lights:

  1. Despite Price Erosion due to competition there is an increase in EBITDA% from 7-8% to 9%. The major reason cited was that PLI-Led backward integration reduced cost and the change in product mix to higher valued products.
  2. Revenue was flat for one major reason i.e. change in the festive season timing. Last year it came in Q2 and this year it is in Q3. Hence, H2 would be significantly higher for lights. On top, with higher revenue, the guidance is even better. In H2 margins would range 10-11% as per management.

Hence, factoring in both segments the revenue might have only a slight growth for FY24 but there is good growth in EBITDA and PAT figures especially due to the lights business. At this stage, investors are waiting only for de-merger as major value creation lies in separating the lights business which is a very richly valued industry.

The announcement of a de-merger could be a great value re-rating trigger.

Disc: Invested.
Regards,
Mukul Jain

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I am invested in this stock for few years now, still waiting for demerger news.

Q2FY2024 Highlights:

  1. Lighting & Consumer Division: Muted 2% growth yoy inspite of bullish commentary in Q2 regarding shift of festival from Q2 to Q3. Overall consumer demand remained muted due to slow growth in the lighting business. While demand of premium segment was good. EBIDTA expansion on the back of incentive from PLI and better product mix. Lighting Division is completely debt free

  2. Steel and Pipes: Overall degrowth in the volume. Spiral pipes has seen 30% degrowth druing the quarter. ERW pipes volume growth supported the EBIDTA/ton during the quarter. Pending order of 600cr from O&G and export. Export growth of 25% during the quarter.

  3. EBIDTA/ton: 6100+ for the quarter supported by ERW and export. Export EBIDTA/ton is 9000-10000. Target to increase export from current<20% to 25%.

  4. Future Guidance : FY24 revenue 7800-8000 cr and FY25 revenue 9500. Steel volume growth 15% and lighting growth by 15%. Sustainable ebdita/ton will be 5500-6000. Lighting Division EBIDTA expected to grow at 20% in FY25.

  5. Future Gowth Drivers: Company is working on ~20% expansion in existing capacity. New project in western india with capex of 250-300Cr. Announcement after next board meeting.

  6. Debt: Company will be Debt free by FY24 end one year ahead of the target set by the company

  7. Demerger: Board will think abt it at appropriate time.

Nothing as such in the results and commentary which justifies yesterday’s price action. Two misses are no timeline for the demerger and no dividend. Street might be expecting from big announcement on this as it was said earlier due to golden Jubilee year of the company. Management is conservative and there first target is to make company debt free

Second might be muted results in lighting and consumer segment. In last concall it was told that a lot of revenue is shifted to Q3 due to late festive season.

Anyone tracking might update their views.

Disc: Invested

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Thanks for the input @tarun2586 . Been tracking this co., for few quarters and yet to find conviction on business. Few notes i have after listening to this concall was as follows, appreciate if someone who tracks/follows to guide please.

  1. Is there any particular reason why the company is not been under coverage of any MF’s, Institutions or HNI’s? The concall ended almost in 50 mins, with very few fund houses joining. The co., is part of Motilal 250 Index fund and seeing gradual holding increase since few quarters.
  2. Why the co., is trading discount to its peers? Be it steel pipe & strips or FMEG segment. Is it because of the diversified business segments it has and market discounting?
  3. Any further inputs on the MD (Raju Bista, MP) and his involvement in business? Does his political connection has any significance and risk in business? How long he has been in the company, and is he connected with the promoters or an employee only?

Discl: Holding small tracking position.

LED segment has been a downer given consistent price erosion in the market. It’s something that both Havells and Eveready management have acknowledged in their concalls as their LED revenues have been flat (mainly due to mainly lower pricing- volume growth has been good though). IKIO lighting, another player in lighting space, also reported a flat quarter.

The same goes for consumer durable segment with all the other players talking about slow consumption growth.

So to me no surprises in lighting and ECD segments.

The only surprise was degrowth in their pipe business despite fair amount of tailwind that sector is enjoying.


company is gaining market share while there is slowdown in this sector and peers like Bajaj electrical, Havells India, Polycab India and Crompton have de-grown during same peroid and Orient electric have performed well but not better than Surya Roshni

The overall market of listed brands in Lighting Industry has gone down by 2.3%
in 9 Months of FY24.
And the market of listed manufacturers in EMS business has fallen by 15% and
there is no pull in the market.

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Surya Roshni -

Q3 FY 24 results and concall highlights -

Sales - 1938 vs 2021 cr
EBITDA - 158 vs 164 cr
PAT - 90 vs 90 cr

Dip in sales due - slowdown in demand of value added products in Steel pipes business and flattish growth in lighting and consumer durables segments

The margins in lighting and consumer durables business saw significant improvement. Professional lighting segment witnessed high teen growth

Gross debt reduced by 168 cr in 9M FY24. Debt/Equity now stands at 0.12. Company aims to be debt free by Q1 FY 25 - one year ahead of its target

Lighting and Consumer durables segment is now debt free

Segment wise Sales / EBITDA / PBT -

Steel Pipes and Strips- 1536 cr / 121 / 92 cr
Lighting and durables- 402 cr / 37 cr / 30 cr

Despite a domestic slowdown in Steel Pipes business, exports grew by a healthy 23 pc

EBITDA / ton also improved to Rs 6156 vs Rs 5104 ( QoQ )

Steel pipes and strips division -

Company’s 04 manufacturing plants are located in - Haryana, MP, Gujarat and AP

Products include - Structural, GI, ERW, Spiral, Black pipes and CR strips. Company is the largest exporter of ERW pipes from India

Lighting and FMEG division -

No 2 consumer lighting brand in India
Emerging brand in Fans, Home appliances
Lighting division saw an EBITDA margin expansion of 250 Bps in Q3

The high value add segment in the steel pipes business include - ERW pipes and Spiral pipes. In Q3, ERW pipes witnessed a modest volume growth but the Spiral pipes division saw a sharp decline of 38 pc

Exports form about 20 pc of company’s steel pipes business. EBITDA / Ton is better in export markets. It is generally in the range of Rs 9000 - 10000 / Ton. In Q3, exports grew by 25 pc

Company is guiding for EBITDA / Ton for Q4 to be better than Q3 with a volume growth of 10 pc

Volume growth guidance for FY 25 @ 15 pc for both Steel and Lighting division

Board will give due consideration to the possibility of a demerger of Lighting business. The board admitted that the company is clearly undervalued considering their superior EBITDA / Ton vs industry peers and an almost debt free status. Demerger can lead to significant value unlocking for shareholders

Company is a big exporter of Pipes to ME, Canada, Europe and Australia/NZ. Infra / construction boom in ME is a nice tail wind for the company

Company has lined up a brownfield capex spend of 150 cr for the next FY. Also likely to announce another Greenfield capex of around 300 cr in the next board meeting. It is likely to be in the Western India. This shall greatly help the country save logistics costs while selling in Maharashtra, AP, Telangana etc

Company does significantly better EBITDA/Ton vs APL Apollo in the ERW segment

Company is guiding for an EBITDA of Rs 600 cr with a topline of 7800 to 8000 cr for FY24 with a 15 pc growth potential for FY25

Lighting industry has had tough 3-4 yrs. Things should only get better from here. This yr, company hopes to clock an EBITDA of around 9 pc for full FY. Should be able to clock double digit EBITDA margins for next FY

Disc: bought again after Q3 results, a small position, biased, not SEBI registered

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