Surya roshni ltd

[Mukul_Jain]

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

[saurabh_garg]

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

[tarun2586]

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

[Ashfak2b]

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.

[Hemant_Kumar2]

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.

[Jagjeevan_Kashid]

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.

[ranvir]

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

[Hemant_Kumar2]

Stock has now corrected 40% from its all time high. Can’t explain this bearish pressure even with headwinds in their piping business. Anyone knows what’s going on with the stock?
Dis- Invested at 250 levels

[ranvir]

At least I can’t figure out what’s causing this massive sell off

Since I couldn’t figure out, so added more today

Disc: biased, not SEBI registered

[saurabhgupta]

Q1 FY25 presentation-

Q1 FY25-

-Product mix driving margin expansion

Entered in new product segmen t of Mono Block Residential Pumps via launch of ‘Surya Water Pumps’ in the month of July 2024.

• The market size for such pumps is ₹ 1,000 crore and is growing fast driven by ‘Har Ghar Nal Se Jal’ scheme of Government of India.

• Inspite of significant price erosion in consumer lighting business, we recorded a quarterly revenue growth of 3% and stands at ₹ 385crore in Q1FY25

• Robust volume growth, led by a better product mix in favour of higher margin value products and cost savings from backward integration driven by PLI, has led to a steady improvement in operating profitability

• EBITDA marginsfor Q1FY25 stood at 9.01% as against 8.83% for the same quarter last year

• Professional Lighting grew by 18% - driven by infrastructure as well as industrial projects

• Consumer lighting business witnessed double digit volume growth in mostsub-categories

• The fan business has done exceedingly well in Q1FY25. It recorded a volume growth of 43%. Our margins in this business also witnessed improvement. The hot summer in India & launch of many products in previous quarter enabled us to increase our market penetration in this category

• Appliances segment witnessed volume growth of 15%

EBITDA/Ton for the quarter stood at ₹ 6,065, up by 38%, as compared to ₹ 4,388 the same quarter last year – this is on account of better product-mix

• Value-added products (API, Spiral & Galvanized pipes) constituted about 46% of our total revenue in Q1FY25

• Strong in - hand order book of about ₹ 600 crore as on 30th June 2024 for Oil & Gas sector, Water Sector and Exports business .
• Gained Market Share to ~10% of Oil & Gas Transmission Pipes o Cross Country Land Pipes o City Gas Distribution (CGD)

• Water Transmission provides higher growth opportunities
Project to manufacture GP and CR coils/pipe

• Setting-up expansion project with an outlay of ₹ 75 crore at Hindupur, A.P.

• Purpose: Presently, the company procures the GP coil and CR coil from the suppliers. The company intends to ensure availability of GP coil/ CR coil every time as per the requirement of the market along with the cost lower than the market price to cater South Indian market.

[JARUTIR]

Surya Roshni has formed a classic VCP Pattern on weekly

Its VCP Footprint is 37W 44/4T

Disc: not invested. Chart for learning purpose only.

[Ashfak2b]

Surya posted dull set in Q2, owing to price erosions and subdued demands in steel pipe segment. Lights, Consumer durable segment too posted flat set (+5%) due to price erosions although volume has improved by 15%. Looks like nothing much to expect in the next quarter as well in metal/pipe segment. Management commentary/outlook seems positive but looks like the macro environment including general dull outlook of commodity prices will weigh-in their numbers for next few quarters. The bonus issue, seems a gimmick to console the retail investors and to increase scrip’s liquidity but not sure how much it will help arrest the fall in coming days.

Particulars (₹ crore)	Q2 FY25	Q1 FY25	Change	Insights
Consolidated
Revenue	1,529	1,893	-19%	Primarily attributed to performance of Steel Pipes and Strips segment.
EBITDA	83	159	-48%	The sharp decline in consol. EBITDA, impact of steel price reductions on the pipes/strips seg.
PBT	46	123	-63%	Driven by the lower profitability in the Steel Pipes and Strips segment.
Lighting and Consumer Durables
Revenue	395	385	3%	Despite price erosion in LED products, the segment achieved marginal revenue growth, indicating resilience and demand for its products.
EBITDA	36	35	3%	The slight increase in EBITDA suggests effective cost management strategies and a focus on higher-margin products.
PBT	26	26	0%	The stable PBT indicates that the segment maintained its profitability despite challenges.
Steel Pipes and Strips
Revenue	1,135	1,509	-25%	The significant revenue decline is attributed to the sharp reduction in steel HR prices and seasonal factors affecting demand.
EBITDA	48	124	-61%	The steep decline in EBITDA reflects the impact of steel price reductions on inventory value and margins.
EBITDA/MT (Rs.)	2,901	6,065	-52%	The substantial drop in EBITDA/MT underscores the impact of lower steel prices and inventory valuation adjustments.
PBT	20	97	-79%	The sharp decline in PBT highlights the segment’s vulnerability to steel price fluctuations.

Key takeaways from Management Commentary

Steel Pipes and Strips: Challenges and Mitigating Actions

This segment faced significant headwinds in Q2 FY25, resulting in a 26% YoY revenue decline to ₹1,135 crore. The steep reduction in steel HR prices, subdued demand due to market hesitancy, and seasonal weakness caused by the monsoon season were the primary contributors.

Management Commentary: Mr. Raju Bista acknowledged these challenges, stating that the price drop created a cautious market environment where distributors and dealers delayed purchases, expecting further price reductions. To mitigate the impact, Surya Roshni focused on operational efficiencies and rigorous cost management strategies.

Lighting and Consumer Durables: Resilience Amidst Challenges

This segment presented a more resilient performance, achieving 5% YoY revenue growth in Q2 FY25, reaching ₹395 crore. However, the segment wasn’t without its challenges:

• Price Erosion in LED Products: The company continued to face price erosion in LED products, which impacted margins.
• Adverse Weather Conditions: Heavy rainfall and flooding in certain regions dampened demand for lighting and consumer durables.

Management Commentary: Mr. Vinay Surya highlighted the company’s efforts to counter these challenges through cost innovation, a focus on high-margin and premium products, and expansion into semi-urban and rural markets. He expressed optimism for Q3 and Q4, driven by a robust order pipeline in the professional lighting segment and sustained demand in consumer durables.

Management’s Overall Outlook and Strategic Initiatives

Despite the challenging Q2 FY25, Surya Roshni’s management expressed confidence in the company’s future prospects, emphasizing several key strategies:

• Focus on Value-Added Products:
• Capacity Expansion: New Spiral plant and ERW mill.
• Government Infrastructure Initiatives: Infra projects/other government initiatives.
• Stable Steel Prices: While prices aren’t expected to increase significantly, they are projected to remain at similar levels for the rest of FY25.

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Adding few insights from the Credit rating report issued in September, 24 along with how well its strengths/risks are reflected in the Q2 results.

The September 2024 credit rating report from CARE Ratings provides a positive assessment of Surya Roshni’s financial standing and future potential. The report maintains the company’s current credit ratings and shifts the outlook for its long-term bank facilities from “Stable” to “Positive,” hinting at a possible upgrade down the line.

Ratings:

• Long-Term Bank Facilities: CARE AA-; Outlook: Positive
• Short-Term Bank Facilities: CARE A1+

Factors Supporting the Positive Outlook:

• Strong Market Presence
• Healthy Order Book
• Sound Financial Position

Potential Challenges:

• Steel Price Volatility: Fluctuations in steel prices could affect the profitability of the Steel Pipes and Strips segment. While current market trends suggest stable prices for the near future, a prolonged decline in steel prices could create difficulties for the company.
• Competition: Both of Surya Roshni’s operating segments face stiff competition. To maintain its market share and profitability, the company needs to continuously innovate and adjust to evolving market conditions.
• Economic Downturn: A broader economic slowdown could negatively impact demand for Surya Roshni’s products, particularly in sectors linked to infrastructure projects.

Alignment with Recent Performance:

The credit rating report’s observations are in line with Surya Roshni’s performance trends in Q2 FY25:

• Steel Price Impact: The company’s Q2 FY25 results, particularly the challenges experienced by the Steel Pipes and Strips segment due to the steep drop in steel HR prices, mirror the report’s concerns about steel price volatility.
• Lighting Segment’s Resilience: The report’s positive outlook on the lighting segment is supported by the segment’s 5% year-on-year revenue growth in Q2 FY25, achieved despite price erosion and weather-related setbacks.
• Financial Strength: The report’s emphasis on Surya Roshni’s robust financial risk profile is consistent with the company’s zero-debt position and cash surplus, which allow it to weather market fluctuations and pursue strategic investments.

Note: Its AI generated/filtered insight including Q2 reports, Credit rating and Mgt commentary. Pls let me know if there are any erroneous info/notes.

Disclaimer: Invested and Biased. Less than 4% of PF. No transactions in the last 30 days. Post purely for study purposes. Consult your advisor before any investment decisions.

[ranvir]

Surya Roshni -

Q2 FY 25 results and concall highlights -

Revenues - 1529 vs 1916 cr, down 20 pc
EBITDA - 83 vs 139 cr, down 40 pc ( margins @ 5.4 vs 7.3 pc )
PAT - 34 vs 76 cr, down 55 pc

Segmental performance -

Lighting and consumer durables -

Revenues - 395 vs 377 cr, up 5 pc
EBITDA - 36 vs 35 cr, up 1 pc ( margins @ 9 vs 9.3 pc )
PBT - 26 vs 28 cr, down 6 pc

Lighting business saw strong volume growth ( up 15 pc ) however the price erosion in LED lighting continued

Fans business did well in both Q1 and Q2

Company’s water heaters clocked sharp volume growth of 50 pc

Steel Pipes and Strips -

Revenues - 1135 vs 1539 cr, down 26 pc
EBITDA - 48 vs 104 cr, down 54 pc
PBT - 20 vs 76 cr

EBITDA / MT @ Rs 2900 vs Rs 5100 YoY !!!

Hot Rolled steel prices corrected sharply by Rs 7500/Ton. This led to inventory losses to the tune of Rs 3000/Ton in the inventory value. Company was still able to manage an EBITDA of Rs 2900/Ton

VAP like - API, Galvanised and Spiral pipes now constitutes 45 pc of company’s steel pipes segmental revenues

Company is the no 1 producer and exporter of ERW GI pipes from India. In the consumer lighting mkt, company is ranked No 2 in India

Over and above the steel price corrections - delayed monsoons, delayed govt spending and high freight rates due Red Sea crisis were additional headwinds for company’s steel pipes business

In Q1, company’s EBITDA/Ton was Rs 6065 / MT. In FY 24, full yr’s EBITDA / MT was @ Rs 5400 / MT

Company has revised its full yr EBITDA/ MT guidance to Rs 5200 with a volume growth guidance of 10-12 pc for full FY 25. Recent recovery in steel prices gives them hope of margin recovery for Q3 and Q4. Hope to clock EBITDA of 440 cr or so from the steel pipes division for full FY 25

Company is debt free and has cash on books of Rs 136 cr

Volumes sold in Q2 @ 1.65 lakh vs 2.03 lakh MT. Volume de-growth is again attributed to prolonged monsoons, slow down in Govt’s order flow and dealers reluctance in buying materials in a falling price environment. Still confident of selling > 9 lakh Mts for FY 25

---

Have seen a sharp upturn in volumes in Oct 24 ( up 17 pc YoY - volume growth )

Guiding for a 1700 cr topline from the lighting and consumer durables business for full FY 25. Should be able to do 160 cr kind of EBITDA from this segment for full FY 25. Have seen a sharp pickup in this segment too wef Oct

Capex guidance for next 3 yrs @ 500 cr ( @ 100 cr + 200 cr + 200 cr for FY 25, 26 and 27 ). Post all this capex, company’s capacity should increase from 12 lakh MT/yr to 19 lakh MT/yr

Canada and US have reduced anti dumping duties on company’s products. This should be an added kicker for company’s export business in H2

Enquiries and Order flows have also seen marked uptick in the months of Oct and Nov for steel pipes and professional lighting business

Out of this capex of 500 cr that the company has lined up, 400 cr shall be spent towards value added products. Eventually, they aim to derive 60 pc of their revenues from VAP segment vs 45 pc currently

There was a marked slowdown in the award of Govt tenders in piped water infrastructure space ( biggest consumer of ERW GI pipes ) in H1 due to general elections. Company is now seeing clear signs of reversal now

As the share of VAP increases in next 2-3 yrs, EBITDA / MT for the company should keep inching upwards. In the VAP segment, EBITDA / MT is > Rs 7000

As and when the price erosion stops / reverses in the LED lighting division, company may be in for some very good times

Disc: holding, biased, not SEBI registered, not a buy/sell recommendation

[Shantanu_nakade]

Sir I had gone through the recent concalls so I will say this a good analysis & knowing this is AI generated! I would like to know how it done!

[ranvir]

Sorry - this is not AI generated

[Ashfak2b]

Using Google LLM and also perplexity to get the insights from multiple sources.