Surya Roshni nears record high on healthy outlook; zooms 106% in 6 months

Shares of Surya Roshni hit a fresh 52-week high of Rs 842.50, up 3 per cent on the BSE in Thursday's intra-day trade, on the back of healthy business outlook. The stock of the iron & steel products company continued at its northward movement after it reported a strong set of numbers for the quarter ended March 2023 (Q4FY23).

In the past six months, the market price of Surya Roshni has more-than-doubled, zooming 106 per cent, as compared to 0.57 per cent rise in the S&P BSE Sensex. It was trading close to its all-time high level of Rs 868.40, touched on October 4, 2021.

Surya Roshni is the largest exporter of ERW Pipes, the largest producer of ERW GI pipes, and one of the largest Lighting Companies in India. In Q4FY23, the company achieved highest ever EBITDA/MT of Rs 9,868 in steel pipes and strips.

The company reported 88 per cent year-on-year (YoY) growth in consolidated profit after tax (PAT) at Rs 156 crore due to reduced finance costs and improved product mix of value-added products. Revenue, however, declined 7 per cent YoY to Rs 2,151 crore.

Effective capacity utilization for manufacturing of premium value added products has led to improved EBITDA/ton over the years. The company has reduced its debt significantly owing to the complete repayment of long term debts. With Rs 404 crore of debt, the company aims to be zero debt company by next two years.

The management said the company continues to achieve a sustainable growth on quarterly and annual basis, and the current Ebitda (earnings before interest, taxes, depreciation, and amortization) level has been established as a benchmark for future growth.

The company said it is witnessing good enquiry order inflow, and will continue to focus on participating in multiple Smart Lighting projects in Professional Lighting. The professional lighting has delivered multiple prestigious projects during the year. The company has a strong orderbook in place and will continue to build this orderbook aggressively in FY24 as well.

In the steel pipes and strips, the company reported a robust profit before tax (PBT) growth of 110 per cent in Q4 and 80 per cent in FY23. This growth was contributed by higher share of value added products especially in API coated pipes and exports. The company’s recently commissioned large dia DFT facility is expected to accelerate the growth and profitability, the company said.

The robust orderbook for exports, API coated pipes and spiral pipes provides strong revenue visibility for FY24. The revenue as well as realizations will be further accelerated by the company’s Largedia section pipe facility with DFT at Gwalior, it added.

"Surya Roshni has shown a tremendous growth in FY23 by improving its profitability and balancing the product mix despite adverse market conditions. Its strong order backlog, favorable revenue mix and lean balance sheet provides cushion for any uncertain macro headwinds. Being a second largest player in GI pipes and third largest player in lighting and consumer segment, company gets an advantage for bagging orders over its unorganized player," according to analyst at Anand Rathi Research.

Surya is currently trading at an attractive valuation of 13x of FY23EPS (average PE of last 5 year).Therefore, we assign a 'BUY' rating on the stock with a target price of Rs 941 using a target multiple of 10x FY25 EPS led by healthy growth prospects and operational efficiency, the brokerage firm said in a result update.

“We value Surya Roshni at 8x FY25E EV/EBITDA to arrive at our revised target price of Rs 1,173/share (Rs 917 earlier). There have been inconclusive talks of demerging the steel and lighting divisions. We believe, given the size of these businesses, a division is unlikely to unlock much value. Surya Roshni’s focus on improving return ratios, cash generation, and resumption in strategic capex makes it a strong re-rating candidate. Maintain BUY,” analysts at Systematix Institutional Equities said.