Stock of this iron & steel products company has zoomed 101% in 6 months

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.

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.