Surya Roshni soars 11%, hits new high on strong growth outlook

With a focus on improvement in product mix in steel pipes segment, the broking firm IDBI Capital expect Surya Roshni's margins to improve over the next two-three years

Shares of Surya Roshni edged higher by 11 per cent to Rs 731.20, also their new high on the BSE, in intra-day trade on Friday on the back of heavy volumes and amid a strong growth outlook. In the past seven trading days, the stock has zoomed 43 per cent, as compared to a 1.7 per cent rise in the S&P BSE Sensex.

Surya is the second-largest manufacturer of steel pipes (contributes 67 per cent to EBITDA) and also the second-largest LED manufacturer in India. In the April-June quarter (Q1FY22), Surya had reported a 64 per cent year-on-year (YoY) jump in revenue at Rs 1,453 crore. The company’s earnings before interest, taxes, depreciation and amortisation (Ebitda) had grown by 112 per cent YoY to Rs 93 crore and cash profit registered a growth of 221 per cent to Rs 76 crore.

The company’s strong order book of Rs 847 crore for API coated pipes as of Q1FY22 will be one of the key growth catalysts. The commissioning of the 72,000 MTPA capacity for large dia section pipes (up to 300 X 300 mm) with direct forming technology (DFT) at Gwalior unit by next quarter will also aid the growth momentum, the company said.

The company is exploring export opportunities in the UK market for supplying galvanised iron (GI) pipes and section pipes for scaffolding and infrastructure requirements, respectively, owing to the anti-dumping duties on Chinese imports in that region. The company said it is also looking for opportunities in the US and Canadian markets for their ‘inch-to-inch’ requirements of section pipe, which can be met through the DFT-technology based facility, that is under expansion in Gwalior. The company anticipates good orders for supply of pipes to premier and other South East Asian markets upon successful acceptance of the trial orders, Surya said in the financial year 2020-21 (FY21) annual report.

The government’s ambitious infrastructure projects spending will generate demand for higher diameter, higher thickness and higher strength pipes, which shall be met post the completion of the expansions in Gwalior, it added.

“With a focus on improvement in product mix in steel pipes segment, we expect margins to improve over the next two-three years. In Lighting & Consumer Durables segment, we anticipate strong growth in segment revenue led by rising demand for LED lights in India and also import substitution,” the brokerage firm IDBI Capital said in its initiate coverage report on Surya Roshni.

Surya has entered home appliances in the past five years. "We expect this segment to record strong growth given the strong distribution network of Surya. Historically, Surya’s return ratios have been lower due to various reasons such as weaker product mix, falling LED prices, etc. Nevertheless, we expect strong improvement in its return ratios over FY21-FY23," the company added.

Meanwhile, the government has received 52 applications for the production-linked incentive (PLI) for white goods (ACs & LED Lights). The final list of candidates will be announced on November 15, 2021. The government is aiming at around Rs 2.7 trillion crore worth of component productions in the next five years through this scheme.