Surya Roshni extends rally on strong Q3 earnings; stock surges 30% in Jan

The company's steel pipes segment Ebitda/tonne jumped 76 per cent YoY to Rs 6,733 led by strong growth in value added products (mainly API pipes)

Shares of Surya Roshni hit a fresh 52-week high of Rs 639.35, as they rallied 6 per cent on the BSE in Tuesday's intra-day trade. Thus far in the month of January, the stock has surged 30 per cent after the company reported strong earnings for the quarter ended December (Q3FY23). In comparison, the S&P BSE Sensex was down 3 per cent during the month.

Currently, Surya Roshni is trading at its highest level since December 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.

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.

For 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.

Surya Roshni's Steel pipes profitability was a beat in Q3FY23. Its steel pipes segment Ebitda/tonne jumped 76 per cent YoY to Rs 6,733 led by strong growth in value added products (mainly API pipes). Also, it has strong order backlog of Rs 700 crore in pipes division.

However, Lighting and Consumer Durables segment sales witnessed a sales growth of only 6 per cent YoY to Rs 390 crore and segment Ebitda fell by 3 per cent YoY to Rs 27 crore (even after Surya took multiple price hikes to mitigate inflationary pressure during 9MFY23).

The company's net debt was lower by Rs 71 crore in 9MFY23 which led to decline in interest cost by 28 per cent in 9MFY23. The company is aiming to be a debt free entity by FY24.

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.

"We have introduced FY24E and FY25E estimates and value Surya Roshni at 8x FY25E EV/EBITDA to arrive at our revised target price of Rs 917/share (Rs 900 earlier)," analysts at Systematix Shares and Stocks (India) said.

There have been inconclusive talks of demerging the steel and lighting divisions. The brokerage firm believes, given the size of these businesses, a division is unlikely to unlock much value. Surya Roshni’s focus towards improving return ratios, cash generation, incurring minimal capex makes it a strong re-rating candidate.