Surya Roshni Ltd

NSE:SURYAROSNI

Earnings Call Analysis

Surya Roshni Q2 Profit Rises Despite Minor Revenue Dip

Surya Roshni experienced enhanced profitability with EBITDA growing by 6% to INR 139 crores and a rise in margins to 7.3%, even as revenue saw a slight decline. Debt reduction was substantial, down by INR 190 crores, with a debt-to-equity ratio at a healthy 0.11, setting a path to become debt-free next year. The Lighting & Consumer Durables segment was stable with INR 377 crores in revenue, resilient despite festival season shifts and flat performance due to a 15-20% price reduction. A double-digit revenue growth is expected for FY '24, underpinned by investment in marketing and product innovation, with optimism for the segment's performance in H2 FY '24 and FY '25. Despite pricing pressure in the Steel Pipe segment, leading to a 10-15% decrease, the company is hopeful for 12-13% volume growth, banking on a robust INR 800 crores order book.

Celebrating Golden Jubilee and Financial Performance Highlights

Surya Roshni Limited, marking its 50th year in the steel pipe, electrical appliances, and consumer durable industry, celebrated by announcing an interim dividend reflecting 50% of the face value, a gesture to honor the stakeholders for their enduring trust and support. Amidst this landmark year, the company posted results that showed resilience and adaptiveness. Although overall revenue saw a marginal decline, the firm not only managed to improve profitability with an EBITDA increase of 6% reaching INR 139 crores but also achieved commendable EBITDA margins of 7.3% for the quarter. Debt reduction was a noteworthy achievement, with a cutback of almost INR 190 crores in six months, positioning the company on a path to become debt-free by next year.

Operational Excellence and Growth in Lighting and Professional Sectors

The Lighting & Consumer Durables segment observed volume growth, although this was offset by a price reduction of 15-20% year-on-year, leading to relatively flat revenue performance. Nonetheless, the company's proactive strategy in backward integration and participation in the PLI program have bolstered operating profitability, with an impressive EBITDA margin of 9.3% for this segment in Q2 FY '24. Specifically, the Professional Lighting sector reported growth of 20% in Q2 and 23% for the first half of the year, propelled by investments in both the private and government sectors. Additionally, the Consumer Lighting and Durables segments are expected to continue their strong performance with the introduction of innovative products and models, which have already resulted in double-digit volume growth.

Steel Pipe Business Weathering the Pricing Pressure

The Steel Pipe business segment saw a commendable volume growth of 12%, which unfortunately was dampened by price decreases of 10-15% across different steel grades in H1 FY '24. While the volume growth forecast remains positive at 12-13% for the full year, the company is leaning on a robust order book, especially from oil and gas sectors, and domestic market potential, to counteract any shortcomings in the export arena. In particular, the Line Pipe business is anticipatory of a slowdown due to upcoming general elections, but city gas distribution has shown strong growth with positive expectations for the GI pipes business in the ongoing and next fiscal year.

Steady Financial Metrics and Focus on Enhanced Returns

The company's financial health looks promising with a 12% year-on-year increase in PAT to INR 76 crores and an overall revenue of INR 3,791 crores for the first half of FY '24. Surya Roshni's strategic initiatives have led to increased demand for value-added products and services, contributing to its operating performance. Particularly for the Steel Pipe and Strip business, EBITDA growth stood at 3% year-on-year, displaying enhanced profitability per metric ton. These disciplined financial practices have culminated in an elevated Return on Capital Employed (ROCE) improved by 439 basis points to 20.2% and a Return on Equity (ROE) increase to 15.57%, showcasing a commitment to generating compelling shareholder returns.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Surya Roshni Limited Q2 and H1 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of the future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Raj Bista, Managing Director at Surya Roshni Limited. Thank you, and over to you, sir.

[Raju Bista, executive]

[Foreign Language], good evening. On behalf of Surya Roshni Limited, I extend a very warm welcome to everyone for joining us today. Before starting the call today, I would like to take this opportunity to wish everyone a very happy Diwali. On this call, we are joined by Mr. Tarun Baldua, CEO Steel Operation; Mr. Jitendra Agrawal, CEO Lighting and Consumer Durables; our investor adviser, [indiscernible] and our company Secretary, Mr. B.B. Singal.

I hope everyone had an opportunity to go through the financial regional press release and investor presentation. which has been uploaded on the stock exchange as well as on our company website. Surya Roshni is celebrating its golden jubilee year in FY '22 -- '23, '24, marking 50 years of excellence in steel pipes, electrical appliances and consumer durable industry. Surya Roshni products are trusted by millions of consumers in India and around the world. And the company has a very strong presence in global market with export to over 50 countries. As Surya Roshni celebrates its Golden Jubilee year, the company is poised to enter a very new phase of growth and development. Company has a very strong foundation, a very clear reason and a talented team to execute its plans. I am confident that Surya Roshni will continue to achieve new heights in years to come. On this special occasion, I would like to thank all of our stakeholders, employees, customers and partners for their continuous support over the years. To remind the shareholders on our Golden Jubilee, our Board of Directors approved an interim dividend at 50% of the [indiscernible] value. And now moving on to the highlights of the quarter. Due to favorable volume growth in steel pipe and value-added goods in lighting and consumer durable segment, the firm reported better profitability on a year-over-year basis despite a marginal fall in revenue.

Due to the successful implementation of backward integration strategies and favorable volume growth, the company witnessed a notable improvement in its EBITDA, which increased by 6% to reach INR 139 crores. Furthermore, the company achieved a commendable EBITDA margins of 7.3% for the quarter company as a whole. Over the past few years, company has placed its emphasis on reducing the debt. Even during the H1 FY '24 in last 6 months, the debt reduced by almost INR 190 crores and the debt-to-equity ratio stood at 0.11 as of 30th September 2023. With this, the company intends to become debt free by next year. And coming to Lighting & Consumer Durables segment recorded a revenue of INR 377 crores in Q2 FY '24, which is almost similar to the corresponding period last year. This was achieved despite the shift in festival season from Q2 to Q3 in the current financial year as compared to previous year when the company recorded revenue related to festive season in Q2 FY '23 as well. Both Q2 FY '24 and H1 FY '24 have demonstrated enhanced profitability aligning with the management previously communicated expected as highlighted in their commentary during preceding quarters.

But despite observing favorable volume growth even in Lighting segment, but we experienced price reduction in the range of about 15% to 20% on year-on-year basis and 10% to 15% during H1 FY '23, resulting in flattish revenue performance. But our company has consistently demonstrated a proactive approach to backward integration, leveraging our investments in the PLI program. This strategic move has not only enhanced our comp times within the market, but also has resulted in improved operating profitability at an EBITDA margin level to 9.3% for Q2 FY '24. Professional Lighting segment reported 20% growth in Q2 and 23% in H1. The robust expansion of Professional Lighting segment can be primarily attributed to the concurrent growth also in both private as well as government-led investment. The Consumer Lighting has also experienced decent volume growth, the Consumer Lighting segment has exhibited robust growth in various categories such as LED, LED battens, downlighter, decorative lighting and other solar lighting with impressive double-digit volume growth expansion. Within the Consumer Durables segment, certain segment has exhibited robust growth. The strong growth in these subcategories was also aided by the successful introduction of innovative pain models and in consumer appliances product in FY '24 Q2. PVC pipe has witnessed 11% growth in Q2.

During the upcoming quarters, our company will continue to strategically introduce a diverse range of very innovative products within the Lighting Consumer Durable business segment. And this forthcoming product launches are expected to contribute significantly to our overall growth in market presence. We are hopeful of achieving double-digit revenue growth for whole FY '24 on the back of better H2 FY '24 in terms of profitability, we hope to achieve our target that we have outlined in our previous commentary. Our strategic focus remain on bolstering our market presence and brand recognition through intensified investment in advertising and marketing. These efforts aim to augment our market share and enhance the visibility of our brands. Additionally, we are committed to fortifying our dealers and distributor network by implementing a range of engaging initiatives. Based on our analysis, it is anticipated that our Lighting & Consumer Durable segment will exhibit a very positive performance in H2 FY '24 and FY '25, provided that all sectors of Indian economy maintain their current growth trajectory. Now moving on to the Steel Pipe business segment has experienced a good volume growth of about 12%, which was overshadow by the downward pricing pressure ranging from 10% to 15% across different grades of steel during FY '24, H1 FY '24.

On the full year basis, we continue to anticipate -- 12% to 13% volume growth. Our of the missteps on the back of strong order book of about almost INR 800 crores, especially from oil and gas segments for API side as well as a potential for growth in domestic market as well, which we believe will help mitigate any potential shortfalls we may encounter in the exports market. Within API pipes, the Line Pipe business has experienced a deceleration in order due to the upcoming general election, other key business sector for API pipes order is from city gas distribution sector, which has demonstrated commendable growth and has a potential outlook. We expect a very positive business momentum for GI pipes to persist throughout fiscal year '24 and '25. And lastly, we remain confident about the opportunities that lie ahead of us. The company is focusing on geographical expansion, innovation, innovation, efficiency enhancement, infrastructure and [indiscernible] capital to deliver the best class solution to our customers. And now I would like to request our CFO, Mr. BB Singal to share his calls.

[Unknown]

Thank you, respected MD, sir, and a very good evening to all the participants on the call. For the quarter, despite marginal decline in revenue, our EBITDA and PAT grew by 6% and 12% on year-on-year basis to INR 139 crores and INR 76 crores, respectively.

For the first half of financial year [ '24 ], the revenue was INR 3,791 crores as compared to INR 3,824 crores. EBITDA and PAT stood at INR 255 crores at INR 135 crores as compared to INR 202 crores and INR 90 crores, respectively. The increase in operating performance can be attributed to the PLI scheme, record integration, and the increased demand for value-added products. In Lighting & Consumer Durables for the quarter, the revenue stood at INR 377 crores as against INR 383 crores. EBITDA and PBT stood at INR 35 crores and INR 28 crores, registering a growth of 14% and 21%, respectively. For the half year, the revenue stood at INR 751 crore as against INR 718 crores, a growth of 5% on a year-on-year basis. EBITDA and PBT stood at INR 68 crores and INR [ 584 ] crores, a growth of 13% and 46%, respectively.

In the Steel Pipe and Strip, during second quarter financial year '24, the company revenue stood at INR 1,539 crore, while our beta witnessed a growth of 3% year-on-year basis with an EBITDA per metric ton of which INR 5,100 crores per metric ton.

PBT for the quarter grew by 11% to INR 76 crores for H1 financial year '24, revenue stood at INR 3,042 crores while EBITDA and PBT grew by 25% and 55% year-on-year basis to INR 187 crores and INR 131 crores, respectively. As of 30th September '23, the company has reduced debt by INR 190 crores and contributes to remain long-term debt free. Debt equity rate -- debt equity reduced to 0.11 multiple as of 30 September 2023. As on 30th September '23, the net working capital days stood at [ 65 ] days. Inventory days stood at 52 days, debtor days stood at 32 days and creditor days stood at [ 19 ] days. As on 30th September '23, ROCE improved by 439 basis points and stood at 20.2% as compared to 15.8% in the last quarter. ROE stood at 15.57% as compared to 12.49% as on 30 June '23, a growth of [ 0.8 ] basis points. With this, I conclude the presentation, and we can now open the floor for the question and answer.

[Operator]

[Operator Instructions]

The first question is from the line of Jatin Damania from Slan Investment Managers.

[Unknown Analyst]

So just wanted to understand that for the [indiscernible], you said that you have sort of the volume term, you have grown by almost 10% to 15%, but because of the lower realization that was a hit. So I want to understand, is there any one-off or inventory loss that we have taken during the quarter due to which EBITDA per tonne has come down -- so how soon look at the operating performance going for the next couple of quarters.

[Raju Bista, executive]

Yes, Mr. Jatin, thank you very much. [Foreign Language]

Q1 versus Q2 [Foreign Language].

[Unknown Analyst]

[Foreign Language] I mean, [indiscernible] in terms of the raw material?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Raju Bista, executive]

As I've seen [Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

Sir, basically, [Foreign Language], we are almost able to [indiscernible].

[Foreign Language] And has the Board decided any dividend disposition policy to shareholders?

[Foreign Language] announced for celebrating our 50 years. But how shall we look going ahead? How so we look forward our capital allocation and the dividend policy?

[Unknown Executive]

[Foreign Language]

[Unknown Analyst]

Okay. The last question on the steel side, which [Foreign Language] probably we will reach to a 10% EBITDA margin, and we are closer to that. So is there any further improvement one can expect on the steal or some steady state [indiscernible] one can assume going forward?

[Unknown Executive]

[Foreign Language]

[Operator]

[Operator Instructions]

The next question is from the line of Shweta Dikshit from Systematic Group.

[Unknown Analyst]

Can you give some indication of the volume outlook in the second half period segment, sir? And what was the capacity localization this quarter? And what are you expecting in the coming quarter?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Okay. And any view on the volumes next year because [Foreign Language].

[Operator]

The line has dropped. The next question is from the line of...

[Raju Bista, executive]

[Foreign Language]

[Operator]

The next question is from the line of [indiscernible] from [indiscernible].

[Unknown Analyst]

Sir, basically, my question was that currently, sir, how much is value added as a percentage of your total mix? And in the second half, like for the full year as we're expecting that we should do around the [ INR 6,500 ] EBITDA per tonne. So how do we see the sales mix changing in the second half, which would help us to get that kind of EBITDA per tonne. So right now, these are the 2 questions.

[Raju Bista, executive]

So right now, value-added [Foreign Language]

[Unknown Analyst]

And sir, you expect to sustain or expect it to improve going ahead?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Okay. And sir, if you could just mention how has the trend being of this value added over the last 5 years. Has this improved? Or it has been stagnant? And what do we expect going ahead?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Okay. And this you aim to achieve by which year?

[Raju Bista, executive]

[Foreign Language]

[Operator]

[Operator Instructions]

The next question is from the line of [indiscernible].

[Unknown Analyst]

Am I audible?

[Raju Bista, executive]

Yes, yes.

[Unknown Analyst]

So I have a couple of questions over here.

[Foreign Language] compared to Steel division. So are we saying that our primary focus would be on Lighting division from now because [indiscernible]. Are we seeing that?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Okay. Okay. And how we are seeing steel prices like second half -- second half of FY '24. So [Foreign Language] and how we are witnessing it? [Foreign Language]

Are witnessing some more correction?

[Raju Bista, executive]

[Foreign Language] So let's say, [Foreign Language]

[Unknown Analyst]

Okay. So we are saying that Q3 [Foreign Language] in terms of Steel division, we can say that?

[R N Maloo, executive]

[Foreign Language] in terms of volume or margins [Foreign Language]

[Unknown Analyst]

And even in Lighting division, sir, the [Foreign Language] So how we are witnessing that also? Are we witnessing this uptick ahead also?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

19%, right?

[Raju Bista, executive]

[Foreign Language] [indiscernible]

[Operator]

[Operator Instructions]

The next question is from the line of [indiscernible] Managers.

[Unknown Analyst]

Can you hear me, sir?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language] CapEx guidance set [Foreign Language] for FY '24 and FY '25?

[Raju Bista, executive]

For FY '24 [Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language] [indiscernible] highest level phase [indiscernible]

[Foreign Language]

[Unknown Analyst]

Okay. [Foreign Language] if you could give us some understanding on that?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language] Capital allocation may our policy is 50% towards CapEx and 50% towards dividend. [Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language].

[Operator]

The next question is from the line of Saket Kapoor from Kapoor & Company.

[Saket Kapoor, analyst]

[Foreign Language]

[Unknown Executive]

[Foreign Language] [ FY'24 ] or [ FY '25 ] [Foreign Language]

[Operator]

The next question is from the line of Shweta Dixit from Systematics Group.

[Unknown Analyst]

Am I audible as I think lines have got dropped. I just [Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Operator]

The next question is from the line of [indiscernible] from iWealth.

[Unknown Analyst]

So just 1 more question, on this value addition. So for every 1% value addition, how much of your EBITDA per tonne improved if you can give a ball park number.

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Okay. Okay. And because right now, when we are at 35%, we are expecting it around [ INR 5,500 ] to [ INR 6,000 ] EBITDA per tonne. And you're saying by FY '25, this mix would become 50% -- so [Foreign Language] just for comparison, sir, will took a 60% or something, is there a value added and we make around [ INR 6,000 ] EBITDA per tonne. So can we go through that on a sustainable basis, just for my understanding?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Understood. Value added would be your API and your GI pipes, right, basically?

[Raju Bista, executive]

Yes. API galvanized and the export market.

[Unknown Analyst]

Export market. [Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Operator]

[Operator Instructions]

The next question is from the line of Niraj Shah from Arihant.

[Unknown Analyst]

[Foreign Language] First 1 is the CapEx highlight here the [ 3 ] different CapEx that we are planning plans. [Foreign Language] keeping in mind the current prices only?

And secondly, sir, currently, [Foreign Language] Just these 2 questions.

[Raju Bista, executive]

Yes. [Foreign Language]

[Unknown Analyst]

Currently in percentage of steel only as a total sales now?

[Raju Bista, executive]

Steal, steal.

[Unknown Analyst]

Okay. And in sir, value terms, [Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Operator]

The next question is from the line of Yogesh Mittal from Investor.

[Unknown Analyst]

I wanted to ask a question regarding the factors you saw mainly in the steel pipes like -- it is -- if you can just categorize the top 3 sectors or top 4 sectors like structural steel or like the agricultural pipes or like -- yes, like that. So if you can give the top 3 or top 4 users, the segments.

[Raju Bista, executive]

[Foreign Language] which about 55% [Foreign Language]

[Unknown Analyst]

Right, sir. Sir, and so is more in relation to this -- sir, the raw materials which are used for this are mainly the HR points or you have other raw materials also?

[Raju Bista, executive]

Only. So we have 2 raw materials. One is HR coil and another is [indiscernible].

[Unknown Analyst]

Okay, okay. Sir, I just wanted to understand, like it was being alluded by so many the callers in the call, when you were talking about the raw material, which is the HR coil price reduction or the overall -- the final product price reduction, which you were seeing in the market because of which the EBITDA has been reduced. So I wanted to understand what is the pricing power in case the raw material prices reduced with the Surya and other and other competitors in the market?

[Raju Bista, executive]

[Foreign Language] So we don't manufacture HR coil.

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Unknown Analyst]

Right, sir. [Foreign Language] What is the outlook in the market right now, the dealer talks or the discussions which you're having, how is the outlook?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

All right, sir. Sir, 1 of -- 1 of the last thing which I want to ask [Foreign Language] when we talk about the product, is there a completion in the product in terms of the [Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Sir, I was basically asking about the CPVC pipes, which are like -- so [Foreign Language] I need to say a product itself, not about the competitors in terms of the product being competing with this.

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Sir, what I was asking is that there are pipes [Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Operator]

The next question is from the line of [indiscernible] from Sequent Investments.

[Unknown Analyst]

Congratulations, sir, on good set of number and thank you for the opportunity. [Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Operator]

Ladies and gentlemen, we take that as a last question. And now I hand the conference over to Mr. Bharat Bhushan Singal, CFO and Company Secretary for closing comments.

[Unknown]

Thank you, everyone, for joining us today on this earning call. We appreciate your interest in Surya Roshni Limited. I sincerely once again, thank you, our MD and CEO for sparring their valuable time and adjusting where they write a participant on atoll. I would also have to take this opportunity to wish everyone on this call a very happy Diwali from the entire Surya Roshni family. For any further queries in any contract our investor relations advisor. Thank you once again.

[Operator]

On behalf of Surya Roshni Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.