Surya Roshni Ltd
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Surya Roshni Ltd
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Ladies and gentlemen, good day, and welcome to Surya Roshni Limited Q3 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 date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Raju Bista, Managing Director at Surya Roshni Limited. Thank you, and over to you, sir.
Shall I start?
Yes, sir. Please go ahead.
Yes. Good evening, everybody, and thank you, and wish you a very Happy New Year. On behalf of Surya Roshni Limited, I extend a very warm welcome to everyone for joining us today on this con call. We are joined by Mr. Tarun Baldua, CEO of Steel Pipes and Strips Division; Mr. Jitendra Agrawal, CEO of Lighting and Consumer Durables; our CFO and Company Secretary, Mr. Bharat Bhushan Singal; and SGA, our Investor Relations Advisor.I hope everyone had an opportunity, maybe very limited time opportunity, but I hope so that you had gone through the financial result and investor presentation, which has been uploaded on the stock exchange and on our company website as well. The company posted a very strong set of number along with continued improvement on operation parameters across the product and business segment.I will now discuss the -- some of the financial and operational highlights of each businesses, Lighting and Steel Pipes. For the quarter, EBITDA and PAT grew by 65% and 121%, respectively on a Y-o-Y basis. And for 9 months FY '23, the revenue was INR5,845 crores as compared to INR5,429 crores, a growth of about 8% Y-o-Y. EBITDA and PAT stood at INR366 crores and INR180 crores as compared to INR294 crores and INR122 crores, respectively. The company reported a healthy improvement in gross margin due to stable input cost and improved product mix.Coming to Lighting and Consumer Durables. Q3 and 9 months FY '23 revenue grew by 6% and 20% year-on-year basis, driven by increased share of value-added products, along with a pickup in consumer demand during the first half of Q3 FY '23 owing to capacity [ purchases ]. The company [ new hedge line ] of products such as LED Lighting continue to do well. Professional Lighting reported one of the best quarter in terms of revenue as well as project execution. In fact, LED Street Light revenue grew by 66% and 74%, respectively, in Q3 and 9 months FY '23.The company remained positive about Consumer Durables, considering a huge addressable domestic market. The company continue to penetrate the existing dealer network and Surya Roshni product lineup is now available in more stores across the country, even in the Tier 1 city also. The gross margin has also improved due to operating leverage and premium product and stability in input costs. There is a scope to improve margins very drastically further also. And the CapEx under the PLI scheme is ongoing as per the schedule. This CapEx is once operationalized is expected to lower the input costs as well as lower the external dependency.The company is investing in reducing replacement costs and improving product quality. The replacement cost has further improved, and it has come down to 5.15%, a significant reduction from 9.29% year-on-year basis. Over the past few quarters, the company continue to invest in advertising and marketing with engagement with the dealers and distribution during the quarter. The company will continue to invest in R&D [Technical Difficulty] latest and stylish solution to the consumers.In order to further improve the efficiency and -- throughout our sales and marketing team, the company successfully implemented sales for technology in the last financial year, the company is now in process of implementing [ SAP ] and four ERP system to further improve overall efficiency, profitability and control systems.Now moving on to the Steel Pipes and Strips Division, the company top line was affected due to continuous fall in global steel price due to quarter. But nonetheless, with a growing shares of value-added product, EBITDA per tonne for Q3 [ FY '23 ] stood at INR6,733 per tonne, a robust growth of 76% year-on-year. Similarly, for 9 months FY '23, EBITDA per tonne is now at INR5,200, a growth of about 22% year-on-year. So as mentioned during the previous earnings call, the company is well on track to achieve 10% volume growth along with EBITDA per tonne above last time, I have -- I think I have given a number of INR5,000, but hopefully, we'll be doing INR5,500 EBITDA per tonne for the whole year.For Q3 FY '23, the volume growth stood at 9%, which was slightly below our expectation due to some sort of fall in steel price globally. We are witnessing some stability in the steel price from the December and onwards. Should this stability continue, we have -- we can achieve further growth in terms of volume with a remarkable financial performance today only on the Board. So the Board has announced an interim dividend of INR3 per equity share on the paid-up equity capital to revert the company's shareholder, and this is the interim dividend. With various initiatives such as cost rationalization, working capital optimization, premium product line, the company expect to create further value for our shareholders.The company continue to maintain a healthy momentum in order inflow for value-added products such as API coated, API export pipe, overall exports, GI pipe and other value-added pipes. We reasonably estimate good growth in our top line as well as bottom line in coming quarter. Over the year, the company has diversified its manufacturing base across the country at a strategic location to reduce the turnaround time and logistic cost. To further strengthen this value proposition, the company is setting up expansion at Hindupur with an outlay of INR75 crores. This expansion is mainly aimed towards backward integration, which will help the company to reduce the cost, the entire CapEx will be funded through internal accruals, and it is expected to be complete by March 2024.This is from my side. And now I will like to request our CFO, Mr. B. B. Singal [Foreign Language] to share his thoughts.
Thank you, respected MD, and a very good evening to all the participants on the call. The company reported a healthy set of numbers during Q3 as well as 9 months out of this financial year. For the quarter, EBITDA and PAT grew by 65% and 121%, respectively, on a year-to-year basis. [ And PAT ] was INR164 crores against INR90 crores, respectively. Revenue remained flattish on account of global commodity correction.For 9 months financial year '23, the revenue stood at INR5,845 crores compared to INR4,429 crores (sic) [ INR5,429 crores ] during 9 months of the corresponding previous year, a growth of 8% year to -- year-on-year basis. EBITDA stood at INR366 crores and PAT stood at INR180 crores, a growth of 24% and 47% year-on-year, respectively. In Lighting and Consumer Durables, for the quarter, the revenue stood at INR396 crores, a growth of 6% year-on-year basis. EBITDA, INR27 crores and PBT stood at INR19 crores, respectively.For 9 months financial year '23, the revenue stood at INR1,114 crores, a growth of 20% year-on-year basis. EBITDA and PBT stood at INR80 crores and INR56 crores, a growth of 11% and 19%, respectively. The top line growth for the said period was mainly driven by value-added products. In the Steel Pipes and Strips, during Q3 of this financial year, the company's EBITDA and PBT grew 92% and 194% to INR136 crores and INR104 crores, respectively.EBITDA per metric tonne stood at INR6,733 compared to INR3,815, a robust growth of 76% year-on-year basis. For 9 months of this financial year, revenue grew by 5% on a year-on-year basis, INR4,731 crores, while EBITDA and PBT grew by 29% and 59% year-on-year, respectively. EBITDA per metric tonne stood at INR5,190 compared to INR4,257. The company has reduced debt by INR71 crores in 9 months of its current financial year and continues to remain long-term debt free. Finance cost has reduced by 28% in 9 months of this financial year. Debt equity reduced to 0.3x (sic) [ 0.30x ] as on 31st December '22 as compared to 0.48x as on 31st December of the previous corresponding year.The company continued to maintain positive cash conversion cycles. The working capital days stood at 62 days during quarter 3 of this financial year. Working capital days for Lighting and Consumer Durables stood at 60 days in quarter 3 of this financial year compared to 66 days in Q2 of this financial year, while Steel Pipes and Strips working capital days [ stood at 62 ] days in quarter 3 of financial year '23 compared to 56 days in quarter 2 of financial year '23.With this, I conclude the presentation, and we can now open the floor for further questions-and-answers.
[Operator Instructions] The first question is from the line of [ Manan Poladia from MKP ] Securities.
Hello, sir, am I audible?
Yes. Yes.
Yes. Congratulations on a great set of numbers, sir, firstly. I have 2 questions, sir. One is on the DFT side of things. Is there more DFT CapEx in the pipeline for Surya Roshni?
So what is your next question?
Second question is about the demerger, sir. I know that there were some talks going on like a year or 1.5 years ago. I just wanted to know if there are any updates on that side?
So as far as DFT is concerned, [Foreign Language].
Right, sir. Sir, just a follow-up question on that. What is the additional EBITDA per tonne that you get when you introduce DFT technology into a plant, if you could just give me a broad idea?
[Foreign Language]
And this was on an investment of INR25 crores?
See, it depends. [Foreign Language]
Right, sir, understood. And what about the demerger, sir?
[Foreign Language]. So this is one part. Another part, see, [Foreign Language]
[Foreign Language], of course, sir, of course. I don't expect you to decide here. I just wanted to know if there was any update on that side, sir, that's all?
[Foreign Language]
Right, sir. I completely understand.
[Operator Instructions] The next question is from the line of [ Rikesh Parikh ] from Rockstud Capital LLP.
Congratulations on a good set of number. Sir, just first on the Pipes Division, what is the...
Parikh, please use the handset mode, the audio is muffled?
Sure. Hello? Now it's better?
Yes. Yes.
Yes. Yes. Go ahead.
Yes. Sir, thank you, and congratulations on a good set of number. First thing on the Pipes, I just wanted to understand what is our capacity utilization right now and what was the actual number you said? Because I think we have a capacity of [ 12.76 lakh metric tonne per annum ]. So utilization level [Foreign Language]?
So particularly each quarter [Foreign Language] 72% [Foreign Language].
Okay. And we are planning for a INR75 crores expansion at Hindupur. So what will be the capacity expansion or [Foreign Language] by what time frame we are expecting [Foreign Language]?
[Foreign Language]
Yes. Basically, this capacity of GP -- we have to introduce the CR line also as well as GP line. So some CR pipes also we produce, that capacity would be around 2,000 tonnes a month. And then GP, so that another value addition and 6,000 tonne for GP. See, it is almost 8,000 tonne capacity, it is basically, you can consider is a backward value addition because till now, we were selling pipes in the market of GP and CR, but we are buying from the raw material suppliers. Now we will -- added value -- backward value addition and sell in the market.
[Foreign Language]
[Foreign Language]
[Foreign Language] or I think within a month, we will get the allotment and 10 months thereafter.
[Foreign Language]
Yes.
Okay. And last thing on the export side, sir, [Foreign Language] export, we have some INR700-odd crores of export at our hand. So in terms of number, [Foreign Language]?
See, export is our regular business or [Foreign Language]. So trade [Foreign Language] bread and butter [Foreign Language], but 55% contribution [Foreign Language]. Last year, it was 20%. [Foreign Language]
Just last question, if I can squeeze in. [Foreign Language] any benefit of price increase, [Foreign Language]?
[Foreign Language]
Sure. Thank you, and all the best. Any other question, I'll come back in queue.
[Operator Instructions] The next question is from the line of Jatin Damania from Kotak Securities.
Sir, we just wanted to check because in your opening commentary, you said that Steel Pipe business volume was lower because of a fall in the steel prices, and we had guided for 4.5 lakh tonnes of the volume in the second half. So do you think that this volume is sustainable or we'll be able to achieve that [ 2.4 million tonnes, 2.5 million tonnes ] in the last quarter? And what is the order book in the pipe business?
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language] lighting business is [Foreign Language], we have done a 6.8% margin, but what are the steps that we are taking to include the lighting business margin?
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
Right, sir. [Foreign Language], will improve, but how much time will it take for us to reach that 14%, 15%?
[Foreign Language]
Sir, last question on lighting before I move to pipe again. Sir, your lighting business, what is the current order book as of now or at a peak capacity, how much revenue we can generate from a lighting business?
[Foreign Language]
Right, sir. Thank you, on the lighting business. On the piping business, definitely [ 1.2 million tonne ] [Foreign Language] operating at 70%. And [Foreign Language], we are more into an oil and gas, and that's why we are getting a better EBITDA per tonne, right? Sir, is this INR6,700 or INR7,000 [Foreign Language] next quarter to get an average run rate of INR5,500 for the full year, is this number of INR7,000, INR7,200 sustainable from a longer period point of time, [Foreign Language]?
[Foreign Language]
Sir, the last question, I mean, I missed the earlier commentary. I mean, do you have 2 business with 2 different verticals like [indiscernible]? So -- and definitely, we will be tax free by end of this financial year. Sir, any clear point of how the management or Board has thought about in terms of demerging both the units separately, anything on that, sir?
[Foreign Language]
[Operator Instructions] The next question is from the line of Vivek Gautam from [ GF ] Investments.
Sir, congratulations on good set of numbers. So I just wanted to understand because I have recently started tracking the company, the reason behind the improvement in ROCE [ to buy ] such a good extent? And isn't it a commodity business no longer, and can it -- can such high ROCE numbers be sustained?
Tarun, [Foreign Language].
Yes. Sir, this is no more a commodity business, that is very, very clear, because as Mr. MD already told that we are increasing our value-added products quarter-on-quarter. And therefore, we are getting good realization, and the IRR and other things is definitely we will try to maintain it, because our loans have also paid, long-term loan. So definitely, the interest liability is also low and the profitability is higher, certainly, our rate of return will be...
[Foreign Language]
[Foreign Language]?
[Foreign Language]
[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor & Company.
[Foreign Language]
[Foreign Language]
[Foreign Language] by -- for the fourth quarter also for the Steel Pipe Division, we are likely to post higher EBITDA and [Foreign Language]?
[Foreign Language]
[Foreign Language] on the Steel Pipe Division?
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language] 10%, quarter 4, [Foreign Language]?
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
Thank you, Mr. Kapoor. May we request that to return to the question queue for follow-up questions. [Operator Instructions] The next question is from the line of Riya from Aequitas Investments.
It's encouraging to know that our EBITDA per tonne is increasing on a quarter-on-quarter basis. My first question would be in terms of that where are we seeing this demand from? And what kind of prospects are there for the next couple of months and years, so short-term, midterm and long-term?
So you are asking about Steel Division?
Yes.
Yes, yes, yes, steel, that's right.
So, Steel Division, overall, [Foreign Language].
Okay. And margin improvement [Foreign Language] 7,000 tonnes [Foreign Language]. So where is this coming from? [Foreign Language]?
[Foreign Language]
Thank you, Ms. Riya. May we request that to return to the question queue for follow-up questions. We'll take the next question from the line of [ Rishabh Sisodia ] from [ Sameeksha ] Capital. Rishabh Sisodia, your line is in talk mode. Please go ahead with your question.
Sir...
Mr. Sisodia, the audio is not clear from your line. Please check.
Hello? Now is it audible?
Sir, the audio is still breaking from your line. Please check.
Hello?
Yes. It is audible now.
Sir, I have 2 questions on the lighting side that you mentioned that you are focusing more on the government business. So how is the cash cycle on the lighting business?
[Foreign Language]
[Foreign Language] cash cycle, working capital cycle, [Foreign Language]?
[Foreign Language] Overall, [Foreign Language] net working capital [Foreign Language].
And [Foreign Language] average of peak pipe capacity utilization [Foreign Language]?
[Foreign Language].
Thank you, Mr. Sisodia. May we request that you return to the question queue for follow-up questions. We'll take the next question from the line of Anuj Jain from Globe Capital.
Congratulations on the good set of numbers. I just wanted to know [Foreign Language], I mean how is the response? And further planning to launch some other new products apart from the traditional products? And what is the marketing budget that you are here allocating towards [Foreign Language]?
[Foreign Language]. That is one. Number two, [Foreign Language] So you want to add something?
Yes. Thank you, sir. [Foreign Language] from 1st of January [Foreign Language], for ceiling fans, [Foreign Language].
Right, sir. Right. Sir, just one more thing, [Foreign Language] I mean what is the time gap [Foreign Language]?
[Foreign Language] pricing [Foreign Language], normally in India, it is decided on a monthly basis. [Foreign Language], naturally next month, [Foreign Language]. And some orders we are booking at the time of taking of the orders also as per the project. [Foreign Language] So maximum a month. [Foreign Language]
Sure, sir. We'll take the next question from the line of Tushar Sarda from Athena Investments.
Yes. Thank you for the opportunity. Congratulations on -- hello, can you hear me?
Yes, yes, sir.
Yes. Congratulations on a good set of numbers. [Foreign Language] you are one of the largest players, probably #2. [Foreign Language]?
[Foreign Language] as a management, as a MD, as a CEO, [Foreign Language] Surya Roshni [Foreign Language].
[Foreign Language] CFL business [Foreign Language], which is zero profit. [Foreign Language]?
[Foreign Language]
That's already zero.
[Foreign Language]
Thank you. Ladies and gentlemen, due to time constraints, we will take that as the last question. I now hand the conference over to Mr. Bharat Bhushan Singal, CFO, for closing comments. Over to you, sir.
Thank you, everyone, for joining us today on this earnings call. We appreciate your interest in Surya Roshni Limited. I sincerely once again thank to our MD and our CEOs for sparing their valuable time and addressing queries raised by participants who attended the call. For any further queries, if any, contact SGA, our Investor Relations Advisor. Thank you.
Thank you very much.
Thank you. Ladies and gentlemen, on behalf of Surya Roshni Limited, that concludes this conference call. Thank you for joining us. And you may now disconnect your lines.