Surya Roshni Ltd

NSE:SURYAROSNI

Earnings Call Analysis

Surya Roshni Q3 FY'24 Earnings Show Resilience

Surya Roshni saw Q3 FY'24 revenues slightly decrease due to lower demand in the steel pipes business and flat growth in its Lighting & Consumer Durables segment. Yet, it bolstered operating margins, hitting an EBITDA of 8.2%, a rise of 87 bps from the previous quarter. The company reduced its debt by INR 168 crores, resulting in a lean debt-to-equity ratio of 0.12. Its Lighting & Consumer Durables segment, now debt-free, recorded 2% revenue growth at INR 403 crores. EBITDA for this segment surged by 38% to INR 38 crores with a marked growth in high-margin product sales and savings from the PLI scheme. The company faced a 2.5% volume drop in steel pipes but saw a 23% growth in exports. Overall, for nine months FY'24, revenue was INR 5,729 crores with a robust 25% increase in PAT at INR 225 crores.

Corporate Overview and Strategic Debt Reduction

The company's earnings call was led by prominent senior executives who set a tone of cautious optimism. In the backdrop of this, the management provided an inspiring narrative: the company has been steadfastly working towards becoming debt-free. While revealing the reduction of another INR 168 crores in debt and a laudable debt-to-equity ratio of 0.12 as of December 31, 2023, leadership announced that the company would reach a zero-debt status in Q4 FY '24, a full year earlier than its target.

Lighting & Consumer Durables: Navigating Through a Subdued Market

The Lighting and Consumer Durables segment experienced a lukewarm 2% revenue growth year-over-year, though it held onto a strong growth in its Professional Lighting business. Amidst a soft market, the company managed to achieve a 38% surge in EBITDA for Q3 FY '24 and a significant margin expansion. Notably, the company's focus on high-margin products and cost savings, alongside a major order of INR 75 crores, has contributed to its resilience in a challenging environment.

Consumer Durables Struggles and Steel Segment Setbacks

The Consumer Durables arm faced headwinds because of muted demand, although premium products still showed decent growth. Regulatory changes such as the mandatory star labeling requirements for fans pose additional challenges. However, the company is adapting, pushing for product launches in that category. While the Steel and Strips division saw a slight decline, the company showcased its adaptability with a 23% growth in export and a robust order book of INR 600 crores, mainly in the oil and gas segment.

Financial Health: Maintaining Profitability Amidst Revenue Dip

Focusing on financials, the company's revenue slightly declined to INR 1,938 crores, against INR 2,021 crores in the previous year, while EBITDA and PAT remained steady. Over the 9-month period, revenue decreased marginally to INR 5,729 crores, from INR 5,845 crores; however, EBITDA and PAT grew by 13% and 25% respectively. This suggests that the company is effectively managing its profitability even when faced with top-line pressure.

Steel Pipe and Strips: Managing Through Market Softness

The Steel Pipe and Strips sector saw a dip in revenue to INR 1,536 crores from INR 1,626 crores year-on-year, and a decrease in EBITDA per metric ton. Despite the softer market conditions, the company achieved an 8% increase in EBITDA and an 18% rise in PBT over the 9 months of FY '24, revealing a clear strategy to navigate market turbulence and maintain financial growth.

Solid Financial Ratios and Working Capital Improvement

Lastly, the company's judicious financial management is demonstrated by improvements across key metrics: ROCE rose to 22.91%, ROE increased to 17.88%, and working capital optimization efforts cut down the debt by an additional INR 160 crores. These achievements indicate a commitment to operational efficiency and fiscal discipline, supporting the company's ongoing journey towards a debt-free status.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to Surya Roshni Limited Q3 FY '24 Earnings Conference Call.

This conference call may contain certain forward-looking statements about the company, which are based on beliefs, opinions and expectation of the company as on date of this call. These statements are not the 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 of Surya Roshni Limited. Thank you, and over to you, sir.

[Raju Bista, executive]

Hi, everyone. Thank you. Good evening once again with the Q3 FY earning call. And on behalf of Surya Roshni Limited, I extend a warm welcome to everyone for joining us today. On this call, we are joined by Mr. Naresh Singhal, Executive Director, Steel operation. Mr. Gaurav Jain, Chief Operating Officer, steel operations; Mr. Jitendra Agrawal, CEO, Lighting & Consumer Durables; and our CFO and Company Secretary, Mr. B. B. Singal; and SGA, our Investor Relations Adviser.

I hope everyone had an opportunity to go through the financial results, press release and investor presentation, which have been uploaded on the stock exchange as well as on our company website.

Moving on to the highlights for the Q3 FY earnings, the company revenue experienced a slight dip on account of slowdown of demand on basically value-added products in steel pipes business and flattish growth in Lighting & Consumer Durable segment. Despite the decrease -- slight decrease in revenue, the company managed to sustain its operating profit margin on account of substantial improvement in the operating margin mainly in the Lighting & Consumer Durables business. and the company recorded an EBITDA margins of 8.2% for the quarter, up by 87 basis points as compared to 7.3% for Q2 FY '24.

Over the past few years, the company has placed it -- basis on reducing focus on reducing the debt during 9 months of FY '24, the debt reduced by another INR 168 crores. And the debt-to-equity ratio is at 0.12 as on 31st December 2023. Lighting & Consumer Durable business is now completely debt-free segment, there is no long term and no any working capital borrowing as on debt. We become totally debt-free company in like Q4 FY '24, which means 1 year ahead of our target.

Now coming to the Lighting & Consumer Durables, the segment recorded a revenue of INR 403 crores in FY '24 Q3, up by 2% as compared to the same period last year, the Professional Lighting business witnessed higher double-digit growth while the consumer lighting business had a modest single-digit growth in Consumer Durables and appliances segment witnessed almost a flattish kind of growth. Strong growth in volume, along with a better pick mix towards higher-margin product and cost saving from backward integration driven by PLI, production-linked incentive, contributed to a significant improvement in operating profitability. And also the gas price has also added to it, because the gas prices has come down significantly.

EBITDA for Q3 FY '24 was up by 38% to INR 38 crores as compared to INR 27 crores in the same quarter of FY '23. EBITDA margin for Q3 stood at 9.3%, up by 244 basis points as against 6.9% in Q3 of FY '23. In Professional Lighting, we undertook a few big and important projects like G20 events and facade lighting of Atal Setu, et cetera. We also recently won major order of like INR 75 crores for LED public street lighting and maintenance work in the state of a Odisha. We have been witnessing robust growth in infrastructure lighting, facade lighting and other industrial lighting projects.

For the Consumer Durables segment, overall sales has been subdued due to muted consumer demands. However, the premium category, consumer durables products category has reported decent growth. Fan as category is currently seeing unique challenges due to regulatory interruptions such as implementation of mandatory star leveling requirements. However, the market acceptability of star leveling trend is finding good traction and we plan to continue launching new products of star category.

So adding to it, we also conducted over 150 engagements with dealer in this Q3 quarter, thereby engaging with almost 10,000 of top retailer -- retail outlet in different parts of our country. Also similarly, we keep engaging with prominent electricians.

So now moving on to the steel and strip business, there was a slight decline in the top line growth, primarily due to the slowdown in demand of high value added, mainly the spiral part. In pipe segment, however, this was partially offset by improved sales in all other categories of pipes, so there was also 23% growth in export in Q3 as compared to the same quarter last year. Overall, the steel pipe segment, witness a volume degrowth of about 2.5% only in Q3 FY '24, and overall 9-month growth is about 7%.

We have a strong in-hand order book of about INR 600 crores for mainly oil and gas segment. Sequentially, there was an improvement in steel prices, EBITDA per tonne for the quarter stood at INR 6,156 per ton, achieving a growth of 21% from Q2 FY '24, which means previous quarter. And that was, I think, INR 5,104 crores. So we are the first Indian company to manufacture 0.5 inch pipe to 140 inches pipes, minimum to maximum. We have recently received EPD environmental product declarations certification for all products, which is mandatory requirement for the customer mainly in export market, we are expecting robust order from Saudi and the Middle East and Canada markets in future.

We have also ordered new spiral pipe unit at our Gwalior plant facility, and we manufacture pipe up to 140-inch diameter, earlier, it was 104-inch only at Anjar plant, we further plan to add new coating plant in Anjar, Gujarat. So we are also currently in process to modernize our cold rolling plant at Bahadurgarh facility, which will be completed in next H2 FY '25. And the other ongoing project will complete as per the schedule, this would result in substantial fall, reducing cost of production as well as improving the quality of our product.

Lastly, we remain confident about the opportunity that lies ahead of us, the company is focusing on geographical expansion innovation and efficient enhancement, infrastructure and human capital to deliver the best world-class solution to our customers.

Now I would like to request our CFO, Mr. B.B. Singal to share his thoughts on financial parts.

[Bharat Singal, executive]

Thank you respected MD sir. A very good evening to all participants on the call.

For the quarter, that revenue was INR 1,938 crores as compared to INR 2,021 crores. Q3 F FY '24 EBITDA and PAT stood at INR 158 crores and INR 90 crores as compared to INR 164 crores and INR 90 crores, respectively, for the same period last year. For 9 months of this financial year, the revenue was INR 5,729 crores as compared to INR 5,845 crores. EBITDA stood at INR 414 crores, up 13% as compared to INR 366 crores in 9 months of financial year '23. And PAT stood at INR 225 crores, up by 25% as compared to INR 180 crores.

The increase in operating performance can be attributed to the PLI scheme, backward integration and the increased demand for value-added products. In Lighting & Consumer Durables for the quarter, the revenue at INR 403 crores as against INR 396 crores, registering a modest growth of 2%. EBITDA and PBT stood at INR 38 crores and INR 30 crores, registering a growth of 38% and 56%, respectively. For the 9 months, the revenue stood INR 1,154 crores as against INR 1,114 crores, a growth of 4% year-on-year basis. EBITDA and PBT stood at INR 106 crores and INR 83 crores, a growth of 33% and 50%, respectively.

In the Steel Pipe and Strips during Q3 FY '24, the revenue was INR 1,536 crores as compared to INR 1,626 crores. Similarly, EBITDA per metric ton stood at INR 6,156 compared to INR 6,733 year-on-year basis and [indiscernible] in FY '24. PBT stood at INR 91 crores as against INR 104 crores last year. For 9 months FY '24, the revenue stood at INR 4,577 crores as compared to INR 4,731 crores. Similarly, EBITDA per metric ton stood at INR 5,224 crores or INR 24 compared to INR 5,190 year-on-year basis, while EBITDA and PBT grew by 8% and 18% year-on-year basis to INR 308 crore and INR 222 crores, respectively.

Improved capacity utilization, working capital optimization and cost rationalization has further reduced the debt by INR 160 crores. As of 31st December '23, the debt-to-equity ratio stood at 0.12, as on 31st December '23, ROCE improved by 271 basis points and stood at 22.91% as compared to 20.20% as of 30 September '23. Return on equity, ROE, stood at 17.88% as compared to 15.57% as on 30 September '23, registering a growth of 231 basis points. As on 31st December '23, the net working capital days stood at 70 days. Inventory days stood at 50 days. Debtor days stood at 36 days and creditor days stood at 16 days.

With this, I conclude the presentation, and we can now open the floor for further questions and answers.

[Operator]

[Operator Instructions] The first question is from the line of Jatin Damania from Suvan Investment Managers.

[Unknown Analyst]

Congrats for a good set of numbers compared to the industry peers. So I just wanted to understand in your opening remarks, you highlighted that the volume growth was only 2% in the quarter, while there was a decline in the value-added products. But at the same time, we had seen a sharp jump in the EBITDA per tonne as compared to what peers are reported. So what has driven the sharp improvement in our performance.

[Raju Bista, executive]

Yes. Jatin ji, thank you very much. [Foreign Language]. The high value-added product [Foreign Language].

[Unknown Analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language] [ Technical Difficulty ] [Foreign Language.]

[Unknown Analyst]

[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]

[Operator Instructions] Next question is from the line of Vikash Singh from PhillipCapital.

[Vikash Singh, analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Vikash Singh, analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Vikash Singh, analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Vikash Singh, analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Vikash Singh, analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Operator]

Next question is from the line of Manish Bhandari from Vallum Capital Advisors.

[Manish Bhandari, analyst]

Hello.

[Raju Bista, executive]

Yes, Manish ji.

[Manish Bhandari, analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Manish Bhandari, analyst]

Second question related to the 2 expansions which you spoke about, not into the west of region, [Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Technical Difficulty]

That will be mainly for water pipe segment only. So similarly, at coating plant [Foreign Language]

[Manish Bhandari, analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Manish Bhandari, analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Manish Bhandari, analyst]

My last question, [Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Manish Bhandari, analyst]

[Foreign Language] versus the competition is too higher numbers?

[Raju Bista, executive]

[Foreign Language]

[Operator]

[Operator Instructions] Next question is from the line of Naveen Baid from Nuvama Asset Management.

[Unknown Analyst]

Actually, my question has been answered.

[Operator]

[Operator Instructions] Next question is from the line of Sanjay Nandi from VT Capital.

[Unknown Analyst]

Can you hear me?

[Raju Bista, executive]

Yes, yes.

[Unknown Analyst]

In the ERW segment, we are having like 80% of the sale. So whom do we're competing with these other peers in this particular segment?

[Raju Bista, executive]

Will you please repeat it again?

[Unknown Analyst]

Yes, is there ERW segments who are on [indiscernible] peers that we are competing with?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

So, sir, what kind of EBITDA margin differential do we have compared to peers like Maharashtra Seamless also put some good numbers in EBITDA per metric ton in this quarter in the ERW segment. And like what you have mentioned in the call in the previous like you're having some degrowth in the volume front. Now also the [ strip ] segment also are doing well. So where are you lagging sir exactly compared to our peers?

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Okay sir. I will come back in the queue.

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Okay. What kind of guidance can we presume in the coming years like on a long-term basis, like in the ERW segment?

[Raju Bista, executive]

[Foreign Language].

[Unknown Analyst]

So you were talking about INR 6,000 per tonne, right? This is for the entire company or for the ERW segment as a whole?

[Raju Bista, executive]

So company as a whole [Foreign Language]

[Unknown Analyst]

[indiscernible] so what kind of margins are we expecting in lighting [Foreign Language. ]

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Sir, in lightning [indiscernible] lightning space, so how comfortable you are in like converting with that kind of technological change, which is going to happen likely to say.

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Unknown Analyst]

Sir, what kinds of products are you thinking of exporting to the Middle East countries. [Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Operator]

Next question is from the line of Shweta Dikshit from Systematix Group.

[Shweta Dikshit, analyst]

Congratulations, sir, on a good set of numbers. I wanted to understand, export proportion as a -- export share as a proportion of sales. How is that [Foreign Language] Then how are the disproportion -- is it expected to change in the next 2 years? Are you targeting a growth?

And secondly, the follow-up regarding the exports, I think I missed the realization number -- EBITDA per tonne number for exports, [Foreign Language]

[Raju Bista, executive]

[Foreign Language]

[Operator]

Ladies and gentlemen, that was the last question of the day. I now hand the conference over to Mr. B.B. Singal for closing comments.

[Bharat Singal, executive]

Thank you for joining us today on this earnings call. We appreciate your interest in Surya Roshni Limited. I sincerely once again, thank you, our MD sir, Executive Director and the CEO for sharing their valuable time and addressing queries raised by the participants who attended the call. For any further queries if any, contact SGA, our investor relations adviser. Thank you. Good evening.

[Raju Bista, executive]

Thank you very much.

[Operator]

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