CMP 78.55

Target Price 86.00

ISIN: INE335A01012

DECEMBER 28th

2013

SURYA ROSHNI LIMITED

Result Update: Q2 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Steel & Lighting

BSE Code 500336

Face Value 10.00

52wk. High / Low (Rs.) 84.40/59.35

Volume (2wk. Avg. Q.) 43000

Market Cap (Rs. in mn.) 3442.93

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 29590.30 33259.50 36252.85

EBITDA 2382.60 2630.43 2922.72

Net Profit 692.50 792.75 912.54

EPS 15.80 18.09 20.82

P/E 4.97 4.34 3.77

Shareholding Pattern (%)

1 Year Comparative Graph

SURYA ROSHNI LIMITED BSE SENSEX

SYNOPSIS

Surya Roshni Ltd has started in 1973 as a steel

tube unit and emerged as a large conglomerate

with the leading position in steel pipes and

lighting business.

The company’s net sales registered 10.91%

increase and stood at a record Rs. 7780.00 million

from Rs. 7014.40 million over the corresponding

quarter last year.

During the quarter ended Q2 FY14, Net profit was

up by 18.64% at Rs. 144.50 million against Rs.

121.80 million in Q2 FY13.

The company considered and approved to enter

into business of electrical fans segment under its

Brand name Surya Fans.

In Q2 FY14, EBITDA has increased by 10.40% at

Rs. 549.80 million from Rs. 498.00 million in the

corresponding quarter of previous year

During the half year end H1 FY14, total income of

the company has increased by 11.79% to Rs.

14870.70 millions against Rs. 13302.60 millions

in H1 FY13.

The Company plans to launch a range of Ceiling,

Table, Pedestal, Wall mounted and Exhaust Fans.

Net Sales and PAT of the company are expected to

grow at a CAGR of 12% and 21% over 2012 to

2015E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Surya Roshni Ltd. 78.55 3442.93 15.80 4.97 0.47 40.00

APL Apollo Tubes Ltd. 141.00 3304.80 12.49 11.29 1.11 20.00

Usha Martin Ltd. 29.95 9127.00 0.50 59.90 0.59 15.00

Jindal Saw Ltd. 49.70

13728.30 4.86 10.23 0.37 50.00

Recommendation & Analysis - ‘BUY’

Surya Roshni Limited (SRL) is into the business of manufacturing electric resistance welded (ERW) steel pipes &

lighting products, with facilities at Bahadurgarh (Haryana), Kashipur (Uttarakhand) and Malanpur (Madhya

Pradesh). The company has a strong marketing network of around 1,500 dealers and 200,000 retailers spread

across the country for its lighting portfolio while it has a dealer network of around 150 dealers and 20,000

retailers for selling its steel products.

Surya Roshni Limited, net sales has increased by 10.91% from Rs. 7014.40 million for the quarter ended

September 30, 2012 to Rs. 7780.00 million for the quarter ended September 30, 2013. Net profit was up by

18.64% at Rs. 144.50 million in Q2 FY14 against Rs. 121.80 million in Q2 FY13. During the quarter ended Q2

FY14, EBITDA has increased by 10.40% at Rs. 549.80 million from Rs. 498.00 million in the corresponding

quarter of previous year. The company has reported a strong profitable growth in quarter ended 30th

SEPTEMBER 2013.

The company has a diversified product portfolio which covers a range of steel products and lighting products,

these diversified product portfolio helps the company minimize the risk associated with slowdown in a

single industrial sector and also provides better growth opportunities. On the back of increase in the demand

for steel pipes arising from oil and gas, infrastructure, water supply and sanitation projects coupled with

expected increase in the penetration of electricity in the country and development of infrastructure both in the

private and public sector, which will boost the lighting division sales. We expect the company to post a CAGR of

12% and 14% in its top-line and bottom-line respectively. Hence, we recommend ‘BUY’ for ‘SURYA ROSHNI

LIMITED’ with a target price of Rs. 86.00 on the stock.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q2 FY14,

Surya Roshni Limited has a widespread marketing

network with separate teams focusing on the steel

and lighting divisions. Further within the divisions,

company has subdivisions catering to various

segments i.e. general trade, industrial, Government

and export thus having clear focus on each category

of consumers with a strong market reach to more

than 2,00,000 retailers across the country through

its branch network of 30 offices, has reported its

financial results for the quarter ended 30

SEPTEMBER, 2013.

The company has achieved a turnover of Rs. 7780.00 million for the 2nd quarter of the current year 2013-14 as

against Rs. 7014.40 millions in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 549.80 millions an increased by 10.40% and a net profit of Rs. 144.50 million against Rs. 121.80

million reported respectively in the corresponding quarter of the previous year. The company has reported an

EPS of Rs. 3.30 for the 2nd quarter as against an EPS of Rs. 2.78 in the corresponding quarter of the previous year.

Break up of Expenditure:

During the quarter, Total Expenditure increased mainly on account of purchase of stock in trade by 27%, Cost of

material consumed by 10%, along with other expenditure by 19% are the primary attribute for the growth of

expenditure when compared to corresponding quarter of previous year. The Total Expenditure in Q2 FY14 stood

to Rs. 7371.70 million rose by 11 per cent as against Rs. 6647.20 million in Q2 FY13.

Break up of Expenditure (Rs. millions)

Q2 FY14 Q2 FY13

Cost of Material Consumed 5711.60 5192.80

Purchase of Stock in Trade 451.30 354.20

Employee Benefit Expenses 348.60 319.30

Depreciation & Amortization

Expenses 138.50 128.50

Other Expenses 971.60 818.50

Months SEP-13 SEP-12 % Change

Net Sales 7780.00 7014.40 10.91

PAT 144.50 121.80 18.64

EPS 3.30 2.78 18.64

EBITDA 549.80 498.00 10.40

Segment Revenue

Latest Updates:

• The company considered and approved to enter into business of electrical fans segment under its Brand

name Surya Fans.

• The Company plans to launch a range of Ceiling, Table, Pedestal, Wall mounted and Exhaust Fans.

• During the half year end H1 FY14, total income of the company has increased by 11.79% to Rs. 14870.70

millions against Rs. 13302.60 millions in H1 FY13.

• Profit after tax has increased by 18.95 to Rs. 286.40 millions in H1 FY14 against Rs. 240.80 millions in H1

FY13.

COMPANY PROFILE

Surya Roshni Limited (SRL), incorporated in 1973 is into the business of manufacturing electric resistance

welded (ERW) steel pipes & lighting products, with facilities at Bahadurgarh (Haryana), Kashipur (Uttarakhand)

and Malanpur (Madhya Pradesh). Products in steel division include ERW pipes, cold rolled (CR) sheets, whereas

lighting division includes compact fluorescent lights (CFLs), fluorescent tubular lights (FTLs), general lighting

system (GLS) & luminaries (lights for industrial and commercial applications).

The company holds 53.37% stake in Surya Global Steel Tubes Ltd. (SGL), incorporated in 2009, a company into

manufacturing of ERW and spiral pipes at Bhuj (Gujarat). Under its steel division SRL (including SGL) has a

manufacturing capacity of around 5,82,000 Metric Tonnes Per Annum (MTPA) of ERW pipes, 2,00,000 MTPA of

spiral pipes and 1,15,000 MTPA of CR sheets. Under the lighting division SRL has a manufacturing capacity of 66

Million Per Annum (MPA) of CFLs, 187 MPA of GLS and 63MPA of FTL.

Distribution network & Certifications

The company has a strong marketing network of around 1,500 dealers and 200,000 retailers spread across the

country for its lighting portfolio while it has a dealer network of around 150 dealers and 20,000 retailers for

selling its steel products. SRL exports its lighting products and American Petroleum Institute (API) certified ERW

pipes to more than 45 countries across the world including the United Arab Emirates (UAE), Canada, Netherland,

United Kingdom (UK), USA, Australia, etc. The company is a pioneer in this industry to have implemented the

concept of total quality management. Both the plants have deservedly won the ISO 9001:2000, ISO 14001:1996

and OHSAS18001:1999 certifications. Surya GLS also conforms to prestigious European safety standards - "CE" &

TUV Bauart.

Diversified product

The company has a diversified product portfolio which covers a range of steel products viz. ERW pipes, Spiral

Pipes, Cold Rolled (CR) strips, and lighting products. Among the lighting products, the company produces

General Lighting System (GLS), Fluoroscent Tubular Lamps (FTLs), Compact Fluoroscent Lamps (CFLs), high

mast luminaries (lights for commercial and industrial applications), etc.

Products

• General Lighting Service Lamps

• Fluorescent Tube Lamps

• Compact Fluorescent Lamps

• HID Lamps

• Luminaires

• Lighting Poles

• High Masts

• Accessories

• Components

Apart from these the company also manufactures Poly Vinyl Chloride (PVC) pipes which are used in the housing

segment. The steel product of the company find application in varied sectors such as domestic, agriculture,

heating and ventilation, chemical, automobile industries, power, sugar, oil and gas, etc. The diversified product

portfolio helps the company minimize the risk associated with slowdown in a single industrial sector and

also provides better growth opportunities.

Subsidiaries

Surya Global Steel Tube Limited (SGL) established on May 9, 2008 is a 53.73% subsidiary of Surya Roshni

Limited (SRL). SGL is engaged in the manufacturing of ERW steel pipes and API grade ERW and spiral steel pipes.

These pipes find utility in oil & gas industry, agriculture, water transportation and civil construction, etc

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2012 -2015E

SURYA ROSHNI LIMITED FY-12A FY-13A FY-14E FY-15E

I EQUITY AND LIABILITIES

A) Shareholder's Funds:

a) Share Capital 438.31 438.30 438.30 438.30

b) Money received against share warrant 151.93 0.00 0.00 0.00

c) Reserves and Surplus 6244.56 6884.30 7677.05 8589.59

Sub-Total Net worth 6834.80 7322.60 8115.35 9027.89

B) Non Current Liabilities:

a) Long term borrowing 3547.61 3683.10 3793.59 3869.46

b) Differed Tax Liabilities 523.33 424.30 428.54 437.11

c) Other Long term liabilities 49.23 52.70 55.34 57.55

d) Long term Provisions 128.97 175.10 234.63 253.40

Sub-Total Non Current Liabilities 4249.14 4335.20 4512.11 4617.53

C) Current Liabilities:

a) Short term borrowings 3900.64 4011.10 4291.88 4506.47

b) Trade payables 755.40 745.20 961.31 1201.64

c) Other Current Liabilities 1037.10 1330.40 1596.48 1835.95

d) Short term Provisions 213.20 408.50 551.48 716.92

Sub-Total Current Liabilities 5906.34 6495.20 7401.14 8260.98

TOTAL EQUITY AND LIABILITIES (A + B + C) 16990.28 18153.00 20028.59 21906.39

II ASSETS

D) Non-Current Assets:

Fixed Assets

i. Tangible assets 8207.58 8532.30 8830.93 9007.55

ii. Capital Work in Progress 378.75 259.90 239.11 227.15

a) Total Fixed Assets 8586.33 8792.20 9070.04 9234.70

b) Non- Current Investments 501.80 500.60 503.10 505.62

Sub-Total Non-Current Assets 9088.13 9292.80 9573.14 9740.32

E) Current Assets:

a) Inventories 3774.93 3803.10 4563.72 5385.19

b) Trade receivables 3356.35 4103.40 4832.94 5606.21

c) Cash and Bank Balances 207.89 186.60 177.27 171.21

d) Short-terms loans & advances 509.77 702.80 808.22 921.37

e) Other current assets 53.21 64.30 73.30 82.10

Sub-Total Current Assets 7902.15 8860.20 10455.45 12166.07

TOTAL ASSETS (D + E) 16990.28 18153.00 20028.59 21906.39

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 25544.40 29590.30 33259.50 36252.85

Other Income 9.00 16.30 19.56 22.49

Total Income 25553.40 29606.60 33279.06 36275.35

Expenditure -23586.00 -27224.00 -30648.63 -33352.62

Operating Profit 1967.40 2382.60 2630.43 2922.72

Interest -938.20 -1096.70 -1173.47 -1290.82

Gross profit 1029.20 1285.90 1456.96 1631.91

Depreciation -473.10 -565.10 -621.61 -671.34

Profit Before Tax 556.10 720.80 835.35 960.57

Tax -36.30 -28.30 -42.60 -48.03

Net Profit 519.80 692.50 792.75 912.54

Equity capital 438.31 438.31 438.31 438.31

Reserves 6244.56 6884.30 7677.05 8589.59

Face value 10.00 10.00 10.00 10.00

EPS 11.86 15.80 18.09 20.82

Quarterly Profit & Loss Statement for the period of 31 MARCH, 2013 to 31 DEC, 2013E

Value(Rs.in.mn) 31-Mar-13 30-June-13 30-Sep-13 31-Dec-13E

Description 3m 3m 3m 3m

Net sales 9080.90 7085.30 7780.00 7974.50

Other income 10.70 2.40 3.00 2.85

Total Income 9091.60 7087.70 7783.00 7977.35

Expenditure -8261.20 -6542.50 -7233.20 -7360.46

Operating profit 830.40 545.20 549.80 616.89

Interest -414.20 -246.90 -246.00 -241.08

Gross profit 416.20 298.30 303.80 375.81

Depreciation -179.60 -137.80 -138.50 -141.27

Profit Before Tax 236.60 160.50 165.30 234.54

Tax 29.70 -18.60 -20.80 -24.39

Net Profit 266.30 141.90 144.50 210.14

Equity capital 438.30 438.30 438.30 438.30

Face value 10.00 10.00 10.00 10.00

EPS 6.08 3.24 3.30 4.79

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 11.86 15.80 18.09 20.82

EBITDA Margin (%) 7.70 8.05 7.91 8.06

PBT Margin (%) 2.18 2.44 2.51 2.65

PAT Margin (%) 2.03 2.34 2.38 2.52

P/E Ratio (x) 6.62 4.97 4.34 3.77

ROE (%) 7.78 9.46 9.77 10.11

ROCE (%) 17.27 19.63 20.07 20.65

Debt Equity Ratio 1.11 1.05 1.00 0.93

EV/EBITDA (x) 5.43 4.60 4.32 3.99

Book Value (Rs.) 152.47 167.06 185.15 205.97

P/BV 0.52 0.47 0.42 0.38

Charts:

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 78.55, the stock P/E ratio is at 4.34 x FY14E and 3.77 x FY15E respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.18.09 and

Rs.20.82 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 21% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 4.32 x for FY14E and 3.99 x for FY15E.

� Price to Book Value of the stock is expected to be at 0.42 x and 0.38 x respectively for FY14E and FY15E.

� We expect that the company surplus scenario is likely to continue for the next three years, will keep its

growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.86.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

Lighting Industry

The Indian lighting market has been segmented into General Lighting Services (GLS), Florescent Tube Lamps

(FTL), Compact Florescent Lamps (CFL), special lamps, other lamps, luminaries, control gear and high mast,

accessories and components. The contribution of CFL to the overall lighting market has been increasing over the

years given the longer life energy efficiency. In 2011, the Indian Lighting market size was around USD 2 bn. The

Indian lighting market has witnessed a CAGR of 12.8% over 2005-2011 periods. The growth of the Indian

Lighting market was mainly influenced by demand for CFL. The CFL market has grown at a higher CAGR of 27.2%

annually from 2005-2011. Going forward the Indian lighting market is expected to grow at a CAGR 7.6% annually

from 2012 till 2016 mainly led by

1) Rising population

2) Higher personal disposable income

3) Changes in government regulation and

4) Increase in electrification of households in India

Steel Industry

India has become the world’s fourth-largest producer of crude steel. The country is slated to become the second-

largest steel producer by 2015 as large public and private sector players strengthen steel production capacity in

view of the rising demand.

The total market value of the steel sector in India stood at US$ 57.8 billion in 2011 and is expected to touch US$

95.3 billion by 2016. Total crude and finished steel production grew at a compound annual growth rate (CAGR)

of 6.6 per cent and 4.2 per cent over FY08-11 to reach 69.6 million tonnes (MT) and 66 MT respectively.

Steel consumption is expected to grow at an average rate of 6.8 per cent to reach 104 MT by 2017 driven by

rising infrastructure development and growing demand for automotives. The infrastructure sector is India’s

largest steel consumer, accounting for 63 per cent of total consumption in FY11. Attracted by the growth

potential of the Indian steel industry, several global steel players have been planning to enter the market. The

Government of India (GOI) has allowed 100 per cent foreign direct investment (FDI) in the sector through

automatic route in order to attract foreign investments.

Market Size

Latest figures by World Steel Association (WSA) has revealed that India's steel production increased by 3 per

cent to 59.62 million tonne (MT) in the first nine months of 2013, as against 57.90 MT in the corresponding

period last year. Moreover, the data showed that India's rate of production growth was the second-best following

China among the major global producers.

The country’s steel output grew to 6.54 MT in September 2013 from 6.24 MT during the same month in 2012.

Investments

• JSW Steel has acquired Heidelberg Cement India's 0.6 million tonne per annum (MTPA)-cement grinding

facility in Raigad, Maharashtra for an undisclosed sum. The two companies have inked the Business Transfer

Agreements recently.

• The deal marks Heidelberg’s philosophy of moving away from less profitable assets and focussing on more

strategic and competent areas. JSW Steel had acquired the company through the erstwhile JSW Ispat Steel,

which is now its merged associate firm.

• Leitwind Shriram Manufacturing has received a Rs 3460.00 million (US$ 56.18 million)-order for the supply

and installation of machines from Neyveli Lignite Corporation for a 51 megawatt (MW) wind energy plant at

Kaluneerkulam near Tirunelveli in Tamil Nadu.

• Leitwind, an India-European joint venture (JV) between Shriram Group and Windfin BV (formerly Leitwind

BV) which makes wind electric generators, has recently completed a project encompassing supply, erection

and commissioning of a wind farm of a capacity of 43.2 MW in Tadipatri in Andhra Pradesh for Orient Green

Power Company Limited.

• Leitwind has the onus to procure land, desig, manufacture, supply, install, test, commission the machines, and

also take care of the operation and maintenance of farm. The order is to be executed over a period of 10

months.

• Meanwhile, Jindal Steel and Power Ltd (JSPL) has secured five exploration licences for iron ore mining in

African countries including Namibia, Gabon, Sierra Leone, Mauritania and one in South Africa. Navin Jindal-

led company has already commenced assessing and checking the exact number of reserves in the region. It is

also mulling over steel production and mining projects in Brazil, Indonesia and Mongolia. It has recently

commissioned a steel melting shop and its allied unit of the 6 MTPA integrated steel plant at Angul in Odisha.

• JSPL has a steel capacity of about 5.5 MTPA in India and 2 MTPA in Oman, outside India. It intends to increase

its total steel capacity to 11.5 MTPA by 2015-16. The iron ore will also be used for its steel plant in Oman. It

mainly exports steel in West Asia, Africa, Southeast Asia, Taiwan and the Arabian Peninsula. The exports

contribute 20-25 per cent of total steel products.

• Tata Steel is all geared – up to launch 30 new products in Europe in FY14. The company had launched 17

steel products in the European market in FY13. Also, Tata Steel has commissioned a 3 MT unit in Jamshedpur

while it has spent Rs 100000.00 million so far for the first phase of another 3 MT plant in Kalinganagar,

Odisha. The plant is scheduled to be commissioned in the second half of FY15.

Government Initiatives

Owing to its intense connections with core infrastructural segments of the economy, steel industry is of high

priority and importance.

� Union Minister of Steel has recently stressed on establishing Steel Processing Units (SPUs) in order to

increase the demand of steel in rural areas and to enhance steel consumption in hinterlands. The effort aims

at reducing the difference between the national annual consumption of 60 kg of steel per person and rural

annual consumption of 10 kg per man. Setting up these factories will facilitate availability of various steel

products in remote villages at reasonable prices. Also, these set-ups will open avenues for employment and

rapid development of the region.

� In such regard, the Minister of Steel laid the foundation stone of a Steel Processing factory at Koyle Jungle,

Gonda in September 2013 for production of 1,00,000 tonnes of TMT. This factory will be set up by RINL, a

public sector undertaking (PSU) under the Ministry of Steel. A similar unit was founded at Dimroni, Jhansi in

August. Many such other plants and factories have been commissioned in Indian villages in 2013.

� The point to be highlighted here is that all these units have been set up by PSUs under the Ministry of Steel in

collaboration with private companies. The raw material for steel processing in these factories will be

provided by the PSUs and the products will be sold in rural markets at cost-effective prices.

Road Ahead

WSA has released its estimates which state that Steel demand in India is projected to grow 3.4 per cent in 2013,

higher than the 2.6 per cent growth rate recorded in 2012. Moreover, in 2014, the demand is poised to grow at

even a higher rate of 5.6 per cent; thanks to sped-up efforts to implement structural reforms. The leading

international steel body expects India's total steel demand is to touch 7.4 MT in 2013 wherein the domestic

expansion is pegged higher than the 3.1 per cent global growth.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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