2010VP08 Surya Roshni Ltd

Surya Roshni
BSE: 500336 NSE: SURYAROSNI ISIN: INE335A01012

Face Value : Rs 10.00 - CMP : Rs. 83.40 - Market Cap : Rs. 216.7 Cr - Book Value : Rs. 75.93
EPS (TTM) 8.8 - P/E 8.12 Industry P/E 12.96

Surya Roshni Ltd has emerged today as a vast conglomerate with the largest ERW pipe manufacturing plant in India, a large cold rolling strip mill at Bahadurgarh (Haryana) and two lighting units one each at Kashipur (UP) and Malanpur (MP) producing fluorescent tube lights, GLS lamps, CFL lamps, HPSV Lamps, HPMV Lamps and Metal Halide Lamps. It is the second largest seller of GLS and FTL in India. The company has manufacturing units at Bahadurgarh in Haryana, Kashipur in Uttar Pradesh and Malanpur in Madhya Pradesh. SRL has two subsidiaries abroad, i.e. Surya Roshni, USA and Surya Roshni (HK), Hong Kong. The company also markets a wide range of Luminaires and Accessories, High Mast Lighting Systems, Lighting Poles, Decorative Poles and MCBs. Surya is the only lighting company of India with 100% backward integration. It is the single largest manufacturing company of Lamps in the country.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. Surya exports its products to 40 countries. IOCL, OIL, Essar Projects, GAIL, EIL, Reliance Petro, ONGC and L&T are some of the major customers of the company for steel pipes.

It`s turnover ending March 2009 is around Rs.1700 crores (more than USD 360 Million)Surya possesses two state-of-the-art plants at Malanpur and Kashipur for lighting products set up in 1984 and 1992 respectively. The company has a wide marketing network with its branches and dealer and retailer outlets spread across the length and breadth of the country. Over the years, Surya has built up a strong sales network of 30 branch offices, over 1,500 dealers and more than 40,000 retailers.

Surya Roshni is a company which is broadly into two business segment, Steel and lighting. Sales for first 9-month are close to Rs 1435 crore, profit after tax is Rs 16.25 crore and cash profit is Rs 37 crore. Equity capital of the company is just about Rs 26 crore which gives it a market cap of about Rs 217 crore. This company has got a 20-year track record of uninterrupted dividend payment. Company is very rich in assets and has a huge land bank in Bahadurgarh which it is planning to develop as a real estate.The company does sales of Rs 1700 crore in last year and this year (FY10) it is going to be close to Rs 2000 crore. Market cap of the company is just about Rs 190 crore and sales to equity is just about 60 times which means even a 1% increase in net profit margin would increase its EPS by close to Rs 6-7.Company has started a new plant in Gujarat which makes spiral welded pipes and this is again going to add to the topline and bottomline of the company in FY11.

Surya Roshni has raised its steel pipe capacity from 3 lakh tonne to 4 lakh tonne. The company is putting up a steel plant in Bhuj at a total outlay of Rs 600 crore for the year. JP Agarwal, CMD, Surya Roshni, says all required funds have been tied up. “We have raised preferential shares, including internal accruals, to fund this plan.” Going forward, Agarwal expects the lighting business to clock 50% growth. He also expects the steel business to grow by 20%. “This fiscal we will touch Rs 2,100 crore revenue versus Rs 1,700 crore last year.”He says 2011 will be much better year post steel pipe units coming on-stream. “Revenues will be substantially higher than Rs 2,600 crore in FY11

Surya Roshni expects more than double growth in its turnover at Rs 5,000 crore in financial year 2011-12 from the projected turnover of Rs 2,000 crore in current fiscal. He said Surya has already invested Rs 550 crore to set up two steel pipe manufacturing plants in Gujarat and Madhya Pradesh.

Subsidiary Investments

Surya Roshini, a Gujarat based company and a lighting and steel pipe solutions provider is diversifying into Steel & cement production.The Group plans to set up a five million tonnes steel plant with an investment of Rs 20,000 crore in Karnataka. The initial proposal is on for selection of area and term of funding.

It is in advance terms for setting up a 20 lakh tpa cement plant with an investment of Rs.1100 crore and it is likely to go operational by 2012. According to sources, proximity to ports, availability of raw materials and fast track clearances made the company to foray into this sector. The company has formed a subsidiary Surya Global Cement Ltd to implement the project.

As against such big plans for the company to achieve a turnover of Rs 2600 cr for 2010-11 and Rs 5000 cr in 2011-12 as against projected turnover of Rs 2000cr for 2009-10. The projected PBDT is likely to be Rs 60 crore for 2009-10, Rs 104 cr for 2010-11 and Rs 247cr for 2011-12.

At the current market capitalisation of Rs 217 crore the P/E for various years are as follows

Year NProfit PE at Rs 84

2009-10 23.4 9.34 (shares outstanding 2.6 crore shares)

2010-11 57.2 5.73 (expects capital expanded to 3.9 crore shares)

2011-12 178.8 2.45 (expects capital expanded to 5.2 crore shares)

so it looks to be a safe investment given the fundamentals, the cash earnings and the cash flows.

Peer PE is around 13x . expecting an improvement in OPM & NPM due to availability of raw materials at cheaper price from (steel venture) and overal improvement in performance

Based on PE of around 13x one can expect upside of 120-130 % in 2010-11 and 320-330% in 2011-12 from current price of 83.4 with extremely restricted downside risk.