Surya Roshni Ltd. share price target

Surya Roshni reported mixed set of results as its top-line was ahead of our estimate; however, EBITDA margin was slightly weaker than our forecast as Lighting & Consumer Durables EBITDA margin contracted 250 bps YoY to 8.2%. Nevertheless, Surya's Steel pipes segment EBITDA/t remained firm at Rs4,060 (+23% YoY). Also, its steel pipes order backlog continued to increase and stood at Rs10 bn which provides strong...

We initiate coverage on Surya Roshni (Surya) with a BUY rating and a target price of Rs694. Surya is the second largest manufacturer of steel pipes (contributes 67% to EBITDA) and also the second largest LED manufacturer in India. With focus on improvement in product mix in steel pipes segment, we expect its margins to improve over the next two-three years. In Lighting & Consumer Durables segment, we anticipate strong growth in segment revenue led by rising demand for LED lights in India and also import substitution. Surya has entered home appliances in the past five years - we expect this segment to record strong growth given strong distribution network of...

Surya Roshni (SRL) reported a decent set of numbers for 2QFY2016. Its top-line grew by 4.3% yoy to Rs722cr led by a superb performance by the Lighting division. The EBITDA margin witnessed a slight decline of 36bp yoy to 7.8% on account of higher employee and other expenses. However, the same was mostly made up by a 244bp yoy decline in raw material cost to 70.3% of sales. The interest cost declined by 16.3% yoy to Rs24cr and as a result, the net profit grew by 3.7% yoy to Rs13cr vis--vis our estimate of Rs17cr. Structural shift in the Lighting industry presents new growth opportunity: We expect SRL to benefit from the structural shift in the lighting industry towards LED lighting, which is expected to grow at a CAGR of 28% over FY2015E-21E. SRL is the second largest lighting company in India with a market share of ~ 25%. With demand for LEDs expected to rise, the company would be a key beneficiary, given that the companys Surya brand is well recognized and has superior market reach with its 2 lakh plus retailers. Higher contribution from Lighting division to boost margins: SRLs Steel Pipes business, entails low profitability and has...