Surya Roshni - 4QFY2015 Result Update - Angel Broking

Surya Roshni's 4QFY2015 numbers have come in broadly in line with our estimates. The top-line for the quarter improved by 1.0% yoy to Rs. 785cr. The Steel business reported a 17.3% yoy decline in revenues to Rs. 507cr (gross revenue) and the Lighting business posted a robust growth of 53.9% yoy to Rs. 336cr (gross revenue). The EBITDA margin for the quarter contracted by 112bp yoy to 6.8%, mainly due to higher other expenses. Interest expense for the quarter declined by 35.9% yoy to Rs. 24cr while depreciation and other income remained flat on a yoy basis. Consequently, the net profit increased by 61.7% yoy to Rs. 16cr, vis-à-vis our expectation of Rs. 11cr.

Structural shift in the Lighting industry presents new growth opportunity: The Lighting business is primed for a good performance owing to the structural shift in the industry towards LED (Light Emitting Diodes) lights. Citing cost efficient nature of LEDs, Electric Lamp and Components Manufacturers Association (ELCOMA) projects the share of LEDs in the Lighting industry to increase substantially. Major initiatives like changing all street lights and lights in public spaces to LED lights, by the government, are expected to fuel growth of LEDs. As a result, the lighting industry is expected to grow at a CAGR of 22.8% over FY2014-17E to Rs. 25,000cr and reach the Rs. 37,000cr mark by FY2021. This bodes well for the Lighting division of the company which is likely to contribute more significantly to the overall top-line, mainly due to the company's vast retail presence.

Exploring newer avenues: Thanks to its strong network of retailers, the Fan business (which was launched in January 2014) has received a good response in a relatively shorter period of time; clocking revenues of ~Rs. 60cr in FY2015. Encouraged by the good response, the company has entered the Home Appliances business and will also be venturing into the business of providing solar based lighting systems for rural and urban use. Leveraging upon its strong network, we expect the company to successfully scale up its new ventures.

Outlook and Valuation: With higher contribution from the Lighting business and entry into newer businesses, we expect the company to post a CAGR of 6.2% in the top-line over FY2015E-17E to Rs. 3,223cr. Owing to better margin profile of the Lighting business, the EBITDA margins are estimated to improve from 7.8% in FY2015E to 8.7% in FY2017. Consequently, the net profit is expected to post a CAGR of 25.0% over FY2015E-17 to Rs. 84cr. At the current market price, the stock is trading at 6.4x its FY2017E earnings. We reiterate our Buy rating on the company and have revised the target price to Rs. 152 based on SOTP valuation.

Shares of SURYA ROSHNI LTD. was last trading in BSE at Rs.111.5 as compared to the previous close of Rs. 110.5. The total number of shares traded during the day was 35578 in over 389 trades.

The stock hit an intraday high of Rs. 115.1 and intraday low of 110.2. The net turnover during the day was Rs. 4036684.

Source : Equity Bulls

Keywords