Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 EQUI-GRADE Analytical Power for Investment Decision Iron & Steel and Lighting Products November 28, 2013 Good Fundamentals, Moderate Upside Potential CMP: Rs 79/ CIV: Rs 95 Sensex: 20,420 Update Q2 FY14 (July 1, 2013 to September 30, 2013) Fundamentals Valuation CEG is explained on page 6 1 2 3 4 5 Market Capitalisation Rs. Crore 346.3 Enterprise Value Rs. Crore 1,463.7 52 Week High / Low Rs. 84/59 Diluted EPS (FY13) Rs. 16.8 P/E (FY13) times 4.7 Regression Beta times 0.6 Average Daily Volumes* Lakh 0.5 * BSE + NSE for last 52 weeks 150 100 50 CARE EQUIGRADE GRID (CEG) KEY EQUISTATS STOCK PERFORMANCE Returns 1M 3M 6M I Yr Absolute 5% 29% 2% 10% Rel. to Sensex 5% 14% 1% 4% DII 0.01% Price Movement (rebased on 100) SHARE HOLDING PATTERN Others 35.98% Sensex FII 0.00% Surya Roshni Ltd ANALYTICAL CONTACTS Jumana Badshah Senior Manager +91-22-61443406 Viral Shah Deputy Manager +91-22-61443415 1 CMP: Current Market Price; CIV; Current Intrinsic Value Promoter 64.01% CARE Equity Research maintains a fundamental grade of 3/5 to Surya Roshni Limited (SRL) Robust growth in revenue led by lighting division SRL posted a standalone revenue of Rs.778 crore in Q2FY14 (refers to period July 1 September 30) a y-o-y growth of 10.9%. The standalone revenue in H1FY14 grew at 11.8% y-o-y to Rs.1487 crore. The sales of lighting division and steel division grew by 21% and 6% y-o-y, respectively in H1FY14. During Q2FY14, SRL s lighting and steel segment reported revenue of Rs.327 crore and Rs.507 crore an increase of 21% and 3% y-o-y, respectively. Margins almost stable for both businesses Lighting segment reported a PBIT margin of 7.3% (down 51 bps y- o-y) while PBIT margin for steel segment was up by 18 bps y-o-y to 3.4%. This resulted in SRL reporting an overall PBIT margin of 4.9% for the quarter as compared to 4.8% in Q2FY13. Further revenue diversification in pipeline The company currently has a diversified revenue base with presence in steel (ERW pipes, CR strips, Spiral steel pipes), lighting (GLS, CFL, FTL, HID) and Poly Vinyl Chloride (PVC) pipes which mitigates risk from slowdown from any one segment. The company is now further diversifying into electrical fans business under its own brand SURYA. The company plans to launch a range of ceiling, table, pedestal, wall mounted and exhaust fans by December 2013. This is further expected to boost revenue growth for the company FY14 onwards. Valuation CARE Equity Research maintains the CIV of Rs.95 per share for the equity shares of SRL. Hence, at the Current Market Price (CMP) of Rs.79 per share, CARE assigns a valuation grade of 4/5, indicating that equity shares of SRL have Moderate Upside Potential at the CMP. Financial Information Snapshot (Consolidated) (Rs. Crore) FY12 FY13 FY14P FY15P Operating Income 3057 3569 3959 4380 EBITDA 231 310 344 374 PAT (After minority interest) 52 73 88 109 Fully Diluted EPS* (Rs.) 11.9 16.8 20.1 24.9 Dividend Per Share (Rs.) 0.0 4.7 1.1 1.1 P/E (times) 6.6 4.7 3.9 3.2 EV/EBITDA (times) 6.2 4.7 4.5 4.0 * Calculated on Current Face Value of Re.10/- per share 1 www.careratings.com
RESULTS ANALYSIS & PRICE PERFORMANCE CARE Equity Research retains the fundamental grade at 3/5, indicating Good Fundamentals The grading draws strength from 1) diversified revenue profile of the company, 2) over 4 decades of track record of the promoters in the business, 3) good brand recall for the company s two key brands Surya & Prakash Surya & 4) complete backward integration for the lighting division. The grade also factors in the market position of the company and its wide reach with over 200,000 retailers. The grade is however constrained by 1) low amount of value addition in steel pipes, which is also reflected in lower profit margins for the steel business & 2) high levels of competition in both the steel and lighting divisions. On the back of increase in demand for steel pipes arising from the oil and gas, infrastructure, water supply and sanitation projects coupled with expected increase in penetration of electricity in the country and development of infrastructure both in the private and public sector, which will boost the lighting division sales, SRL s revenue is expected to grow at a CAGR of around 10.8% during FY13 to FY15. Robust growth in revenue, in line with our projections The company witnessed strong growth in revenue on the back of healthy growth in the lighting division. SRL reported standalone revenue of Rs.778 crore in Q2FY14 up 10.9% y-o-y and Rs.1487 crore in H1FY14 up 11.8% y-o-y. The sales in lighting division and steel division grew by 21% and 6% y-o-y respectively in H1FY14. The growth in lighting division was led by large orders won for supply of CFLs. During Q2FY14, SRL s lighting and steel segment reported a revenue increase of 21% and 3% y-o-y to Rs.327 crore and Rs.507 crore, respectively. Margins almost stable for both businesses The EBIDTA margin remained largely flat at 7.0% in Q2FY14 while net margin improved to 1.9% in Q2FY14 from 1.7% in Q2FY13. Lighting segment reported PBIT margin of 7.3% (down 51 bps y-o-y) while PBIT margin for steel segment was up by 18 bps y-o-y to 3.4% in Q2FY14. This resulted in SRL reporting an overall PBIT margin of 4.9% for the quarter as compared to 4.8% in Q2FY13. Further revenue diversification in pipeline The company currently has a diversified revenue base with presence in steel (ERW pipes, CR strips, Spiral steel pipes), lighting (GLS, CFL, FTL, HID) and Poly Vinyl Chloride (PVC) pipes which mitigates risk from slowdown from any one segment. The company is now further diversifying into business of electrical fans under its own brand SURYA. The Company plans to launch a range of ceiling, table, pedestal, wall mounted and exhaust fans by December 2013. This is further expected to boost revenue growth for the company FY14 onwards. SRL stock price up 3.1% since its coverage initiation CARE Equity Research initiated coverage on SRL with a Current Intrinsic Value (CIV) of Rs.95 per share and a Valuation Grade of 4/5, based on the Current Market Price (CMP) of Rs.76.8 per share on October 23, 2013. The 2 www.careratings.com
22-Oct-13 27-Oct-13 01-Nov-13 06-Nov-13 11-Nov-13 16-Nov-13 21-Nov-13 26-Nov-13 stock price is now up by 3.1% cumulatively, since initiation. The benchmark index (Sensex) in comparison is up by 0.1% during the same period. SRL: Stock performance since initiation rebased to 100 130 120 110 100 90 80 70 CIV Sensex SRL Source: BSE and CARE Equity Research CARE Equity Research maintains a valuation grade of 4/5 for equity shares of SRL CARE Equity Research continues to value equity shares of SRL at a Current Intrinsic Value (CIV) of Rs.95 per share. The CIV has been arrived at using the Discounted Cash Flow (DCF) valuation methodology. At the Current Market Price (CMP) of Rs.79.0 per share, the CIV of Rs.95 per share results in a Valuation Grade of 4/5 indicating that the equity shares of SRL have a Moderate Upside Potential. 3 www.careratings.com
ANALYSIS OF INTERIM RESULTS Quarterly Income Statement Standalone (Rs crore) Q2FY14 Q2FY13 Q1FY14 Growth (y-o-y) Growth (q-o-q) Net Revenues 778.0 701.4 708.5 10.9% 9.8% Total Expenditure 723.3 651.9 654.3 11.0% 10.6% EBITDA 54.7 49.6 54.3 10.3% 0.7% Depreciation and amortisation 13.9 12.9 13.8 7.8% 0.5% EBIT 40.8 36.7 40.5 11.2% 0.8% Interest 24.6 23.0 24.7 7.2% -0.4% PBT 16.5 14.0 16.1 18.1% 3.0% PAT 14.5 12.2 14.2 18.6% 1.8% EBITDA Margin (%) 7.0% 7.1% 7.7% -3.9 bps -63.3 bps Net Margin (%) 1.9% 1.7% 2.0% 12.1 bps -14.5 bps Quarterly Segmental Financials Standalone (Rs Crore) Q2FY14 Q2FY13 Q1FY14 Growth (y-o-y) Growth (q-o-q) Revenues Lighting Product 327.2 270.4 265.5 21.0% 23.2% Steel Products 507.1 491.6 494.5 3.2% 2.5% Total Revenues 834.3 762.0 760.0 9.5% 9.8% PBIT Lighting Product 23.9 21.1 23.1 13.1% 3.3% Steel Products 17.3 15.9 17.6 8.9% -2.2% Total PBIT 41.1 37.0 40.7 11.3% 1.0% PBIT Margin Lighting Product 7.3% 7.8% 8.7% -50.8 bps -140.5 bps Steel Products 3.4% 3.2% 3.6% 18.0 bps -16.4 bps Total PBIT Margin 4.9% 4.8% 5.4% 8.1 bps -43.1 bps Half-Yearly Income Statement Standalone (Rs crore) H1FY14 H1FY13 Growth (y-o-y) Net Revenues 1486.5 1329.8 11.8% Total Expenditure 1377.6 1231.7 11.8% EBITDA 109.0 98.1 11.0% Depreciation and amortisation 27.6 25.6 7.9% EBIT 81.3 72.5 12.1% Interest 49.3 45.5 8.4% PBT 32.6 27.5 18.4% PAT 28.6 24.1 18.9% EBITDA Margin (%) 7.3% 7.4% -4.9 bps Net Margin (%) 1.9% 1.8% 11.6 bps 4 www.careratings.com
Consolidated Income Statement FINANCIAL STATISTICS (Rs. crore) FY11 FY12 FY13 FY14P FY15P Operating Income 2,317 3,057 3,569 3,959 4,380 EBITDA 192 231 310 344 374 Depreciation and amortisation 55 60 85 98 102 EBIT 138 171 225 246 272 Interest 68 116 145 142 137 PBT 71 56 82 106 137 Ordinary PAT (Before minority interest) 67 53 77 95 119 PAT (After minority interest) 67 52 73 88 109 Fully Diluted Earnings Per Share* (Rs.) 15.3 11.9 16.8 20.1 24.9 Dividend, including tax 7.6 0.0 20.4 5.0 5.0 * Calculated based on ordinary PAT on Current Face Value of Rs. 10/- per share Consolidated Balance Sheet (Rs. crore) FY11 FY12 FY13 FY14 P FY15 P Tangible Net worth (including Minority Interest) 490 542 598 688 803 Debt (incl. Preference Shares) 923 1,120 1,137 1,206 1,181 Deferred Liabilities 54 53 45 45 45 Capital Employed 1,468 1,715 1,781 1,939 2,028 Net Fixed Assets, incl. Capital WIP, net of reval reserve 877 1,012 1,036 1,028 1,017 Investments 13 6 6 6 6 Inventory 431 553 496 626 687 Receivables 299 343 450 517 562 Cash and Cash Equivalents 23 27 20 19 28 Current Assets, Loans and Advances 44 73 104 87 76 Less: Current Liabilities and Provisions 220 298 332 345 348 Total Assets 1,468 1,715 1,781 1,939 2,028 Ratios based on Consolidated Financials FY11 FY12 FY13 FY14 P FY15 P Growth in Operating Income 29.1% 31.9% 16.8% 10.9% 10.6% Growth in EBITDA 49.4% 20.1% 34.2% 11.1% 8.7% Growth in PAT 48.6% -22.1% 40.5% 19.7% 24.1% Growth in EPS -5.6% -22.1% 40.5% 19.7% 24.1% EBITDA Margin 8.3% 7.5% 8.7% 8.7% 8.5% PAT Margin 2.9% 1.7% 2.1% 2.2% 2.5% RoCE 13.2% 10.7% 12.9% 13.2% 13.7% RoE 18.0% 10.1% 12.9% 13.7% 14.6% Net Debt-Equity (times) 2.0 2.2 2.0 1.8 1.5 Interest Coverage (times) 2.0 1.5 1.6 1.7 2.0 Current Ratio (times) 3.6 3.3 3.2 3.6 3.9 Inventory Days 56 59 54 52 55 Receivable Days 38 38 41 45 45 Price / Earnings (P/E) Ratio 5.1 6.6 4.7 3.9 3.2 Price / Book Value(P/BV) Ratio 0.8 0.7 0.6 0.5 0.5 Enterprise Value (EV)/EBITDA 6.5 6.2 4.7 4.5 4.0 Source: Company, CARE Equity Research 5 www.careratings.com
CARE EQUIGRADE Grid (CEG) EXPLANATION OF GRADES Through CEG, CARE Equity Research addresses two critical factors considered by an investor while investing in a particular company s equity shares: 1. Fundamentals: Whether the company is fundamentally sound with respect to its business, its financial position, its management and its prospects. 2. Valuation: What is the Current Intrinsic Value (CIV) of the stock and how it compares vis-a-vis its Current Market Price (CMP). These factors are answered assigning quantitative grades to both these parameters. CEG is the snapshot of Fundamental Grade and Valuation Grade assigned by CARE Equity Research. Fundamental Grade This grade represents how sound the company is fundamentally, vis-à-vis other listed companies in India. This grade captures: 1. Business Fundamentals and Prospects 2. Financial Soundness 3. Management Quality 4. Corporate Governance Practices The grade is assigned on a five-point scale as under: Valuation Grade CARE Fundamental Grade Evaluation 5/5 Strong Fundamentals 4/5 Very Good Fundamentals 3/5 Good Fundamentals 2/5 Modest Fundamentals 1/5 Weak Fundamentals This grade represents the potential value in the company s equity share for the investor over a 1-year period. The Current Intrinsic Value (CIV) or the price arrived by CARE Equity Research on fundamental basis is compared with the Current Market Price (CMP) of the stock and the grade is assigned based on the gap between CIV and CMP of the stock. The grade is assigned on a five-point scale as under: CARE Valuation Grade Evaluation 5/5 Considerable Upside Potential (>25% upside from CMP) 4/5 Moderate Upside Potential (10-25% upside from CMP) 3/5 Fairly Priced (+/-10% from CMP) 2/5 Moderate Downside Potential (10-25% downside from CMP) 1/5 Considerable Downside Potential (>25% downside from CMP) Grading determination is a matter of experienced and holistic judgment, based on relevant quantitative and qualitative factors of the company in relation to other listed companies 6 www.careratings.com
DISCLOSURES Each member of the team involved in the preparation of this grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. This report has been sponsored by the company. DISLCLAIMER This report is prepared by Credit Analysis & REsearch Limited [CARE]. CARE has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain or from sources considered reliable. However, neither the accuracy nor completeness of information contained in this report is guaranteed. Opinions expressed herein are our current opinions as on the date of this report. CARE s valuation of the security is mainly based on company-specific fundamental factors. Equity prices are affected by both fundamental factors as well as market factors such as liquidity, sentiment, broad market direction etc. The impact of market factors can distort the price of the security thereby deviating from the intrinsic value for extended period of time. CARE EquiGrade on a security should not be construed as recommendation to buy, sell or hold a security; also it is not a comment on the suitability of the investment to the reader. The subscriber / user assume the entire risk of any use made of this report or data herein. CARE specifically states that it or any of its divisions or employees do not have any financial liabilities whatsoever to the subscribers / users of this report. This report is for personal information only of the authorised recipient in India only. This report or part of it should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person, especially outside India or published or copied for any purpose. About CARE Credit Analysis & Research Ltd. (CARE) was promoted in 1993 by some of the leading Indian banks and financial institutions. Major shareholders of CARE include IDBI Bank, Canara Bank and State Bank of India. CARE is amongst the premier credit rating agencies in India and provides credit rating, research and information services. CARE Ratings is well equipped to rate all types of debt instruments including Commercial Papers, Fixed Deposits, Bonds, Debentures, Hybrid Instruments, Preference Shares, Loans, Structured Obligations, Asset Backed Securities, Residential Mortgage Backed Securities etc. CARE s rating methodologies are in line with the best international practices. About CARE Research CARE s Research & Information Services Division (CARE Research) provides contemporary research and information covering various industries and financial markets. Our publications include Industry Research Reports, Updates on the industries tracked, Debt Market Review, Budget Analysis and other policy impact analysis and special commentaries on topical issues. CARE Research undertakes custom research assignments on requests by clients. CARE Research also provides various grading services like real estate star rating, equi-grade, edu-grade, etc. MUMBAI Ms. Wirra Dias Cell: +91-9867703030 Tel: +91-22-6144 3570 E-mail: wirra.dias@careratings.com AHMEDABAD Mr. Sharad Pandya Cell: +91-85111 13904 Tel: +91-79-4026568 E-mail: sharad.pandya@careratings.com BENGALURU Mr. Sandeep Kothapalli Cell: +91-72597 14863 Tel: +91-80-22117140 E-mail: sandeep.kothapalli@careratings.com CHENNAI Mr. V Pradeep Kumar Cell: +91 9840754521 Tel: +91-44-2849 7812/2849 0811 Email: pradeep.kumar@careratings.com HYDERABAD Mr. Shiva Sanket Cell: +91-90300 60965 Tel: +91-40-40102214 E-mail: shiva.sanket@careratings.com JAIPUR Mr. Rahul Jain Cell: +91 9314921496 Tel: +91-0141-4020213/14 E-mail: rahul.jain@careratings.com KOLKATA Ms. Priti Agarwal Cell: +91-98319 67110 Tel: +91-33- 4018 1600 E-mail: priti.agarwal@careratings.com NEW DELHI Mr. Puneet Arora Cell: +91-95822 32782 Tel: +91-11- 4533 3213 E-mail: puneet.arora@careratings.com PUNE Mr. Rahul Patni Cell: +91-78754 33355 Tel: +91-20- 4000 9000 E-mail:rahul.patni@careratings.com 7 www.careratings.com