Surya Roshni Limited (SURYAROSNI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Surya Roshni Limited Q2 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Raju Bista, Managing Director at Surya Roshni Limited. Thank you, and over to you, sir.

[Foreign Language] Thank you very much. Good evening, and season's greetings to everyone. On behalf of Surya Roshni Limited, I extend a very warm welcome to everyone for joining us on our call today. On this call, we are joined by Tarun Baldua, CEO of Steel Division; and newly inducted, Mr. Jitendra Agrawal, CEO for Lighting & Consumer Durables; our CFO and Company Secretary, Mr. B.B. Singal; and SGA, who is our Investor Relations Advisor. I hope everyone had an opportunity to go through the financial results, which we have recently published and also uploaded to the stock exchange and our own company site also. The company reported a healthy set of number and global uncertainty rising input cost, especially on freight, shipping, fuel cost and adverse currency movement. The company fare well on finance -- financial as well as operational metrics. The company could weather the storm, underpinned by inherent core fundamental strength built over the year, and our team has displayed sheer operational excellence and resilience during these times. Coming to the Lighting & Consumer Durables. Q2 and H1 FY '23 revenue grew by 12% and 29% year-on-year, respectively, mainly on account of an improved product mix, with good growing shares of new age line of product. LED revenue grew by 29% and 48% year-on-year during Q2 FY '23 and H1 FY '23, respectively, backed by value-added product like LED, downlighters, battens and other luminaries. Professional Lighting, too, also witnessed a robust 37% growth and 49% growth in terms of revenue for Q2 and H1 FY '23, along with a good inflow of orders. The company is aggressively growing this business, and the effect is clearly visible in the order inflow and current order in hand. Consumer Durables, too, saw a significant pickup in demands towards the end of Q2 FY '23, maybe due to the festival season. And we expect some spillover effect in Q3 FY as well. The company is planning to leverage strong traction in Lighting & Consumer Durables by strategically launch trendy products. And the company has undertaken multiple price hike in order to mitigate rising input cost. We are witnessing stabilization for multiple input cost, especially on the commodity fronts. And we believe that most of the input cost has [ peaked ] out, and we should witness a downtrend in the H2 FY '23. This downward trend, along with already undertaken price hikes, should help the company to improve the margins further, especially in Lighting & Consumer Durables. And the company CapEx under the PLI scheme is going as per the schedule and will help the company to reduce reliance on imports, reduce the cost and improve the margins as well. The company continued to invest in adopting modern processes, focusing on R&D and quality improvement. In fact, the replacement cost now stand at 5.9%, which was, at one time, it was more than 12%, a significant reduction on year-on-year as well as quarter-on-quarter basis. The company is focusing to reduce these costs further going forward. Over the year, Surya Roshni has built strong and extensive capability and competence in designs, manufacturing, R&D and operational excellence. The company has accelerated branding the marketing initiatives as well as increase the dealer and distribution engagement program. The company has successfully gained the market share in metro and tier 1 cities along with further deepening the reach in rural market. And we remain confident that all these initiatives has helped the company to remain ahead of the curve, and the company remain well positioned to scale this business rapidly going forward without requiring a large CapEx. Now moving on to the Steel Pipes & Cold Rolling division. Steel Pipe and Strip performance was affected in terms of revenue due to step correction in global steel price. At one time, it was INR 75,000 a ton, now it has come down to INR 55,000, but the EBITDA has grown by -- so volume is almost at the same level, and -- but the EBITDA has grew by 30% year-on-year to INR 5,259 per ton in Q2 FY '23, mainly on account of healthy revenue mix and value-added products. So we believe that these headwinds are temporary in nature and steel prices are likely to be bottomed out. We expect H2 FY '23 to be far better than H1 FY '23 in terms of revenue growth, especially in Steel Division. And lastly, I would also like to welcome once again, Mr. Jitendra Agrawal onboard as CEO for Lighting & Consumer Durables, having very rich experience in electrical and lighting industry, which -- Luminous power technologies, including 19 years at Philips India Limited. And in his last role at Philips, he was there as a Senior Director responsible for Professional Lighting. So we look forward to work with him and firmly believe that under his leadership, the Lighting & Consumer Durables will scale to a very new height. And lastly, now I would like to request Mr. B.B. Singal who is our company CFO and Company Secretary as well, for his remarks on finance.

Thank you, respected MD, sir, and a very good evening to all the participants on the call. The company reported a very good performance for Q2 financial year '23, owing to a strong recovery in Lighting & Consumer Durables. During this period, the company has been able to demonstrate the strength of its business dynamics. For the quarter, revenue grew by 2%, EBITDA grew by 28% and PAT grew by 54% on a year-to-year basis. For first half financial year '23, the revenue was INR 3,824 crores as compared to INR 3,399 crores, a growth of 13% on a year-to-year basis. EBITDA stood at INR 202 crores and PAT at INR 90 crores as against INR 82 crores. EBITDA grew by 3% and PAT grew by 11% year-to-year, respectively. In Lighting & Consumer Durables, Q2 financial year '23 revenue stood at INR 383 crores, a growth of 20% -- 12% year-to-year. The growth was mainly on account of a higher share of value-added LED lighting products, professional lighting and consumer durables. EBITDA and PBT grew 12% and 17% year-to-year to INR 31 crores and INR 23 crores for Q2 financial year '23. Coming to H1 financial year '23 performance. Revenue came in at INR 718 crores, a growth of 29% year-to-year. Similarly, EBITDA and PBT stood at INR 53 crores and INR 37 crores, a growth of 20% and 34%, respectively. In Steel Pipes & Strips, the company's Q2 financial year '23 revenue remained largely flattish to INR 1,601 crores, mainly due to the reasons discussed by our respected MD earlier. However, during the same time, EBITDA and PBT grew 34% and 70%, respectively, to INR 100 crore and INR 68 crores, respectively, owing to a higher share of value-added products such as API coated pipes. EBITDA per metric ton stood at INR 5,259 compared to INR 4,060 year-to-year. For first half financial year '23, revenue grew by 9% on a year-to-year basis to INR 3,106 crores, while PBT grew by 2% on a year-to-year basis. Now coming to the balance sheet and working capital cycle. The company has reduced debt by INR 72 crores in first half of financial year '23 and has become long-term debt-free. As a result, finance cost reduced by 26% on a year-to-year basis in the first half of financial year '23. Similarly, debt to equity has also reduced to 0.31 as on 30th September against 0.37 as on 31st March 2022. The working capital cycle remained largely stable on a sequential basis at 58 days in second quarter financial year '23 compared to 57 days in quarter 1 financial year '23 for the company, Lighting & Consumer Durables to 66 days in quarter 2 financial year '23 compared to 71 days in quarter 1 financial year '23 and in Steel Pipes & Strips to 56 days in second quarter of financial year '23 compared to 54 days in first quarter of financial year '23. Now coming to the return ratios. ROCE has been improved by 530 basis points to 19.6% for the second quarter of financial year '23 from 14.3% in quarter second financial year '22. While return on equity has improved by 445 basis points to 17.1% in second quarter of financial year '23 from 12.6% in second quarter of financial year '22. ROCE has remained largely stable at 13.8% for first half of financial year '23 compared to 13.7% in first half of financial year '22. Return on equity stood at 11.9% in first half of financial year '23 compared to 11.7% in first half of financial year '22. Now with this, I conclude the presentation and open the floor for further discussion.

[Operator Instructions] The first question is from the line of Bhavesh Chauhan from IDBI Capital.

Sir, congratulations on a great set of numbers. My question is on Steel Pipes EBITDA per ton, which was very good at INR 5,200, and we have a very strong order backlog of API. So what is the sustainable range in the, let's say, next 1 year or so or maybe 2 years?

Bhavesh bhai, Raju, this side. [Foreign Language] So today only, we had a very long discussion with Audit Committee and even with Board also. [Foreign Language] So I hope I am clear.

Yes, Sir, secondly, [Foreign Language]. What could be our CapEx plans, capital allocation mix?

[Foreign Language]

Okay. And sir, one last thin sir, obviously, lot of news comes out of Surya Roshni regarding demerger. So what are the promoters' views regarding that? Should it -- it's long time to go still?

[Foreign Language]

[Operator Instructions] The next question is from the line of [ Surya Narayana ] from Sunidhi Securities.

Sir, am I audible?

Yes, go ahead.

Okay. Sir, just to understand what kind of price hikes we have taken this quarter in Consumer Durables, especially Consumer Durable and Lighting, if you can give.

[Foreign Language]

Okay. And regarding the steel business, are we seeing any kind of cost pressure mounting due to the rise in the coal prices and coal prices especially staying at a higher level? So what are the scenarios in the input side in the steel business?

[Foreign Language]

So what is the HR coil has reduced from the peak level? Because we have seen this -- what we are getting the news is from the HR coil prices have fallen by 40% in the past 6 months. So what is a new case?

See, it is true. The HR coil basically, everybody is using the same HR coil. And we are not different on that. So it was INR 75,000 a ton. In which month Tarun Ji?

Yes. It's about April starting.

April May almost INR 75,000 [Foreign Language] which has come down to INR 55,000 [Foreign Language].

If we say government will allow the export to happen, maybe in the second half because government has stopped the exporter to supply it to the domestic market to curb the inflation and it also buys most steel. So if that happens then HR coil, do you think HR coils stabilizing here or falling further to aid our margin?

[Foreign Language]

So in the second [indiscernible] the HR coil [indiscernible] just last question. So if the coils will be stabilizing here or maybe falling a little bit or, let's say, hardening here, then can we see a stable EBITDA in the second half as well, I mean, similar to H1?

Yes, yes. [Foreign Language]

Sir volume [Foreign Language]

[Foreign Language]

The next question is from the line of Manish Bhandari from Vallum Capital.

My question is regarding the PLI scheme. So [Foreign Language]?

[Foreign Language]

Okay. My second question is regarding the change in the management. [Foreign Language]?

See, Vinay Surya Ji is from promoter family and [Foreign Language]

[Foreign Language]

[Foreign Language]

Sir, last question [Foreign Language]

[Foreign Language]

[Operator Instructions] The next question is from the line of Pranav Jain from HDFC Securities.

Sir, I wanted to know like what is our total capacity in the Lighting & Consumer Durables segment? And what are the current utilization levels in that?

See, overall Lighting division capacity utilization. So basically [Foreign Language] as far as LED, which is a growth segment [Foreign Language]

Okay, sir. Okay. [Foreign Language]?

[Foreign Language]

Okay. Okay, sir. Sir, lastly, [Foreign Language]

[Operator Instructions] The next question is from the line of Anurag Patil from Roha Asset Managers.

Sir, in Lighting segment, earlier, we used to talk about 20%, 25% kind of a growth. Now we are toning it down to 17%, 18% and then 15%, 16%. So what has changed? Can you just explain?

[Foreign Language]

Okay. Okay. And sir, earlier, we were planning to roll out a major ad campaign with Ogilvy. So what is the status on that?

[Foreign Language]

The next question is from the line of Aman Soni from Prudent Equity.

Yes. So I just have one question. I just wanted to know what is the opportunity that we are looking at in the export market. Currently, I believe our exports is quite low. So specifically, I just wanted to know the basic demand scenario, what is looking like specifically for the API coated pipes?

See as far as API is concerned, almost 95% business API [Foreign Language]. We don't have that much capacity to export in fact. [Foreign Language]

The next question is from the line of Rohit Suresh from Samatva Investments.

[Foreign Language]

[Foreign Language]

[Foreign Language]

Tarun Baldua, here. So mainly the value-added products you can consider as far as our product mix is concerned. Number one is the API steel, which is purely a high-end value-added product. Another is the GI Pipe, which are the high value-added products. And the third one is the large dia section pipes, DFT, which we have recently installed a...

All coated pipes.

And all coated pipes. So these are the mainly value-added products. General products, you can consider the infrastructural section pipe, round pipe, black round pipe and the CR pipe. So this is the distribution out of the total product mix.

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Operator Instructions] The next question is from the line of Hiten Boricha from Joindre Capital.

[Foreign Language]9% to 10% will be a volume growth.

[Foreign Language]

That will be in year FY'23 right?

Ji, FY '23, yes.

[Foreign Language]

[Foreign Language] ,Q1, Q2 breakup [Foreign Language] INR 1,69,000 and [ INR 1,17,000 ] is Q1. And Q2 is INR 2,04,000. So this is the total...

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] But we will prepone the delivery, then we can accelerate the volume in this 6 months itself.

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

Sir, last question, raw material HR coils related. So currently, [Foreign Language] considering the prices are very volatile because it goes up?

[Foreign Language]

[Foreign Language]

95% domestic source [Foreign Language] We are on port and we are exporting. We have the license also to [Foreign Language] import the raw material without paying any duty. [Foreign Language]

The next question is from the line of [ Saket Kapoor ] from Kapoor Company.

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] So we have already achieved the iterated capacity. So rated or actual, there is always -- almost 90% utilization, then you are achieving the full capacity utilization in there.

Correct. [Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

For the full year?

Full year.

[Foreign Language]

[Foreign Language] So that has already been corrected. [Foreign Language]

Sir, lastly, sir, PVC pipe segment, [Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

I fully agree and appreciate your concern. [Foreign Language]

Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Bharat Bhushan Singal, CFO, for closing comments.

Thanks to all. Mr. Jigar and Mr. Chinmay.

So we are closing?

Yes sir, we are closing.

So thank you very much. Thank you, everybody.

Thank you. On behalf of Surya Roshni Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.