Surya Roshni Limited (SURYAROSNI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Surya Roshni Limited Q3 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 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.

Shall I start?

Yes, sir. Please go ahead.

Yes. Good evening, everybody, and thank you, and wish you a very Happy New Year. On behalf of Surya Roshni Limited, I extend a very warm welcome to everyone for joining us today on this con call. We are joined by Mr. Tarun Baldua, CEO of Steel Pipes and Strips Division; Mr. Jitendra Agrawal, CEO of Lighting and Consumer Durables; our CFO and Company Secretary, Mr. Bharat Bhushan Singal; and SGA, our Investor Relations Advisor. I hope everyone had an opportunity, maybe very limited time opportunity, but I hope so that you had gone through the financial result and investor presentation, which has been uploaded on the stock exchange and on our company website as well. The company posted a very strong set of number along with continued improvement on operation parameters across the product and business segment. I will now discuss the -- some of the financial and operational highlights of each businesses, Lighting and Steel Pipes. For the quarter, EBITDA and PAT grew by 65% and 121%, respectively on a Y-o-Y basis. And for 9 months FY '23, the revenue was INR 5,845 crores as compared to INR 5,429 crores, a growth of about 8% Y-o-Y. EBITDA and PAT stood at INR 366 crores and INR 180 crores as compared to INR 294 crores and INR 122 crores, respectively. The company reported a healthy improvement in gross margin due to stable input cost and improved product mix. Coming to Lighting and Consumer Durables. Q3 and 9 months FY '23 revenue grew by 6% and 20% year-on-year basis, driven by increased share of value-added products, along with a pickup in consumer demand during the first half of Q3 FY '23 owing to capacity [ purchases ]. The company new edge line of products such as LED Lighting continue to do well. Professional Lighting reported one of the best quarter in terms of revenue as well as project execution. In fact, LED Street Light revenue grew by 66% and 74%, respectively, in Q3 and 9 months FY '23. The company remained positive about Consumer Durables, considering a huge addressable domestic market. The company continue to penetrate the existing dealer network and Surya Roshni product lineup is now available in more stores across the country, even in the Tier 1 city also. The gross margin has also improved due to operating leverage and premium product and stability in input costs. There is a scope to improve margins very drastically further also. And the CapEx under the PLI scheme is ongoing as per the schedule. This CapEx is once operationalized is expected to lower the input costs as well as lower the external dependency. The company is investing in reducing replacement costs and improving product quality. The replacement cost has further improved, and it has come down to 5.15%, a significant reduction from 9.29% year-on-year basis. Over the past few quarters, the company continue to invest in advertising and marketing with engagement with the dealers and distribution during the quarter. The company will continue to invest in R&D [Technical Difficulty] latest and stylish solution to the consumers. In order to further improve the efficiency and -- throughout our sales and marketing team, the company successfully implemented sales for technology in the last financial year, the company is now in process of implementing SAP and 4 ERP system to further improve overall efficiency, profitability and control systems. Now moving on to the Steel Pipes and Strips Division, the company top line was affected due to continuous fall in global steel price due to quarter. But nonetheless, with a growing shares of value-added product, EBITDA per tonne for Q3 FY stood at INR 6,733 per tonne, a robust growth of 76% year-on-year. Similarly, for 9 months FY '23, EBITDA per tonne is now at INR 5,200, a growth of about 22% year-on-year. So as mentioned during the previous earnings call, the company is well on track to achieve 10% volume growth along with EBITDA per tonne above last time, I have -- I think I have given a number of INR 5,000, but hopefully, we'll be doing INR 5,500 EBITDA per tonne for the whole year. For Q3 FY '23, the volume growth stood at 9%, which was slightly below our expectation due to some sort of fall in steel price globally. We are witnessing some stability in the steel price from the December and onwards. Should this stability continue, we have -- we can achieve further growth in terms of volume with a remarkable financial performance today only on the Board. So the Board has announced an interim dividend of INR 3 per equity share on the paid-up equity capital to revert the company's shareholder, and this is the interim dividend. With various initiatives such as cost rationalization, working capital optimization, premium product line, the company expect to create further value for our shareholders. The company continue to maintain a healthy momentum in order inflow for value-added products such as API coated, API export pipe, overall exports, GI pipe and other value-added pipes. We reasonably estimate good growth in our top line as well as bottom line in coming quarter. Over the year, the company has diversified its manufacturing base across the country at a strategic location to reduce the turnaround time and logistic cost. To further strengthen this value proposition, the company is setting up expansion at Hindupur with an outlay of INR 75 crores. This expansion is mainly aimed towards backward integration, which will help the company to reduce the cost, the entire CapEx will be funded through internal accruals, and it is expected to be complete by March 2024. This is from my side. And now I will like to request our CFO, Mr. B. B. Singalji to share his thoughts.

Thank you, respected MD, and a very good evening to all the participants on the call. The company reported a healthy set of numbers during Q3 as well as 9 months out of this financial year. For the quarter, EBITDA and PAT grew by 65% and 121%, respectively, on a year-to-year basis. And PAT was INR 164 crores against INR 90 crores, respectively. Revenue remained flattish on account of global commodity correction. For 9 months financial year '23, the revenue stood at INR 5,845 crores compared to INR 4,429 crores (sic) [ INR 5,429 crores ] during 9 months of the corresponding previous year, a growth of 8% year to -- year-on-year basis. EBITDA stood at INR 366 crores and PAT stood at INR 180 crores, a growth of 24% and 47% year-on-year, respectively. In Lighting and Consumer Durables, for the quarter, the revenue stood at INR 396 crores, a growth of 6% year-on-year basis. EBITDA, INR 27 crores and PBT stood at INR 19 crores, respectively. For 9 months financial year '23, the revenue stood at INR 1,114 crores, a growth of 20% year-on-year basis. EBITDA and PBT stood at INR 80 crores and INR 56 crores, a growth of 11% and 19%, respectively. The top line growth for the said period was mainly driven by value-added products. In the Steel Pipes and Strips, during Q3 of this financial year, the company's EBITDA and PBT grew 92% and 194% to INR 136 crores and INR 104 crores, respectively. EBITDA per metric ton stood at INR 6,733 compared to INR 3,815, a robust growth of 76% year-on-year basis. For 9 months of this financial year, revenue grew by 5% on a year-on-year basis, INR 4,731 crores, while EBITDA and PBT grew by 29% and 59% year-on-year, respectively. EBITDA per metric ton stood at INR 5,190 compared to INR 4,257. The company has reduced debt by INR 71 crores in 9 months of its current financial year and continues to remain long-term debt free. Finance cost has reduced by 28% in 9 months of this financial year. Debt equity reduced to 0.3x (sic) [ 0.30x ] as on 31st December '22 as compared to 0.48x as on 31st December of the previous corresponding year. The company continued to maintain positive cash conversion cycles. The working capital days stood at 62 days during quarter 3 of this financial year. Working capital days for Lighting and Consumer Durables stood at 60 days in quarter 3 of this financial year compared to 66 days in Q2 of this financial year, while Steel Pipes and Strips working capital days stood at 62 days in quarter 3 of financial year '23 compared to 56 days in quarter 2 of financial year '23. With this, I conclude the presentation, and we can now open the floor for further questions-and-answers.

[Operator Instructions] The first question is from the line of [ Manan Poladia from MKP ] Securities.

Hello, sir, am I audible?

Yes. Yes.

Yes. Congratulations on a great set of numbers, sir, firstly. I have 2 questions, sir. One is on the DFT side of things. Is there more DFT CapEx in the pipeline for Surya Roshni?

So what is your next question?

Second question is about the demerger, sir. I know that there were some talks going on like a year or 1.5 years ago. I just wanted to know if there are any updates on that side?

So as far as DFT is concerned, [Foreign Language].

Right, sir. Sir, just a follow-up question on that. What is the additional EBITDA per tonne that you get when you introduce DFT technology into a plant, if you could just give me a broad idea?

[Foreign Language]

And this was on an investment of INR 25 crores?

See, it depends. [Foreign Language]

Right, sir, understood. And what about the demerger, sir?

[Foreign Language]. So this is one part. Another part, see, [Foreign Language]

[Foreign Language], of course, sir, of course. I don't expect you to decide here. I just wanted to know if there was any update on that side, sir, that's all?

[Foreign Language]

Right, sir. I completely understand.

[Operator Instructions] The next question is from the line of [ Rikesh Parikh ] from Rockstud Capital LLP.

Congratulations on a good set of number. Sir, just first on the Pipes Division, what is the...

Parikh, please use the handset mode, the audio is muffled?

Sure. Hello? Now it's better?

Yes. Yes.

Yes. Yes. Go ahead.

Yes. Sir, thank you, and congratulations on a good set of number. First thing on the Pipes, I just wanted to understand what is our capacity utilization right now and what was the actual number you said? Because I think we have a capacity of 12.76. So utilization level [Foreign Language]?

So particularly each quarter [Foreign Language] 72% [Foreign Language].

Okay. And we are planning for a INR 75 crores expansion at Hindupur. So what will be the capacity expansion or [Foreign Language] by what time frame we are expecting [Foreign Language]?

[Foreign Language]

Yes. Basically, this capacity of GP -- we have to introduce the CR line also as well as GP line. So some CR pipes also we produce, that capacity would be around 2,000 tonnes a month. And then GP, so that another value addition and 6,000 tonne for GP. See, it is almost 8,000 tonne capacity, it is basically, you can consider is a backward value addition because till now, we were selling pipes in the market of GP and CR, but we are buying from the raw material suppliers. Now we will -- added value -- backward value addition and sell in the market.

[Foreign Language]

[Foreign Language]

[Foreign Language] or I think within a month, we will get the allotment and 10 months thereafter.

[Foreign Language]

Yes.

Okay. And last thing on the export side, sir, [Foreign Language] export, we have some INR 700-odd crores of export at our hand. So in terms of number, [Foreign Language]?

See, export is our regular business or [Foreign Language]. So trade [Foreign Language] bread and butter [Foreign Language], but 55% contribution [Foreign Language]. Last year, it was 20%. [Foreign Language]

Just last question, if I can squeeze in. [Foreign Language] any benefit of price increase, [Foreign Language]?

[Foreign Language]

Sure. Thank you, and all the best. Any other question, I'll come back in queue.

[Operator Instructions] The next question is from the line of Jatin Damania from Kotak Securities.

Sir, we just wanted to check because in your opening commentary, you said that Steel Pipe business volume was lower because of a fall in the steel prices, and we had guided for 4.5 lakh tonnes of the volume in the second half. So do you think that this volume is sustainable or we'll be able to achieve that 2.4 million, 2.5 million in the last quarter? And what is the order book in the pipe business?

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] lighting business is [Foreign Language], we have done a 6.8% margin, but what are the steps that we are taking to include the lighting business margin?

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

Right, sir. [Foreign Language], will improve, but how much time will it take for us to reach that 14%, 15%?

[Foreign Language]

Sir, last question on lighting before I move to pipe again. Sir, your lighting business, what is the current order book as of now or at a peak capacity, how much revenue we can generate from a lighting business?

[Foreign Language]

Right, sir. On the piping business, definitely 1.2 million tonne [Foreign Language] operating at 70%. And [Foreign Language], we are more into an oil and gas, and that's why we are getting a better EBITDA per tonne, right? Sir, is this INR 6,700 or INR 7,000 [Foreign Language] next quarter to get an average run rate of INR 5,500 for the full year, is this number of INR 7,000, INR 7,200 sustainable from a longer period point of time, [Foreign Language]?

[Foreign Language]

Sir, the last question, I mean, I missed the earlier commentary. I mean, do you have 2 business with 2 different verticals like [indiscernible]? So -- and definitely, we will be tax free by end of this financial year. Sir, any clear point of how the management or Board has thought about in terms of demerging both the units separately, anything on that, sir?

[Foreign Language]

[Operator Instructions] The next question is from the line of Vivek Gautam from [ GF ] Investments.

Sir, congratulations on good set of numbers. So I just wanted to understand because I have recently started tracking the company, the reason behind the improvement in ROCE to such a good extent? And isn't it a commodity business no longer, and can it -- can such high ROCE numbers be sustained?

Tarun, [Foreign Language].

Yes. Sir, this is no more a commodity business, that is very, very clear, because as Mr. MD already told that we are increasing our value-added products quarter-on-quarter. And therefore, we are getting good realization, and the IRR and other things is definitely we will try to maintain it, because our loans have also paid, long-term loan. So definitely, the interest liability is also low and the profitability is higher, certainly, our rate of return will be...