Surya Roshni Limited (SURYAROSNI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Surya Roshni Limited Q2 and H1 FY '23 (sic) [ FY '24 ] 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 the date of this call. These statements are not the guarantees of the 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]. Good evening. On behalf of Surya Roshni Limited, I extend a very warm welcome to everyone for joining us today. Before starting the call today, I would like to take this opportunity to wish everyone a very happy Diwali. On this call, we are joined by Mr. Tarun Baldua, CEO, Steel Operation; Mr. Jitendra Agrawal, CEO, Lighting and Consumer Durables; our Investor Adviser, SGA; and our Company Secretary, Mr. B.B. Singal. I hope everyone had an opportunity to go through the financial results, press release and investor presentation, which has been uploaded on the stock exchanges as well as on our company website. Surya Roshni is celebrating its Golden Jubilee year in FY '22 -- '23-'24, marking 50 years of excellence in steel pipes, electrical appliances and consumer durable industry. Surya Roshni products are trusted by millions of consumers in India and around the world. And the company has a very strong presence in global market with export to over 50 countries. As Surya Roshni celebrates its Golden Jubilee year, the company is poised to enter a very new phase of growth and development. The company has a very strong foundation, a very clear vision and a talented team to execute its plans. I am confident that Surya Roshni will continue to achieve new heights in years to come. On this special occasion, I would like to thank all of our stakeholders, employees, customers and partners for their continuous support over the years. To reward the shareholders on our Golden Jubilee, our Board of Directors approved an interim dividend at 50% of the paid-up value. And now moving on to the highlights of the quarter. Due to favorable volume growth in steel pipe and value-added goods in lighting and consumer durable segment, the firm reported better profitability on a year-over-year basis despite a marginal fall in revenue. Due to the successful implementation of backward integration strategies and favorable volume growth, the company witnessed a notable improvement in its EBITDA, which increased by 6% to reach INR 139 crores. Furthermore, the company achieved a commendable EBITDA margins of 7.3% for the quarter company as a whole. Over the past few years, company has placed its emphasis on reducing the debt. Even during the H1 FY '24, in last 6 months, the debt reduced by almost INR 190 crores, and the debt-to-equity ratio stood at 0.11 as of 30th September 2023. With this, the company intends to become debt free by next year. And coming to Lighting & Consumer Durables, the segment recorded a revenue of INR 377 crores in Q2 FY '24, which is almost similar to the corresponding period last year. This was achieved despite the shift in festival season from Q2 to Q3 in the current financial year as compared to previous year where the company recorded revenue related to festive season in Q2 FY '23 as well. Both Q2 FY '24 and H1 FY '24 have demonstrated enhanced profitability aligning with the management previously communicated expected as highlighted in their commentary during preceding quarters. Despite observing favorable volume growth even in Lighting segment, but we experienced price reduction in the range of about 15% to 20% on year-on-year basis and 10% to 15% during H1 FY '23, resulting in flattish revenue performance. But our company has consistently demonstrated a proactive approach to backward integration, leveraging our investments in the PLI program. This strategic move has not only enhanced our competitiveness within the market, but also has resulted in improved operating profitability at an EBITDA margin level to 9.3% for Q2 FY '24. The Professional Lighting segment reported 20% growth in Q2 and 23% in H1. The robust expansion of Professional Lighting segment can be primarily attributed to the concurrent growth observed in both private as well as government-led investments. The Consumer Lighting has also experienced decent volume growth. The Consumer Lighting segment has exhibited robust growth in various categories such as LED, LED battens, downlighter, decorative lighting and other solar lighting with impressive double-digit volume growth expansion. Within the Consumer Durables segment, certain segment has exhibited robust growth. The strong growth in these subcategories was also aided by the successful introduction of 12 innovative fan models and 16 consumer appliances product in FY '24 Q2. PVC pipe has witnessed 11% growth in Q2. During the upcoming quarters, our company will continue to strategically introduce a diverse range of very innovative products within the Lighting & Consumer Durables business segment. And this forthcoming product launches are expected to contribute significantly to our overall growth and market presence. We are hopeful of achieving double-digit revenue growth for whole FY '24 on the back of better H2 FY '24. In terms of profitability, we hope to achieve our target that we have outlined in our previous commentary. Our strategic focus remain on bolstering our market presence and brand recognition through intensified investment in advertising and marketing. These efforts aim to augment our market share and enhance the visibility of our brands. Additionally, we are committed to fortifying our dealers and distributor network by implementing a range of engaging initiatives. Based on our analysis, it is anticipated that our Lighting & Consumer Durables segment will exhibit a very positive performance in H2 FY '24 and FY '25, provided that all sectors of Indian economy maintain their current growth trajectory. Now moving on to the Steel Pipe business, the segment has experienced a good volume growth of about 12%, which was overshadowed by the downward pricing pressure ranging from 10% to 15% across different grades of steel during FY '24, H1 FY '24. On the full year basis, we continue to anticipate a 12% to 13% volume growth. Our optimism stems on the back of strong order book of about almost INR 800 crores, especially from oil and gas segments for API pipe as well as the potential for growth in domestic market as well, which we believe will help mitigate any potential shortfalls we may encounter in the exports market. Within API pipes, the Line Pipe business has experienced a deceleration in order due to the upcoming general election. Other key business sector for API pipes order is from city gas distribution sector, which has demonstrated commendable growth and has a potential outlook. We expect a very positive business momentum for GI pipes to persist throughout fiscal year '24 and '25. And lastly, we remain confident about the opportunities that lie ahead of us. The company is focusing on geographical expansion, innovation, efficiency enhancement, infrastructure and human capital to deliver the best class solution to our customers. And now I would like to request our CFO, Mr. B.B. Singal, to share his thoughts.

Thank you, respected MD, sir. A very good evening to all the participants on the call. For the quarter, despite marginal decline in revenue, our EBITDA and PAT grew by 6% and 12% on year-on-year basis to INR 139 crores and INR 76 crores, respectively. For first half of financial year '24, the revenue was INR 3,791 crores as compared to INR 3,824 crores. EBITDA and PAT stood at INR 255 crores and INR 135 crores as compared to INR 202 crores and INR 90 crores, respectively. The increase in operating performance can be attributed to the PLI scheme, backward integration and the increased demand for value-added products. In Lighting & Consumer Durables for the quarter, the revenue stood at INR 377 crores as against INR 383 crores. EBITDA and PBT stood at INR 35 crores and INR 28 crores, registering a growth of 14% and 21%, respectively. For the half year, the revenue stood at INR 751 crores as against INR 718 crores, a growth of 5% on a year-on-year basis. EBITDA and PBT stood at INR 68 crores and INR 54 crores, a growth of 30% and 46%, respectively. In the Steel Pipe and Strips, during second quarter financial year '24, the company's revenue stood at INR 1,539 crores, while EBITDA witnessed a growth of 3% year-on-year basis with an EBITDA per metric ton of INR 5,104 crore per metric ton. PBT for the quarter grew by 11% to INR 76 crores. For H1 financial year '24, revenue stood at INR 3,042 crores, while EBITDA and PBT grew by 25% and 55% year-on-year basis to INR 187 crores and INR 131 crores, respectively. As of 30th September '23, the company has reduced debt by INR 190 crores and continues to remain long-term debt free. Debt equity reduced to 0.11 multiple as on 30th September '23. As on 30th September '23, the net working capital days stood at 65 days, inventory days stood at 52 days, debtor days stood at 32 days and creditor days stood at 19 days. As on 30th September '23, ROCE improved by 439 basis points and stood at 20.2% as compared to 15.8% in the last quarter. ROE stood at 15.57% as compared to 12.49% as on 30th June '23, a growth of 308 basis points. With this, I conclude the presentation, and we can now open the floor for further question and answer.

[Operator Instructions] The first question is from the line of [ Jatin Damania ] from SVAN Investment Managers.

Sir, just wanted to understand that for the Steel Pipes, you said that you have, in terms of volume terms, you have grown by almost 10% to 15%, but because of the lower realization, there was a hedge. So I want to understand, is there any one-off or inventory loss that we have taken during the quarter due to which EBITDA per tonne has come down? Sir, how can one look at the operating performance going for the next couple of quarters?

Yes, Mr. Jatin, thank you very much. [Foreign Language]

[Foreign Language] I mean, are we properly hedged in terms of the raw materials?

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[Foreign Language], we are almost closer to a debt-free or debt-to-equity 0.1. [Foreign Language]? I mean, can you give us any idea? And has the Board decided on any dividend distribution policy to reward your shareholders? [Foreign Language] for celebrating our 50 years. But how shall we look -- going ahead, how shall we look forward our capital allocation and the dividend distribution policy?

[Foreign Language]

Okay. And sir, last question on the steel pipe, [Foreign Language] probably we will reach to a 10% EBITDA margin, and we are closer to that. So is there any further improvement one can expect from the steel or some steady-state run rate [Foreign Language] one can assume going forward?

[Foreign Language]?

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[Operator Instructions] The next question is from the line of Shweta Dikshit from Systematix Group.

Sir, can you give some indication of the volume outlook in the second half Steel segment, sir? And what was the capacity utilization this quarter? And what are you expecting in the coming quarter?

[Foreign Language]

Okay. And any view on the volumes next year because of the -- your capacity expansion...

The line has dropped. The next question is from the line of...

[Foreign Language]

The next question is from the line of Rucheeta Kadge from I-Wealth.

Sir, basically, my question was that currently, sir, how much is value added as a percentage of your total mix? And in the second half, like for the full year, as we're expecting that we should do around the INR 6,500 EBITDA per tonne, so how do we see the sales mix changing in the second half, which would help us to get that kind of EBITDA per tonne? So right now, these are the 2 questions.

So right now, value-added [Foreign Language].

And sir, you expect this going ahead also for this to sustain or you expect it to improve going ahead?

[Foreign Language]

Okay. And sir, if you could just mention how has the trend been of this value added over the last 5 years, has this improved or it has been stagnant? And what do we expect going ahead?

[Foreign Language]

Okay. And this you aim to achieve by which year?

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[Operator Instructions] The next question is from the line of Kuber Chauhan from Anand Rathi.

So I have a couple of questions over here. [Foreign Language] compared to Steel division. So are we saying that our primary focus would be on Lighting division from now because steel prices -- or steel [Foreign Language]? Are we seeing that?

[Foreign Language]

Okay. Okay. And how we are seeing steel prices, like second half of FY '24, so [Foreign Language] outlook and how we are witnessing it? [Foreign Language] are we witnessing some more correction?

[Foreign Language]

Okay. So you are saying that Q3 maybe [Foreign Language] in terms of Steel division, we can say that?

[Foreign Language]

Okay. And even in Lighting division, sir, [Foreign Language], so how we are witnessing that also? Are we witnessing this uptick ahead also?

[Foreign Language]

19%, right?

11 point -- 11-plus percent [Foreign Language].

[Operator Instructions] The next question is from the line of [ Shreyans ] from SVAN Investment Managers.

[Foreign Language] CapEx guidance for FY '24 and FY '25?

So FY '24, our current year, [Foreign Language].

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Okay. Sir, [Foreign Language], if you could give us some understanding on that?

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[Foreign Language] capital allocation, our policy is 50% towards CapEx and 50% towards dividend. [Foreign Language]?

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

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The next question is from the line of Shweta Dixit from Systematix Group.

Am I audible? I think the line has got disconnected [Foreign Language].

[Foreign Language]

[Foreign Language] capacity expansion of 200 KTPA [Foreign Language]. Can you throw some light on the value-added product portfolio [Foreign Language]?

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[Foreign Language] 200 KTPA expansion [Foreign Language]?

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The next question is from the line of Rucheeta Kadge from I-Wealth.

So just one more question on this value addition. So sir, for every 1% value addition, how much does your EBITDA per tonne improve, if you can give a ballpark number?

[Foreign Language]

Okay. Okay. And because, sir, right now, when we are at 35%, we are expecting it around INR 5,500 to INR 6,000 EBITDA per tonne. And you're saying by FY '25, this mix would become 50%. So just like APL Apollo Tube, just for comparison, sir, [Foreign Language] 60% or something is their value added and they make around INR 6,000 EBITDA per tonne. So can we go through that on a sustainable basis, just for my understanding?

[Foreign Language]

Understood. Sir, this value added would be your API and your GI pipes, right, basically?

Yes, API galvanized and the export market, too.

Export market. So the...

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[Operator Instructions] The next question is from the line of Miraj Shah from Arihant.

[Foreign Language] First one [Foreign Language] CapEx highlight here, 3 different CapEx that we are planning plans [Foreign Language]. Sir, what's the total revenue potential [Foreign Language] keeping in mind the current prices only? And secondly, sir, currently, [Foreign Language]? Just these 2 questions.

Yes. [Foreign Language]

Currently, 18% of steel only or the total sales?

Steel.

Okay. And sir, in value terms, [Foreign Language]?

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The next question is from the line of [ Yogesh Mittal from Investore ].

I wanted to ask a question regarding the sectors you serve, mainly in the steel pipes, like it is -- if you can just categorize the top 3 sectors or top 4 sectors like structural steel or like the agricultural pipes or like -- yes, like that? So if you can give the top 3 or top 4 users, the segments?

[Foreign Language] trade and distribution segment, which contributes about 55% [Foreign Language].

Right, sir. Sir, and -- so just more in relation to this. Sir, the raw materials which are used for this are mainly the HR coils or you have other raw materials also?

Only. So we have 2 raw materials: one is HR coil and another is zinc. That's it.

Okay. Okay. Sir, I just wanted to understand, like it was being alluded by so many -- the callers in the call, when you were talking about the raw material, which is the HR coils price reduction or the overall -- the final product price reduction, which you were seeing in the market because of which the EBITDA has been reduced. So I wanted to understand what is the pricing power in case the raw material prices reduced with the Surya and other competitors in the market?

[Foreign Language] So we don't manufacture HR coils. [Foreign Language]. So basically...

I just wanted to understand [Foreign Language] EBITDA per tonne reduced [Foreign Language]?

[Foreign Language]

Right, sir. [Foreign Language], what is the outlook in the market right now? The dealer talks or the discussions which you are having, how is the outlook?

[Foreign Language]

Right, sir. [Foreign Language] what is the outlook in the market right now? The dealer talks or the discussions which you're having, how is the outlook?

[Foreign Language]

All right, sir. Sir, one of the last thing which I want to ask, sir, when we talk about the product, is there a competition in the product in terms of the [Foreign Language]?

[Foreign Language]

Sir, I was specifically asking about the CPVC pipes, which are like -- so [Foreign Language] I mean to say a product itself, not about the competitors, in terms of the product being competing with this...

[Foreign Language]

Sir, what I was asking is [Foreign Language]?

[Foreign Language]

[Foreign Language] That was I was trying to ask.

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The next question is from the line of Vignesh Iyer from Sequent Investments.

Congratulations, sir, on good set of numbers. [Foreign Language]?

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Ladies and gentlemen, we take that as the last question. And now I hand the conference over to Mr. Bharat Bhushan Singal, CFO and Company Secretary, for closing comments.

Thank you, everyone, for joining us today on this earning call. We appreciate your interest in Surya Roshni Limited. I sincerely once again thank you, our MD and the CEO, for sparing their valuable time and addressing queries raised by the participants who attended the call. I would also like to take this opportunity to wish everyone on this call a very happy Diwali from the entire Surya Roshni family. For any further queries, if any, contact SGA, our Investor Relations adviser. Thank you once again.

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