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Surya Roshni recorded revenue growth of 64% YoY to INR 14535mn, albeit on a lower base, with revenue from Steel Pipes division rising 77% to INR 12390mn and that of Lighting division rising 15% to INR 2147mn. For Steel pipes division, volumes rose 22% with export volumes rising 36% & API pipes volume doubling. API Coated pipes revenue rose 112% & that of export rose 109%. Higher contribution to revenue from API pipes, exports & GI pipes led to highest ever EBITDA/per tonne in of INR 5033 compared to 2463 in the corresponding quarter a year ago. Order book stood at INR 8.5bn for API coated pipes driven by order in lows to the tune of INR 6.1bn. For Lighting division, LED lighting revenues rose 29% whereas conventional lighting fell 14%. Consumer Durables revenue rose 80% driving B2C segment's revenue 51% in Lighting SBU. The plant remained underutilized in May and June 2021 due to spread of 2nd wave of COVID-19, along with higher prices of natural gas resulting into compressed profitability for the quarter on QoQ basis. During the quarter input costs witnessed increase and the company is gradually passing on the same with continuous price hikes. Gross Margins for the company as a whole rose 50bps to 21.5% YoY & EBITDA margins 150bps to 6.3%. PAT rose to INR 373mn compared to INR 22mn in corresponding quarter a year ago.

Revenue rose 64% YoY to INR 14535mn, albeit on a lower base

Surya Roshni recorded revenue growth of 64% YoY to INR 14535mn, albeit on a lower base, with revenue from Steel Pipes division rising 77% to INR 12390mn and that of Lighting division rising 15% to INR 2147mn. For Steel pipes division, volumes rose 22% with export volumes rising 36% & API pipes volume doubling. API Coated pipes revenue rose 112% & that of export rose 109%. Order book stood at INR 8.5bn for API coated pipes driven by order in lows to the tune of INR 6.1bn. For Lighting division, LED lighting revenues rose 29% whereas conventional lighting fell 14%. Consumer Durables revenue rose 80% driving B2C segment's revenue 51% in Lighting SBU. The PLI scheme for manufacturing of 'Components of LED Lights' will enable accelerated growth in the medium term for the company as it is planning to participate under the 'Large Investment' category. It is planning a minimum cumulative investment of INR 250 mn and targeting a minimum incremental revenue of INR 4500 mn. This will also enable it to augment its manufacturing facility further through backward integration, leading to reducing reliance on imported components. To further enhance brand building initiatives, It has appointed Ogilvy & Mather as creative agency from June 2021. Oglivy will work on brand building, and on developing advertising campaigns across TV, Print, Digital etc.

Gain in profitability of Steel Pipes division offset by drop in profitability of Lighting

Higher contribution to revenue from API pipes, exports & GI pipes led to highest ever EBITDA/per tonne in of INR 5033 compared to 2463 in the corresponding quarter a year ago. Lighting division plant remained under-utilized in May and June 2021 due to spread of 2nd wave of COVID-19, along with higher prices of natural gas resulting into compressed profitability for the quarter on QoQ basis. During the quarter input costs witnessed increase and the company is gradually passing on the same with continuous price hikes. Gross Margins for the company as a whole rose 50bps to 21.5% YoY & EBITDA margins 150bps to 6.3%. PAT rose to INR 373mn compared to INR 22mn in corresponding quarter a year ago.

Outlook & Valuation

Widening profitability accompanied by growing revenue base and shrinkage in working capital cycle as well as moderate CAPEX is leading to substantial generation of FCF. This should result into rerating of the stock. Accelerated topline growth accompanied by profitability expansion should lead to Revenue, EBITDA & PAT to compound annually at 19%, 25% &41% respectively during FY21- 23. We continue to maintain BUY with PT 875 (15x FY23E EPS).

Key Risks :

* Volatility in input costs

* Further lockdowns in case of 3rd wave of COVID cases

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