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* On a consolidated basis, Surya Roshni’s Q4FY23 performance was above our estimates. The company’s topline fell by 6.5% YoY while it grew by 6.4% QoQ to Rs21,513 mn led by volume growth in steel segment and a healthy product mix. EBITDA increased by 66% YoY and 55% QoQ to Rs2,525 mn due to inventory gain and lower base. EBITDA margin went up by 513bps YoY and 368bps QoQ to 11.7%.

* PBT increased by 92.8% YoY and 75.5% QoQ to Rs2,153 mn on account of lower interest expense and depreciation cost. Therefore, PAT went up by 87.9% YoY and 73.5% QoQ to Rs1,556 mn in Q4FY23.

* In FY23, the debt got reduced by Rs1,760 mn which led to lower finance cost i.e by 30% in FY23. The company recommended dividend of Rs4/ share in FY23 in addition to interim dividend of Rs3/share which was already paid in Feb’23.

* Surya Roshni reported highest ever EBITDA/MT of Rs9,868 as compared to Rs5,605 in Q4FY22 which was mainly driven by improvement in overall product mix with higher growth in value added products.

* On segmental front, Steel pipes business expanded by 6% QoQ on account of Improvement in overall product mix particularly in value-added products and markets which includes API & Spiral Pipes and Exports. Also, the total orderbook in FY23 stood at Rs8500 mn. During the year, the company launched 30” Galvanized Pipe in India and 2’’ 5CT pipe for exports. Moreover, company will be setting up of ERW pipe mill of 18” up to 24” large dia pipes at existing Anjar facility with a capex of Rs750 mn.

* Lighting and consumer durable segment increased by 7% QoQ led by improvement in product demand along with the overall healthy product mix across B2B and B2C business category. The growth was mainly driven by LED lighting, professional lighting and LED battens and downlighters. Working capital improved to 53 days from 60 days in FY23.

* The total debt stood at Rs4,040 mn in FY23. Surya Roshni aims to be debt free company by FY25.

* Surya Roshni has shown a tremendous growth in FY23 by improving its profitability and balancing the product mix despite adverse market conditions. Its strong order backlog , favorable revenue mix and lean balance sheet provides cushion for any uncertain macro headwinds. Being a second largest player in GI pipes and third largest player in lighting and consumer segment, company gets an advantage for bagging orders over its unorganized player.Surya is currently trading at an attractive valuation of 13x of FY23EPS (average PE of last 5 year).Therefore, we assign BUY rating on the stock with target price of ?941 using a target multiple of 10x FY25 EPS (18% upside) led by healthy growth prospects and operational efficiency.

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