We recently met top management of Surya Roshni (SYR). Key takeaways:
(i) Management expects consumer electricals (lighting, fans, appliances) to grow at 20% annually over the next two–three years driven by the lighting segment and better penetration in fans/appliances.
(ii) Following its recent consolidation, the steel pipes business is expected to grow 8–10% in volume terms against market’s 4–5%. Over the past two–three years, management has focused on operating and financial efficiency, which is showing in improved gearing and a better performance in the steel pipes business. A key variable is growth prospects in consumer electricals, especially beyond lighting. The stock is trading at FY18 PE of 10x. SYR is ‘NOT RATED’.
Management optimistic on lighting growth and profitability: SYR has been a large player in the lighting industry, which would grow 18–20% over two–three years, according to management. With annual capacity of 13.6 mn LED units, SYR is the only 100% backward integrated lighting player in India. This makes it less vulnerable to peers. Surya’s high exposure to rural (50%+ of sales) and strong 250,000 retail touch points remain a key business MOAT.
Outlook and valuation : Positioned for growth — With strong in-house manufacturing in place across consumer/steel pipes business and a robust retail presence, management’s rising focus on key markets including metro cities remains a key monitorable.
