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For 3QFY2011, Surya Roshni reported a top-line increase of 20.5% yoy to `597cr
(`496cr), which was below our estimate of `659cr. OPM came in at 6.0% (5.9%),
again below our estimate of 7.2% mainly on account of the higher-than-expected
raw material costs. Owing to the strong increase in top-line and OPM expansion,
net profit increased by 55.8% to `11cr. The company has expanded its capacity
across products in the recent years. Going ahead, we expect this additional
capacity to start contributing to sales and drive growth. At the CMP of `108, the
stock is trading at attractive valuations. We maintain a Buy on the stock.
Top-line growth below expectations; margins disappoint: Top-line growth at
20.5% yoy was below our expectations, mainly because of the mere 13.1%
growth in the steel division. The lighting division however, posted strong growth of
34.2%. Margins during the quarter came in below our estimates mainly on
account of higher raw material costs.
Outlook and Valuation: We remain positive on the company’s business outlook
owing to the large capacity expansion and strengthening presence in the lighting
space. However, given the below-expectation 3QFY2011 performance, we have
reduced our sales estimates for FY2011 and FY2012 by 5.3% and 2.1% to
`2,173cr and `2,694cr respectively, while our PAT estimates for FY2011 and
FY2012 have been pruned by 28.7% and 8.0% to `45cr and `89cr, respectively.
Overall, we expect the company to post strong top-line CAGR of 22.5% and PAT
CAGR of 40.6% over FY2010-12. At the CMP, the stock is trading at attractive
valuations of 6.0x FY2012E EPS. We maintain a Buy on the stock, with a revised
Target Price of `135 (`143).
to 55.0% from 24.1%. We expect the third round of warrants to be converted by
FY2012, which will increase the promoters’ share to 60.0% from 55.0% currently.
Outlook and Valuation
We maintain our positive stance on the company’s business prospects owing to the
large capacity expansion and strengthening presence in the lighting space.
However, to reflect the below-expectation performance during the quarter, we
have reduced our sales estimates for FY2011 and FY2012 by 5.3% and 2.1% to
`2,173cr and `2,694cr respectively, while PAT estimates for FY2011 and FY2012
have been reduced by 28.7% and 8.0% to `45cr and `89cr, respectively. Overall,
we expect the company to post strong top-line CAGR of 22.5% and PAT CAGR of
40.6% over FY2010-12. At the CMP of `108, the stock is trading at attractive
valuations of 6.0x FY2012E EPS. We maintain a Buy on the stock, with a revised
Target Price of `135 (`143).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Surya Roshni – 3QFY2011 Result Update
Angel Broking maintains a Buy on Surya Roshni with a Target Price of Rs. 135.
For 3QFY2011, Surya Roshni reported a top-line increase of 20.5% yoy to `597cr
(`496cr), which was below our estimate of `659cr. OPM came in at 6.0% (5.9%),
again below our estimate of 7.2% mainly on account of the higher-than-expected
raw material costs. Owing to the strong increase in top-line and OPM expansion,
net profit increased by 55.8% to `11cr. The company has expanded its capacity
across products in the recent years. Going ahead, we expect this additional
capacity to start contributing to sales and drive growth. At the CMP of `108, the
stock is trading at attractive valuations. We maintain a Buy on the stock.
Top-line growth below expectations; margins disappoint: Top-line growth at
20.5% yoy was below our expectations, mainly because of the mere 13.1%
growth in the steel division. The lighting division however, posted strong growth of
34.2%. Margins during the quarter came in below our estimates mainly on
account of higher raw material costs.
Outlook and Valuation: We remain positive on the company’s business outlook
owing to the large capacity expansion and strengthening presence in the lighting
space. However, given the below-expectation 3QFY2011 performance, we have
reduced our sales estimates for FY2011 and FY2012 by 5.3% and 2.1% to
`2,173cr and `2,694cr respectively, while our PAT estimates for FY2011 and
FY2012 have been pruned by 28.7% and 8.0% to `45cr and `89cr, respectively.
Overall, we expect the company to post strong top-line CAGR of 22.5% and PAT
CAGR of 40.6% over FY2010-12. At the CMP, the stock is trading at attractive
valuations of 6.0x FY2012E EPS. We maintain a Buy on the stock, with a revised
Target Price of `135 (`143).
Investment Arguments
Large capacity expansion to lead to high sales growth: Surya Roshni has
completed its capacity expansion across products, including capacity increase of
358% in compact fluorescent lamps (CFL) and 29% in steel pipes. This is expected
to result in high sales CAGR of 22.5% over FY2010-12. Post the substantial capex,
sales contribution from the high-RoIC lighting division is expected to increase.
Therefore, despite a reduction in net debt-to-equity from 2.5x to 1.1x, the
company’s RoE is expected to remain fairly stable at 18.5% in FY2012, declining
marginally from 19.7% in FY2010. The company has delivered strong yoy growth
of 18.7% in top-line and 64.0% in net profit in 9MFY2011, indicating its strong
prospects.
Strong brand in the lighting industry: The company has been a household name in
the lighting space for over two decades now. It has presence across more than
100,000 retail outlets. Surya Roshni has maintained its brand identity through
substantial advertisement spend and a strong retail network. In FY2010, the
company spent more than `11cr on advertisements, which is 2.0% of its lighting
division sales.
Promoters hiking their stake: The promoters have subscribed to three rounds of
warrant allocations, amounting to a total investment of `193cr. The first was at a
`59/share, the second at `83/share and the third at `111/share. The first two
tranches have been converted into equity recently, increasing the promoters’ stake
to 55.0% from 24.1%. We expect the third round of warrants to be converted by
FY2012, which will increase the promoters’ share to 60.0% from 55.0% currently.
Outlook and Valuation
We maintain our positive stance on the company’s business prospects owing to the
large capacity expansion and strengthening presence in the lighting space.
However, to reflect the below-expectation performance during the quarter, we
have reduced our sales estimates for FY2011 and FY2012 by 5.3% and 2.1% to
`2,173cr and `2,694cr respectively, while PAT estimates for FY2011 and FY2012
have been reduced by 28.7% and 8.0% to `45cr and `89cr, respectively. Overall,
we expect the company to post strong top-line CAGR of 22.5% and PAT CAGR of
40.6% over FY2010-12. At the CMP of `108, the stock is trading at attractive
valuations of 6.0x FY2012E EPS. We maintain a Buy on the stock, with a revised
Target Price of `135 (`143).
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