Surya Roshni Ltd is a 38 year old conglomerate with its core business comprising of lighting and steel tube products. The Lighting business has superior profitability than the latter and the company is among the largest players in the lighting industry with a market share in excess of 25%. The company has a pan India presence spanning a network of ~2 lakh retailers. Although the Steel business is expected to grow at a muted pace, the division will perform well owing to increased spend on Infra projects and with government initiatives like building smart cities across India.
Structural shift in the Lighting industry presents new growth opportunity: The Lighting business is primed for a good performance owing to the structural shift in the industry towards LED (Light Emitting Diodes) lights. Citing cost efficient nature of LEDs, Electric Lamp and Components Manufacturers Association (ELCOMA) projects the share of LEDs in the Lighting industry to increase substantially. Major initiatives like changing all street lights and lights in public spaces to LED lights, by the government, are expected to fuel growth of LEDs. As a result, the lighting industry is expected to grow at a CAGR of 22.8% over FY2014-17E to Rs25,000cr and reach the Rs37,000cr mark by FY2021E. This bodes well for the Lighting division of the company which is likely to contribute more significantly to the overall top-line, mainly due to its vast retail presence. We expect the Lighting business’ revenues to grow at a CAGR of 13.1% over FY2015E-17E to Rs1,400cr and this will have a favourable impact on the overall margins due to better profitability of the business.
Exploring newer avenues: Thanks to its strong network of retailers, the Fan business (which was launched in January 2014) has received a good response in a relatively shorter period of time; clocking revenues of ~`60cr in FY2015. Encouraged by the good response, the company has entered the Home Appliances business and will also be venturing into the business of providing solar based lighting systems for rural and urban use. Leveraging upon its strong network, we expect the company to successfully scale up its new ventures.
Outlook and Valuation: With higher contribution from the Lighting business and entry into newer businesses, we expect the company to post a CAGR of 6.2% in the top-line over FY2015E-17E to Rs3,216cr. Owing to better margin profile of the Lighting business, the EBITDA margins are estimated to improve from 8.1% in FY2015E to 8.6% in FY2017E. Consequently, the net profit is expected to post a CAGR of 27.7% over FY2015E-17E to Rs80cr. At the current market price, the stock is trading at 6.0x its FY2017E earnings. We initiate coverage on the company with a Buy rating and target price of Rs149 based on SOTP valuation.

Download Full Report View Full Report in Browser