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IDBI Capital
Surya Roshni (Buy)
Target: ₹694
CMP: ₹521.2
We initiate coverage on Surya Roshni (Surya) with a Buy rating and a target price of ₹694. Surya is the second largest manufacturer of steel pipes (contributes 67 per cent to EBITDA) and also the second largest LED manufacturer in India.
With focus on improvement in product mix in steel pipes segment, we expect its margins to improve over the next two-three years. In lighting & consumer durables segment, we anticipate strong growth in segment revenue led by rising demand for Led lights in India and also import substitution.
Surya Roshni has entered home appliances in the past five years - we expect this segment to record strong growth given its strong distribution network.
Historically, Surya Roshni’s return ratios have been lower due to various reasons such as weaker product mix, falling LED prices, etc. Nevertheless, we expect strong improvement in its return ratios over FY21-FY23.
We forecast its EPS to grow at CAGR of 48 per cent over FY21-23 and ROE to improve to 20 per cent in FY23 (average 10 per cent over FY16-FY21).
It is noteworthy that a demerger of its pipes and lighting segment could unlock significant value.
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