Stock Review: Surya Roshni

Till about a year ago, the promoters of the company were holding just 29% stake in the company. Today, their shareholding stands at about 62%. What has happened is that promoters in the first tranche converted warrants at Rs 59, thereby, taking their shareholding up from 29% to 39%. Thereafter, they converted warrants at Rs 83 and subsequently came out with an open offer at Rs 111. By virtue of all these things, the promoter shareholding has gone up to 62%.

Even though the open offer was for 20%, the shares tendered in the open offer by just about 7% which shows the optimism of the investors in the future of the company.

After six months the stock is down roughly 50% from a high of about Rs 125 which it touched up when the open offer was on, and currently trades at about Rs 60-62.

Talking about business, Surya Roshni has got two divisions, lighting division and steel pipes division. Though lighting division contributes roughly 35% to the revenues of the company, the profitability it enjoys is much more. It has got two plants and makes GLS lamps, CFL lamps, metal halides and other tube lights and other electrical lighting products. This company claims to be the only one which has a 100% backward integration as far as lighting products are concerned.

The steel division of Surya Roshni manufactures various kinds of pipes starting from GI pipes to ERW pipes. A 54% subsidiary of the company has just set up a plant in Gujarat for manufacture of spiral pipes, which is going to add to the revenues and profitability of the company in the times to come.

Talking about financials, FY11 sales were about Rs 2400 crore with a profit after tax of about Rs 67 crore. EPS was close to Rs 15, so at the current price of about Rs 60-62, this stock trades at PE multiple of about four times.

In Q1FY12, sales are higher by about 15% to about Rs 590 crore, and profit after tax is also higher by about 15% to close to Rs 10 crore. The company provides very high depreciation and cash profit for the company for FY11 was about Rs 120 crore. Market cap of the company at current price is about Rs 270 crore. So you have a business which is available at roughly 2.5 years of its cash flow, market cap-to-cash profit is less than 2.5. The company enjoys very high sales-to-market cap of more than 10, and it has got an uninterrupted 20-year track record of payment of dividend.

So you have a business which is available at very attractive valuations at a steep discount to the price which the promoters have paid to increase their stake in the business. From a level of Rs 60, I don't see too much of downside going forward in this stock.