Buy Surya Roshni; target of Rs 141: Angel Broking

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Buy Surya Roshni; target of Rs 141: Angel Broking

Angel Broking is bullish on Surya Roshni and has recommended buy rating on the stock with a target of Rs 141 in its October 11, 2010 research report.

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Angel Broking is bullish on Surya Roshni and has recommended buy rating on the stock with a target of Rs 141 in its October 11, 2010 research report.

"Surya Roshni is a diversified company manufacturing steel pipes and branded lighting products. It has recently completed a large capacity expansion program across all products in the lighting and steel division (including capacity increase of 358% in CFL and 29% in steel pipes). The new capacities are expected to contribute to strong top-line growth of 23.8% CAGR over FY2010-12E. The contribution of the high-margin lighting division to sales is expected to increase from 29.5% to 33.6% over FY2010-12E. This, alongwith the asset-light nature of the expanded capacity, would boost the RoE of the company from 19.7% to 20.4% over FY2010-12E, despite the decrease in the D/E ratio of the company from 2.5x to 1.3x over the same period."

"Surya Roshni has been a household name in the lighting space for over two decades. The company has maintained its brand identity through substantial advertisement spend and a strong retail network. In FY2010, the company spent more than Rs 11 crore on advertisements, which is 2.0% of its lighting division sales. The promoters have subscribed to two rounds of warrants, one of which has already been partially converted. We expect the outstanding warrants also to be converted into equity, thereby increasing the promoters' stake to 55.0% by FY2012E from 29.1% currently. The promoters would infuse Rs 133 crore into the company through these warrant conversions."

"At the current price of Rs 113, the stock is trading at 5.2x its FY2012E standalone EPS (5 year average is 6.6x). We have valued the company using the SOTP method, valuing its standalone business at a P/E of 6.0x FY2012E EPS and its investment in its subsidiary company, Surya Global Steel Tubes Ltd, at a P/BV of 1.0x. We assign a Buy rating to the stock with a target price of Rs 141," says Angel Broking research report.

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To read the full report click on the attachment