This Potential De-Merger SmallCap Candidate May Appreciate Upto 50% | D&V Safe Ace Strategies

On June 6, we released a set of 7 handpicked stocks that investors must have on radar for significant upside. Most of the names included in the SET 1 have started performing well since then. Today, we've identified one more small-cap that must be on aggressive investor's radar with medium term holding perspective.


Surya Roshni is engaged into manufacturing of steel pipes (contributes 68% approximately to Ebitda) along with manufacturing LEDs in India. Surya Roshni started in 1973 with making Steel Tubes, and has grown by leaps and bounds to become one of the largest Steel Pipes and Lighting companies in India. With sales of INR 7,731 crores in FY 2021-22, Surya Roshni is one of the largest conglomerates in India, with exports to over 50 countries around the world. In the past 5 years, Surya Roshni has entered into home appliances segment which is expected to do well given its strong distribution network.


Surya Roshni Products:


Source: https://surya.co.in/


ERW pipes business is expected to grow at a CAGR of 8-10% over the next five years as per estimates of IDBI Capital. Demand for ERW pipes is driven by construction and building materials, infrastructure, automobile, energy and engineering, agriculture sector. The key players in the industry are APL Apollo Tubes, Surya Roshni, Hi-Tech Pipes, Tata Steel.


Uses of ERW Pipes in different industries:


Statistics as per IDBI Capital Research


LED Industry:


The Indian lighting market has witnessed decent growth over the last decade driven by a shift from CFL to LED. The government schemes like UJALA, SNLP as well as rising awareness of cost and energy efficiency of LED have led to rapid adoption of LED bulbs in India.

Surya Lighting has a wide range of products for Consumers, including LED Lamps, LED Downlighters, LED Battens, LED Smart Lights, LED Strips, Conventional Lamps, Battens, Holders, Lanterns, Torches, Extension Boards, Irons, and Immersion Heaters. Surya Roshni happens to be the second largest player in lighting in India and is one of the oldest players in lighting with focus on rural and semi urban areas. Moreover, among all its peers, Surya has the strongest distribution network of around 2,50,000 retailers across India.



Technical Overview:


Surya Roshni: 1D(Daily) Technical Chart


Due to sharp fall in steel prices led by government's sudden jolt of imposing exporting duty on steel, Surya Roshni's steel segment fell into government's crosshair during an attempt to curb inflation. The stock is down about 57% from its all time high of 867. We believe, the stock has now entered a decent range as per technicals, fundamentals where aggressive investors may eye to begin accumulation in the stock. Technicals indicate 277 - 375 to be an ideal range for accumulation via SIP mode of investment. Once geopolitical tension eases out a bit and inflation figures indicate that they've peaked, we believe the stock may head towards revisiting 550-561 levels with potential upside of over 50%. (Refer to the disclaimer at the bottom of the blog).



Potential Demerger Candidate:


Surya Roshni had earlier in 2018 had indicated that it plans to separate its two business verticals – Lighting and Consumer Durables and Steel Pipes & Strips. As the two businesses are not inter-related and have different business dynamics, the company had indicated its business reorganization committee to come up with alternative strategies of re-organization or de merger of its two business verticals. This demerger over the longer run will result in decent value unlocking for the investors.



Why is SIP mode of investment attractive as compared to lumpsum investment?


--> Lighter on wallet


--> Enables rupee cost averaging


--> Makes market timing irrelevant



Key risks for the stock:


  1. Govenment's decision to not revoke the recently imposed export duty on Steel resulting in further fall in steel prices.

  2. Rise in LED imports from China.

 

Disclaimer: We are not SEBI Registered. The above mentioned analysis is not a recommendation and is mentioned here for educational purposes only. Do consult your financial advisor before making any decision regarding your investments.




126 views0 comments