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Friday, October 30, 2009

Surya Roshni Ltd:Future growth prospects and outlook

Scripscan:Surya Roshni Ltd
cmp:49
Code:500336

Story:This company is basically into two business segments - steel and lighting products. This company has its steel plant located at Bahadurgarh in Haryana and this company manufactures various steel pipes of various diameters. They manufacture cold-rolled strips and also HR coils. The company also manufactures LDP pipes which are used in oil and gas sector and also ERW pipes which are used in water and irrigation projects. The lighting division of the company has two plants - one is located in Kashipur in Uttar Pradesh and second one is in Malanpur district of Madhya Pradesh. This company manufactures fluorescent tubes and CFL lamps.What we like about the company is the company’s product portfolio and the potential of the business in which it operates. The steel tube division caters mainly to the oil and gas sector, which is seeing heightened activity these days, and along with that, the government’s thrust on water and irrigation projects also augur well for the steel tube division of the company.Coming to lighting, off-late we have been seeing a shift from the traditional yellow light lamp to the CFL lamp - there has been a change in the mindset of people and there is a change in the customer preference. In our homes also, we have started using more of CFL lamps compared to the traditional yellow light lamps, which were used earlier. So there is a change in mindset and there is an increase in CFL lamps inspite of the cost being 10 times higher. In the future we may see a complete phase out of the traditional yellow light lamps and the comment coming out that with some kind of a legislation for a complete phase out of these lamps after a few years, is also something which is not totally ruled out.This will eventually benefit company like Surya Roshni.The other thing we like about this company is its consistent dividend track record. In the last 18 years it has got an uninterrupted track record of dividend inspite of the ups and downs in the economy and the prospect of the company. And this company has never skipped dividend in the last 18 years.What I dont like here is its NPM,The company makes a profit of 21cr on a revenue of nearly 1700 crore.The product portfolio is good - the potential of the business is good. I think if the company can increase a bit of NPM(even a 1% increase in its net profit margin will add Rs 5 straight to the bottomline; to the EPS of the company.), the stock can see a huge upward rerating.

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