Surya Roshni has indicated that it plans to separate its two business verticals – Lighting and Consumer Durables and Steel Pipes & Strips, in a recent BSE filing. As the two businesses are not inter-related and have different business dynamics, the company has indicated its business reorganization committee to come up with alternative strategies of re-organization or de merger of its two business verticals.
The talks of de-merger of its Lighting and Consumer Durables business have been going on since almost a year or two. According to earlier media reports, private equity firms – Warburg Pincus and Bain Capital were interested in buying its lighting business. Another strong contender in the line was Crompton Greaves Consumer Electricals. However, subdued performance of its Steel Pipes & Strips division was a concern which could have prevented a smooth demerger. Therefore, in 2016 the company merged its associate company, Surya Global Steel Tubes (SGSTL) in its Steel division. SGSTL is an exports-focused unit with cost advantages over others and hence, the merger is expected to improve margin and returns of its steel business as well. Hence, we believe the de-merger will benefit both the verticals as they will be able to focus on their core competencies and follow an independent growth trajectory.
The company’s Lighting and Consumer Durables division has reported subdued 9MFY18 results. Its revenue has grown by 0.5% to Rs996.1cr, while EBIT margin was down from 8.8% in Q3FY17 to 8.1% in Q3FY18. The EBIT for 9MFY18 stood at Rs80.7cr. During 9MFY18, lighting division has contributed ~28% to total revenues of the company. Light-emitting diode (LED) lights are a main product of this division which has grown 38%yoy during 9MFY18.
In FY17, Lighting and Consumer Durables division had revenue of ~Rs1,349cr and contributed ~40% to its revenues. The ROCE for this business in FY17 was ~17%. In this division, lighting business of the company had been impacted due to phasing out of compact fluorescent lightbulbs (CFL) from the market as a result of migration towards light-emitting diode (LEDs), which is a better quality and more energy-efficient option. The company has recently launched premium range of LED down-lighters, street lights and flood lights. The company has also obtained contracts for supply of LED street lights and other lighting products worth Rs220cr (exclusive of taxes) from EESL.
The Lighting and Consumer Durables division also includes appliances such as fans, kitchen appliances, etc. During FY17, the volume growth in LED business was 77% yoy, whereas the fan and home appliances business grew by 55% yoy. In FY17, the fans segment had 3% market share of the total Indian fan market and achieved sales of Rs180 cr in FY17.
Surya Roshni has wide spread market network of over 2,000 distributors and 2 lakh countrywide retailers across PAN India and exports to over 25 countries globally, across the Middle East, Europe, Africa and Asia.
