India: Surya Roshni’s pipe segment witnesses robust demand in Q3

Key Highlights

• Revenue grew by 12% y-o-y in Q3 FY ’21
• 3LPE coated pipe unit to be commissioned by Mar ‘21
• INR 664 cr worth orders for 3LPE coated pipes from Oil & Gas sector
• Inventory – 46 days, Debtors -34 days and Net Working Capital – 64 days

India’s largest GI pipe manufacturers-Surya Roshni Limited, has announced its financial results for the quarter ended December 31, 2020

The key takeaways from the investors call held today are as follows:

1.Capex of INR 30 cr to be commissioned by Q2 FY ’22-Considering the demand for section pipes, Surya is adding a new capacity of 72,000 m t pa with Direct Forming Technology (DFT) at Gwalior at an estimated capex of INR 35 cr to be operationalized by second quarter in order to improve their value-added offerings of large diameter pipes.

2.6% y-o-y increase in EBITDA-Surya’s pipe segment EBITDA is assessed at INR 77 cr in Q3, up 6% y-o-y and declined 8% at INR 175 cr in 9M FY ’21. Meanwhile, EBITDA/t stood at INR 3,726 cr in Q3 FY ’21. The share of GI pipe, API pipe and exports increased to 35% on a y-o-y basis in FY ’20 against 25% in FY ’16 which in turn generated high EBITDA/t.

3.Capacity utilization nearing to pre-COVID levels-Capacity utilization is above 75% with high value products like 3LPE pipe operating at full capacity and investments made to increase the capacity level further. Higher margins were generated by higher capacity utilization of spiral & API pipes, savings in logistics & coating charges, increase in exports of GI & value-added pipes.

4.Focus on working capital management-For steel pipes and strips segment, the company reduced the working capital cycle to 64 days from 76 days as of March 2020 while inventory was reduced to 46 days from 68 days and debtors to 34 days.

5.RoCE increased to 14% in Q3-The Return on Capital Employed of the company further increased to 14% in Q3 FY  ’21 compared to 12% in Q2 and 12% in the last year.

6.Reduction in debt of INR 284 cr-In the last 9 months, the company witnessed reduction in debt of INR 284 cr thereby lowering the debt-to-equity ratio to 0.62 along with substantial improvements of profitability, thereby leading to upward revision in ratings and savings in finance cost. Through channel financing of INR 140 cr, 30% is used for the pipe business.