Stock price peaked out in Oct’21 and kept on falling in line with the market even after 3 decent quarters by the company ( Q2 FY 22, Q3 FY 22, and Q4 FY22) with Q4 FY 22 being the best quarter in the company’s history. The opportunity landscape for the company is still intact in form of various Govt. schemes such as Nal Se Jal, CGD, etc. Company has also reduced the debt considerably with another ~100 Cr reduction in Q1 FY23 and is on a path to becoming net debt free which will positively impact PAT. I had heard the management talking about becoming net debt free in near future in one of the earlier con calls when the company used to conduct con calls.
The most interesting segment for the company API 3LPE coated pipes seems to be gaining traction with increasing mix in overall product portfolio and a recent big order win from IOCL. Also, the order book is steady at ~1000 Cr for the last 3 quarters which I believe can increase in the times to come once they start executing and delivering the orders. With the DFT facility also coming on stream and starting running from this quarter onwards I believe will positively impact the margins.
Lightening division is a bit of concern as every quarter it has one issue or other and even in Q1 FY23 got impacted by higher raw material and natural gas prices. But one may hope of a demerger of the Steel Pipes and Lightning division can unlock value. Even management did not deny it when asked about a potential De-merger in one of the earlier con calls.
The entire industry was impacted in this quarter mainly due to channel de-stocking due to falling steel prices. Volumes are down for all the players across the industry For Ex-APL Apollo’s volumes are down almost 23% QoQ, Rama Pipes volumes are down almost 17% QoQ, and Surya’s volumes are down almost 30% QoQ. Also, EBITDA margins of all the Steel pipe players got significantly impacted this quarter. APL Apollo’s management indicated in the con call that this phenomenon may not last for more than 6-8 weeks and will ease from next quarter onwards, so I think we may see margin improvements from next quarter onwards.
With dirt cheap valuations, the potential for growth, and on the right path to becoming debt free company, I am holding my position in Surya as of now. Will wait and watch for a couple of more quarters for improvements.
Disc: Invested, Biased
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