Q1FY20 results were impacted due to lower realizations and higher advertisement costs in lighting segment and delay in projects in the wake of upcoming general elections. We have revised our estimates lower factoring the 1Q performance and slowdown in conventional lighting business. However, we believe that at current valuation of 4.5x FY21 EV/EBITDA, the stock is trading attractive valuation, given the increased focus of government on water relatedinfrastructure, as a part of its ‘Nal se Jal’ scheme, which is expected to benefit the Steel pipes and PVC pipes division of the company. The earnings would also get support from the expected improvement in government orders/execution. Our revised earnings stands at Rs23.2 (earlier Rs28.5) and Rs28.7 (earlier Rs35.7) for FY20E and FY21E, respectively. We continue to value SURL using SOTP valuation methodology ascribing EV/EBITDA of 12x to the lighting business and 4.5x to the steel pipe business. We arrive at a revised target priceof Rs. 270 (Rs 328 earlier) and maintain ‘BUY’ rating on the company’s stock.
At current price of Rs 254, SURL stock is trading at attractive valuation- FY20 EV/EBITDA 5.8x. We value SURL using SOTP valuation methodology- ascribe EV/EBITDA of 14x to the lighting business and 6x to the steel pipe business. We arrive at a revised target price of Rs 328 (Rs 330 earlier) and maintain ‘BUY’ rating on the company’s stock.