Press Release

Surya Roshni Limited October 9, 2017 Ratings Facilities Amount Rating1 Rating Action (Rs. crore) CARE A+; Stable 942.96 Revised from CARE A Long term Bank Facilities (Single A Plus; Outlook: (enhanced from 903.64) (Single A) Stable) CARE A+; Stable / CARE A1 Revised from Long/Short term Bank 670.00 (Single A Plus; Outlook: CARE A (Single A); Short Facilities - NFB (enhanced from 570.00) Stable/ A One) term rating reaffirmed CARE A+; Stable / CARE A1 Revised from Long/Short term Bank 50.00 (Single A Plus; Outlook: CARE A (Single A); Short Facilities - SLC Stable/ A One) term rating reaffirmed Total 1,662.96 (Rs. One Thousand Six Hundred Sixty Two crore and Ninety Six Lakh Only) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The revision in the long term ratings of Surya Roshni Ltd (SRL) factors in the improvement in the financial risk profile characterized by healthy growth in the steel pipes segment during FY17 and Q1FY18. The rating improvement also factors in the improved debt coverage indicators for the combined entity. The ratings continue to derive strength from the experienced promoters of Surya Group, its consistent track record of profitable operations and diversified product profile. The ratings also factors in the company’s established brand name with an extensive nation-wide marketing network and integrated operations in the lighting division. The ratings also take cognizance of the progress on the proposed merger of associate company Surya Global Steel Tubes Limited (SGSTL) with SRL which shall result in consolidation of steel tubes business for Surya group at a single entity. The ratings, however, continue to remain constrained by the moderate gearing levels of SRL, its working capital-intensive nature of business operations and exposure to raw material price volatility in the steel business. Going forward, the ability of the company to achieve the envisaged revenue and profitability and improve its capital structure shall be the key rating sensitivity. Furthermore, non-materialisation of proposed merger of associate company SGSTL with SRL and/or any higher than envisaged debt funded capital expenditure resulting in increased leverage shall also be the rating sensitivity.

Detailed description of the key rating drivers Key Rating Strengths Healthy growth in the steel segment during FY17 & Q1FY18 SRL had reported growth of 6.08% y-o-y in FY17 largely driven by growth in both volumes and realizations in the steel segment during FY17. The steel segment registered a growth of 13% during FY17 and improvement in PBIT margins of 2.80% during FY17 (PY: 2.46%). The growth from steel division continued in Q1FY18 also with a growth of 16% as

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications.

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Press Release compared to similar quarter previous year. SRL’s interest coverage improved from 2.53x as on March 31, 2016 to 2.63x as on March 31, 2017. Further, the overall gearing and total debt to gross cash accruals for the combined entity (SRL+SGSTL) improved from 1.56x and 7.65x respectively as on March 31, 2016 to 1.45x and 5.99x respectively as on March 31, 2017. SRL’s proposed merger with associate company SGSTL: SGSTL is an associate company of SRL wherein SRL presently holds 26.99% equity shares of SGSTL. The board of directors in its meeting held on June 8, 2016 has considered and approved the scheme of amalgamation of SGSTL with SRL in accordance with the provisions of companies act. The merger is progressing with the shareholders of the company and the creditors of both the companies approved the merger with majority at the NCLT convened meetings. As on September 25, 2017, the second motion proceedings had been taken up and for the same order/directions are awaited from Hon’ble (NCLT) Chandigarh Bench. Experienced promoters and consistent track record of the company: The promoter of the company, Mr. J P Agarwal has rich experience of over four decades in the industry and is supported by a management team consisting of experienced professionals in the business of steel and lighting. The company has shown consistent growth in income and profitability over the years and has been paying dividend regularly since 2001. Established brand name with wide marketing network: SRL has an established brand name of “Surya” for its lighting and steel products and has a strong marketing network of around 1,785 dealers/distributors and more than 2,00,000 retailers spread across the country. Integrated lighting operations: The company has an integrated manufacturing facility to manufacture the various components and the entire range of lighting products (GLS, FTL, CFL, LED) which finds application in domestic, industrial and commercial segments. SRL has in-house capability to manufacture lighting products including glass, Printed Circuit Boards (PCBs), ballasts, filaments, caps, etc. The company also has in house Research & Development (R&D) laboratory in Noida (Uttar Pradesh), accredited by the Department of Scientific and Industrial Research (DSIR), which is involved in design and development of new products in the lighting segment. This high level of integration helps the company to achieve better control on the entire value chain and thus results in better profitability margins.

Key Rating Weaknesses Moderate gearing levels: The overall gearing (including acceptances) of the company though improved remained moderate at 1.49x as on March 31, 2017 (PY:1.57x). The improvement in gearing levels was on account of scheduled repayments, prepayments of loans and accretion of profit to net worth. Working capital intensive nature of business operations: SRL has working capital intensive nature of business operations owing to large inventory that the company has to maintain for raw material and finished goods, mainly in the steel division. Furthermore, the company purchases most of its raw material on cash/LC basis, while it provides a credit of 50- 60 days to its customer. Elongated operating cycle necessitates higher reliance on bank finance to meet the working capital requirement, which is also reflected in moderately high average month end utilisation levels of around 79% over the last 12-month period ending June 2017. Exposure to raw material price volatility risk in steel pipe segment: The main raw material for the steel segment of SRL is HR Coil, CR Coil and strips the prices of which are volatile. Although the company is able to pass on the fluctuation in

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Press Release raw material prices in the final product due to nature of the business, SRL is exposed to price volatility risk on its inventory which may adversely impact the margins. Analytical Approach Followed – CARE has arrived at the rating of SRL by combining the business and financial risk profile with SGSTL considering the proposed merger of SGSTL with SRL. Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE’s Policy on Default Recognition Criteria for Short Term Instruments CARE’s methodology for manufacturing companies Rating Methodology: Factoring Linkages in Ratings Financial ratios – Non-Financial Sector About the Company SRL, promoted by Mr J P Agarwal, was incorporated in 1973 as a manufacturer of Electric Resistance Welded (ERW) pipes, sold under the brand name of ‘Prakash-Surya’. In 1985, SRL diversified into lighting products with the manufacturing of General Lighting Systems (GLS) and Fluorescent Tube Lamps (FTL) sold under the brand name ‘Surya’. SRL has two business divisions – steel division and lighting division. The manufacturing facilities for ERW pipes and CR sheets are located at Bahadurgarh (), Malanpur (MP) and Hindupur (Andhra Pradesh). The manufacturing unit for CFL, GLS and FTL is situated in Kashipur () and Malanpur (MP), while the high mast unit is located at Malanpur (MP). The company is also engaged in the manufacturing of Poly Vinyl Chloride (PVC) pipes at its manufacturing facility at Kashipur. As on March 31, 2017, the company had an installed capacity of 66 million CFLs per annum, 192 million GLS per annum, 63 million FTLs and 48 million Light Emitting Diodes (LED) per annum. In the steel division, SRL has an installed capacity of 465,000 MT for varied sizes of pipes and 115,000 MT for CR strips and sheets.

Particulars FY16 (A) FY17 (A) Total operating income 2966.0 3146.2 PBILDT 244.2 230.6 PAT 61.7 63.2 Overall gearing (times) 1.57 1.49 Interest coverage (times) 2.53 2.63 A: Audited

Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

Analyst Contact: Name: Sudhir Kumar Tel: 011- 45333232 Email: [email protected]

About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in . CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market 3 CARE Ratings Limited

Press Release built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. Annexure-1: Details of Instruments/Facilities

Name of the Date of Coupon Maturity Size of the Rating assigned Instrument Issuance Rate Date Issue along with Rating (Rs. crore) Outlook Fund-based - LT-Term Oct 2013 - Dec 2023 281.00 CARE A+; Stable Loan Fund-based - LT-Term Jan 2015 - Mar 2023 41.96 CARE A+; Stable Loan Fund-based - LT-Cash - - - 620.00 CARE A+; Stable Credit Non-fund-based-LT/ST - - - 670.00 CARE A+; Stable/ CARE A1 Fund-based - LT/ ST-Stand - - - 50.00 CARE A+; Stable/ by Line of Credit CARE A1

Annexure-2: Rating History of last three years

Sr. Name of the Current Ratings Rating history No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) & Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s) (Rs. crore) assigned in assigned in assigned in assigned in 2017-2018 2016-2017 2015-2016 2014-2015 1. Fund-based - LT-Term LT 281.00 CARE A+; - 1)CARE A 1)CARE A- 1)CARE A- Loan Stable (11-Jul-16) (28-Oct-15) (14-Oct-14) 2)CARE A- (19-Apr-16)

2. Fund-based - LT-Term LT 41.96 CARE A+; - 1)CARE A 1)CARE A- 1)CARE A- Loan Stable (11-Jul-16) (28-Oct-15) (14-Oct-14) 2)CARE A- (19-Apr-16)

3. Fund-based - LT-Cash LT 620.00 CARE A+; - 1)CARE A 1)CARE A- 1)CARE A- Credit Stable (11-Jul-16) (28-Oct-15) (14-Oct-14) 2)CARE A- (19-Apr-16)

4. Non-fund-based-LT/ST LT/ST 670.00 CARE A+; - 1)CARE A / CARE 1)CARE A- / 1)CARE A- / Stable/ A1 CARE A2+ CARE A2+ CARE A1 (11-Jul-16) (28-Oct-15) (14-Oct-14) 2)CARE A- / CARE A2+ (19-Apr-16)

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5. Fund-based - LT/ ST- LT/ST 50.00 CARE A+; - 1)CARE A / CARE 1)CARE A- / 1)CARE A- / Stand by Line of Credit Stable/ A1 CARE A2+ CARE A2+ CARE A1 (11-Jul-16) (28-Oct-15) (14-Oct-14) 2)CARE A- / CARE A2+ (19-Apr-16)

6. Commercial Paper ST - - - 1)Withdrawn 1)Provisional 1)CARE A1+ (19-Apr-16) CARE A1+ (SO) (SO) (In (28-Oct-15) Principle) (30-Oct-14)

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