Surya Roshni's Q1 Shocker: Was SAP to Blame? The Road Ahead for This Indian Giant
Surya Roshni Limited, a diversified player in India’s manufacturing landscape, recently unveiled its Q1 FY26 earnings, presenting a mixed bag of challenges and ambitious recovery plans. As a seasoned observer of the Indian market, where the Nifty and Sensex experienced a strong rally in Q1 but are now undergoing a correction due to cautious guidance, Surya Roshni’s results offer a compelling case study.
The headline numbers for Q1 FY26 weren’t pretty, with consolidated revenue and EBITDA seeing significant year-on-year declines. However, beneath the surface of these challenging figures lies a narrative of temporary operational disruption and a management team determined to pivot aggressively towards a strong rebound.
Let’s dig into what transpired and, more importantly, what the future might hold for Surya Roshni.
The Q1 Hiccup: SAP Implementation Takes a Toll
Surya Roshni’s Q1 FY26 performance was significantly impacted by an internal hurdle: the SAP HANA software implementation in its crucial Steel Division. Going live on April 1, 2025, this system transition caused a substantial disruption in April and early May.
The numbers tell a stark story:
| Metric (Consolidated) | Q1 FY26 (INR Cr) | Q1 FY25 (INR Cr) | YoY Change (%) |
|---|---|---|---|
| Revenue | 1,605 | 1,893 | -15% |
| EBITDA | 83 | 159 | -48% |
| PAT | 34 | 92 | -63% |
The SAP-induced sales loss alone amounted to a staggering 25,000-30,000 metric tons of steel, translating to approximately INR 180-200 crores in lost revenue. This wasn’t just a revenue hit; it cascaded into increased fixed costs (approx. INR 2,000 per ton) and inventory losses (approx. INR 1,000 per ton), severely eroding the per-ton EBITDA for the Steel segment.
Adding to the internal challenges were external headwinds:
- Muted Government Project Execution: Delayed fund disbursements impacted demand, especially for the Steel Division, which benefits from infrastructure-led cyclicals – a theme usually supported by government push in the broader Indian economy context.
- Early Onset of Monsoon: This led to seasonal demand volatility and destocking in dealer networks for both segments.
- Softer Commodity Prices: Contributed to margin pressures.
Segment Deep Dive: Steel Bears the Brunt, Lighting Shows Resilience
Steel Pipe and Strips Segment: A Quarter of Disruption
| Metric (Steel) | Q1 FY26 (INR Cr/Ton) | Q1 FY25 (INR Cr/Ton) | YoY Change (%) |
|---|---|---|---|
| Revenue | 1,207 | 1,509 | -20% |
| EBITDA | 52 | 124 | -58% |
| EBITDA per Metric Ton | INR 2,922 | INR 6,065 | -52% |
| Overall Volume (YoY) | -13% | ||
| Domestic Volume (YoY) | -30% | ||
| Export Volume (YoY) | +23% |
The Steel segment’s revenue declined by 20%, and its EBITDA plummeted by 58%. The EBITDA per ton, a critical metric, was more than halved, directly attributable to the SAP implementation issues and resultant operational inefficiencies. Domestic volumes saw a nearly 30% drop, highlighting the dual impact of internal and external factors.
However, a silver lining emerged: export volumes grew by 23% YoY, driven by strong demand from the Middle East. This diversification somewhat cushioned the domestic blow and indicates underlying market potential for Surya Roshni’s products.
Lighting & Consumer Durables Segment: Modest Growth Amidst Pressure
| Metric (Lighting) | Q1 FY26 (INR Cr) | Q1 FY25 (INR Cr) | YoY Change (%) |
|---|---|---|---|
| Revenue | 397 | 385 | +3% |
| EBITDA | 31 | 35 | -11% |
| EBITDA Margin | 7.8% | 9% | -1.2% |
The Lighting segment demonstrated modest revenue growth of 3%, a commendable feat given the challenging market conditions and early monsoon. However, profitability was impacted by continued pricing pressures in LED lamps and batten segments, and lower margins in specific B2B projects. Despite this, the segment saw healthy double-digit volume growth in key categories like LED lamps, batten, and water heaters.
Orders and Outlook: A Glimmer of Hope for the Upcoming Quarters
The most crucial aspect for forward-looking markets is the future. Surya Roshni’s management, despite the Q1 setback, exuded confidence regarding a strong recovery from Q2 FY26 onwards. This optimism is largely fueled by a robust order book and strategic capacity enhancements.
Order Book as a Catalyst: The company boasts a healthy order book of INR 750-800 crores, which includes significant orders for large diameter coated pipes for water infrastructure, oil, and gas. Additionally, INR 1,000 crores worth of high-margin product orders are in the pipeline. The execution of these orders is primarily expected between July and September, providing a strong base for Q2 and Q3 revenue. This aligns well with the broader Indian economic context of “capex revival” and “government push” in infrastructure.
CapEx for Growth: Surya Roshni is actively expanding its capabilities to capture future demand:
- The Cold Rolling Mill was commissioned in June and is ramping up.
- The 60,000-ton capacity DFT Forming Technology mill at Anjar Bhuj is set to commission by March/April 2026.
- The Spiral Mill in Gwalior has also commenced operations.
- A new domestic wire cable facility at the Gwalior plant launched in August, targeting INR 150 crores in its first year, with ambitious plans to scale to INR 500 crores in 2-3 years.
These are significant growth-oriented capital expenditures, indicating management’s commitment to scaling operations and increasing value-added product offerings. The funding for these expansions is planned through internal accruals, supported by the company’s zero-debt status and net cash surplus of INR 331 crores.
Management’s Ambitious Guidance and Our View
Surya Roshni’s management has reiterated an ambitious full-year FY26 guidance, expecting consolidated revenue growth of over 20% and consolidated EBITDA around INR 590-600 crores.
For Q2 FY26, the forecast is particularly aggressive:
- Consolidated Revenue Growth: 35-38% YoY.
- Steel Division Dispatch Volume: Anticipated to reach approximately 2.5 lakh tons (significantly up from 1.9 lakh tons in Q1 FY26 and 1.74 lakh tons in Q2 FY25).
- Steel Division EBITDA per Ton: Expected to recover to INR 5,500.
Subsequent quarters (Q3 & Q4 FY26) for the Steel Division are projected to see combined volumes of 6 lakh tons, with EBITDA per ton improving further to INR 6,000.
Our Take: While the Q1 results were undoubtedly a disappointment, the management’s detailed explanation of the SAP-related disruption and the concrete steps for recovery lend credibility to their forward guidance. The healthy order book, the resolution of the SAP issues, and the commissioning of new capacities are strong tailwinds.
However, achieving a 20%+ revenue growth and hitting the INR 590-600 crore EBITDA target for the full year, after a severely impacted Q1, will require near-flawless execution and a significant ramp-up in the remaining three quarters. The projected improvement in Steel EBITDA per ton to INR 5,500-6,000 is crucial and needs to be closely monitored.
The company’s classification for Q1 is undoubtedly that of a turnaround candidate due to the operational hiccup. However, the underlying strategic investments, order pipeline, and management’s confidence suggest that if they deliver on their guidance, Surya Roshni could quickly revert to being a fast grower leveraging the domestic-growth themes prevalent in the Indian economy.
The commitment to a higher dividend payout of INR 200 crores for FY26 (up from INR 120 crores last year) further underscores management’s strong belief in robust future profitability and cash generation, serving as a positive signal to shareholders amidst the current market correction.
Key Takeaways for Investors
- Temporary Setback: Q1 FY26 was primarily impacted by a one-off SAP implementation disruption in the Steel Division, exacerbated by broader market softness. This is a crucial distinction from a fundamental business decline.
- Strong Recovery Path: The robust order book, successful resolution of SAP issues, and ongoing capacity additions position Surya Roshni for a significant rebound from Q2 FY26 onwards.
- Growth-Oriented CapEx: Strategic investments in new mills and a wire cable facility indicate a clear focus on expanding into higher-value and new product categories, aligning with the “domestic-growth themes” of the Indian economy.
- Financial Strength: A zero-debt status and healthy cash surplus provide a strong buffer and funding for future growth without external reliance.
- Execution is Key: While the outlook is positive, achieving the ambitious full-year guidance hinges on efficient execution of the order book and timely ramp-up of new capacities. Investors should closely watch Q2 and Q3 results for confirmation of the anticipated recovery in volumes and margins. 🧐
Surya Roshni’s Q1 FY26 results were a reminder that even well-laid plans can face operational bumps. But the quick identification of issues, clear communication, and aggressive forward guidance suggest a company poised to leverage its inherent strengths in the coming quarters. The market will be keenly watching to see if this promise of recovery translates into solid numbers.
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