Quarterly Update Report

Quarterly Update Report

Ratnamani Metals & Tubes Ltd. | Quarterly Update

Ratnamani Metals & Tubes Ltd.

15th August 2022


NEUTRAL

CMP Rs. 1,730
TARGET Rs. 1,824(+5.4%)

Strong growth in turnover, but product mix dented margins

On a lower base, Ratnamani Metals & Tubes Limited (RMTL) posted a strong
YoY growth of 86% and a flat growth on a QoQ basis. Due to changes in
product mix and higher raw material costs, operating margins were down by
3% & 4% on YoY & QoQ basis, respectively. RMTL would deliver a top-line
growth of 15-20% in FY23 based on a strong order book of Rs. 23,450 Mn as
on Q1FY23, which is expected to be executed by the end of FY23.

Company Data

MCAP (Rs. Mn) 121,610
O/S Shares (Mn) 70
52w High/Low 1,920 / 1,237
Face Value (in Rs.) 2
Liquidity (3M) (Rs.
Mn)
48.2


Changes in product mix dented operating margins

Carbon Steel (CS) pipes are lower-margin products than stainless steel (SS)
pipes. An increase in revenue proportion of CS pipes & lower value-added
SS pipes lead to a decrease in operating margins.

Shareholding Pattern %

Jul 22 Mar 22 Dec 21
Promoters 60.16 60.16 60.16
FIIs 12.28 12.13 12.01
DIIs 16.36 16.26 16.02
Non-Institutional 11.2 11.45 11.81

Active bidding to fuel order book growth

In water infrastructure projects, RMTL is bidding in areas that are in closer
proximity to its operating plants. In volume terms, cumulative prospectus
order book for Gujarat (250,000 MT), Rajasthan (110,000 MT) & Madhya
Pradesh (200,000-300,000 MT) is 560,000-660,000 MT. Apart from this, RMTL
has already tendered for 100,000 MT in the oil & gas industry.

Ratnamani vs Nifty

s vs n


Source: Keynote Capitals Ltd.

Capacity expansion (Capex)

In earlier quarters, management indicated that they will be spending Rs. 3.5 Bn
for capacity expansion in SS pipes (brownfield) & Helical Submerged Arc
Welding (HSAW) pipes (greenfield). SS pipes expansion is progressing as per
expectations. As HSAW pipes expansion is a greenfield project, management
requires another six months to give a clarity on development progress.

Key Financial Data

(Rs mn) FY22 FY23E FY24E
Revenue 31,388 37,665 42,413
EBITDA 4,947 6,026 6,998
Net Profit 3,226 3,812 4,503
Total Assets 29,625 33,061 37,308
ROCE (%) 14% 16% 17%
ROE (%) 15% 16% 16%

Source: Company, Keynote Capitals Ltd.

View & Valuation

We maintain our views on Ratnamani Metals & Tubes Ltd with a NEUTRAL
rating and a target price of Rs. 1,824 (32x FY23e earnings), giving it a 15%
premium to median multiples based on a strong order book and execution
track record of the management.

Result Highlights (Rs. Mn)

s vs n

Chirag Maroo,
Research Analyst

chirag@keynotecapitals.net

Ratnamani Metals & Tubes Ltd. | Quarterly Update

Q1FY23 Conference Call Takeaways

General Highlights

– Change in product mix and higher inventory cost had put some pressure on
operating margins.

– As of June’2022, liquid cash on books & fixed investments are worth Rs.
2,200 Mn+ & debt is worth Rs. 1,500-1,600 Mn.

CS pipes

– Electrical Resistance Welding (ERW) pipes capacity is fully booked till
November’2022. For future projects, RMTL has already bid for a few tenders.

– Management expects a strong pipeline in CS pipes: Longitudinal
Submerged Arc Welding (LSAW) pipes for the oil & gas industry & HSAW pipes for water infrastructure projects.

SS pipes

– In the last few quarters, RMTL has not delivered a growth in SS pipes (volume terms).

– Management indicated that their focus is to increase the value-added proportion in SS pipes. This will help them to differentiate themselves from
the competition.

Management Guidance

– In the short term, RMTL can see blips in operating margins, but in the long
term, they will have stable operating margins in the range of 16-18%.

– In FY23, RMTL will see top-line growth of 15-20%.

CAPEX

– Annual maintenance expense is Rs. 400 Mn.

– SS pipes (brownfield) expansion is progressing as per expectation.

– For any development in HSAW pipes (greenfield) expansion, management
requires six months for a clear guidance.

Order Book

– Currently, RMTL has an order book worth Rs. 23,450 Mn, which includes Rs.
4,550 Mn export orders & 18,900 Mn domestic orders.

– In Water infrastructure projects, RMTL has a prospectus order book of
560,000-660,000 MT, which are close to its manufacturing plants.

– RMTL has already made a bid for 100,000 MT in the oil & gas industry.

Ratnamani Metals & Tubes Ltd. | Quarterly Update

Financial Statement Analysis

page35 is

page35 cf

ip

ip

Source: Company, Keynote Capitals Ltd.

Ratnamani Metals & Tubes Ltd. | Quarterly Update

Valuation

5 Year Trailing PE – RMTL is trading at +1 Standard Deviation of its historical range

page35 is

KEYNOTE Rating History

Date Rating Market Price at Recommendation Upside/Downside
4th August 2022 NEUTRAL 1,779 +2.5%
12th August 2022 NEUTRAL 1,730 +5.4%

Ratnamani Metals & Tubes Ltd. | Quarterly Update

Rating Methodology


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The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

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page5 plp

Ratnamani Metals & Tubes Ltd. | Quarterly Update

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Ratnamani Metals & Tubes Ltd. | Quarterly Update

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