IGI Logo

Performance set to improve, going forward…

About the stock: Ratnamani Metals & Tubes (RMTL) is a niche player with superior capabilities in the domestic industrial pipes and tube segment. RMTL manufactures a wide range of stainless steel and carbon steel pipes and tubes, which find application in key end user industries like oil & gas refineries, power, healthcare, etc.

* Ratnamani Metals and Tubes has an impeccable capital allocation strategy and best in class operating margins and return ratios

* RMTL has healthy cash flow and strong balance-sheet. It is one of the few players in the steel pipe sector having net cash position in it balance-sheet.

Q1FY22 Results: RMTL reported a subdued set of numbers for Q1FY22.

* For Q1FY22, revenue from operations stood at | 526 crore (down 9% YoY, 24% QoQ), lower than our estimate of | 592 crore. Stainless steel segment reported sales volume of 3643 tonnes (down 9% YoY) while carbon steel segment reported sales volume of 48687 tonnes (down 17% YoY).

* EBITDA for the quarter was at | 85 crore (up 11% YoY but down 47% QoQ), lower than our estimate of | 104 crore. EBITDA margin for the quarter was at 16.1%, lower than our estimate of 17.5% (EBITDA margin of 13.1% in Q1FY21 and 22.8% in Q4FY21). Ensuing PAT for the quarter was at | 50 crore, lower than our estimate of | 70 crore (PAT of | 109 crore in Q4FY21 and | 50 crore in Q1FY21).

What should investors do?

Ratnamani’s share price has grown by ~2.4x over the last three years (from ~| 865 in August 2018 to ~| 2075 in August 2021).

* We maintain our BUY rating on the stock

Target Price and Valuation: We value RMTL at | 2400, 25x FY23E EPS.

Key triggers for future price performance:

* RMTL has completed a majority of its capacity expansion projects and is expected to reap the benefits of the same during the next couple of years. Over the last couple of years, the company has incurred a capex of ~| 600 crore to increase its capacities.

* Over FY21-23E, we expect topline to grow at 24.6% CAGR while EBITDA, PAT are expected to grow at a CAGR of 26.8%, 27.5%, respectively.

Alternate Stock Idea: In our steel pipe sector coverage, we also like Tata Metaliks.

* By Q4FY23, Tata Metaliks is planning to double the Ductile Iron (DI) pipe capacity to 4 lakh tonnes

* BUY with a target price of | 1475

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer