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EBITDA margin surprises positively...

Ratnamani Metals and Tubes (RMTL) reported operationally good set of Q3FY21 numbers. For the quarter, topline came in line with our estimates while EBITDA & PAT came in higher than our estimates. Healthy operational performance was on the back of better-than-expected sales volumes from the stainless steel division (higher margin segment). This aided the company to report healthy EBITDA margins for the quarter. For Q3FY21, Ratnamani reported a net income from operations of | 441 crore, broadly in line with our estimate of | 448 crore. Stainless sales volume was at 5015 tonnes (higher than our estimate of 4550 tonnes) while carbon steel sales volume were at 32968 tonnes (lower than our estimate of 48125 tonnes). EBITDA came in at | 80 crore, higher than our estimate of | 66 crore. EBITDA margin was at 18.1% (highest in the last five quarters) higher than our estimate of 14.8% (14.3% in Q3FY20, 14.2% in Q2FY21). Ensuing PAT for the quarter was at | 60 crore, higher than our estimate of | 41 crore.

Aggregate order book increases sequentially…

RMTL’s order book as on January 1, 2021 was at | 1359 crore (| 1178 crore as on October 1, 2020). Stainless steel (SS) order book was at | 347 crore (| 439 crore as on October 1, 2020), while carbon steel (CS) orders were at | 1012 crore (| 739 crore as on October 1, 2020). In terms of domestic and exports mix, domestic orders were at | 1230 crore while export orders were at | 129 crore. Of the | 1230 crore domestic order book, | 286 crore is in the SS segment while balance | 944 crore is in the CS segment. Of the | 129 crore export order book: | 61 crore is in the SS segment while the balance | 68 crore is in the CS segment. Going forward, over the medium term horizon, we expect orders from the healthcare sector (especially API segment), oil and gas sector, etc, to flow-in thereby auguring well for the for the higher margin SS segment of the company.

For FY22E, EBITDA margins expected in ~16-18% range…

For FY22E, the management has given a topline guidance of ~| 3000 crore. Furthermore, for the next fiscal year, EBITDA margins (inclusive of other income) are likely to hover between 16% and 18%.

Valuation & Outlook

RMTL’s Q3FY21 performance was aided by healthy EBITDA margins. Going forward for FY21E, FY22E and FY23E, we model EBITDA margin of 14.8%, 15.8% and 16.0%, respectively. We introduce FY23E estimates and roll over our valuations to FY23E. We value the stock at 24x FY23E EPS and arrive at a target price of | 1900 (earlier target price of | 1475). We maintain our BUY recommendation on the stock.

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