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Mixed bag performance…

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 & tubes, which find application in key end user industries like oil & gas refineries, power, healthcare, etc.

RMTL 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 on its balance-sheet

Q3FY22 Results: RMTL reported a mixed set of numbers in Q3FY22.

For Q3FY22, revenue from operations was at | 927 crore (up 110% YoY, 30% QoQ), higher than our estimate of | 872 crore

Stainless steel segment reported sales volume of 4606 tonnes (down 8% YoY, 2%QoQ), while carbon steel segment reported sales volume of 72002 tonnes (up 118% YoY, 36% QoQ)

EBITDA for the quarter was at | 130 crore (up 60% YoY, 17% QoQ), lower than our estimate of | 142 crore. EBITDA margin for the quarter was at 14%, lower than our estimate of 16.3% (EBITDA margin of 18.4% in Q3FY21 and 15.6% in Q2FY22). Ensuing net profit for the quarter was at | 89 crore (up 48% YoY, 25% QoQ), lower than our estimate of | 99 crore

What should investors do? RMTL’s share price has given a return of ~31% over the last one year (from ~| 1641 in February 2021 to ~| 2151 levels in February 2022).

We downgrade the stock from BUY to HOLD

Target Price and Valuation: We value RMTL at | 2255, 25x FY23E EPS

Key triggers for future price performance:

Order book as on February 1, 2022 was at | 1912 crore (| 1741 crore as on October 1, 2021). As on February 1, 2021, stainless steel (SS) order book was at | 666 crore (| 528 crore as on October 1, 2021) while carbon steel (CS) orders were at | 1246 crore (| 1213 crore as on October 1, 2021)

Over FY21-23E, we expect the topline to grow at a CAGR of 24.9% while EBITDA and PAT are expected to register a CAGR of 23.5% and 23.6%, respectively

Alternate Stock Idea:In our metal coverage, we like Vardhman Special Steel

Vardhman Special Steel (VSSL) is among India’s leading steel bar producers for automotive applications

BUY with a target price of | 300

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