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Ratnamani Metals & Tubes (RMT IN) has entered into a joint venture-shareholder Agreement with Saudi Electric Supply Company (SESCO) based out of the Kingdom of Saudi Arabia (KSA). SESCO, part of the Tamimi Group, provides end-to-end supply chain solutions to large process industries, such as oil & gas, petrochemicals, and infrastructure. We believe the total proposed investment will generate a healthy ROCE of ~20%. Revenue generation from the JV is set to begin 18 months post establishment. We believe the JV will mark a strategic shift toward revenue diversification, helping RMT to reduce its dependence on the domestic capex cycle. This move is likely to support sustainable long-term growth. We reiterate Buy with a TP of INR 3,361.

Invest for growth beyond FY27: SESCO will support the JV with project execution, market assessment, legal & operational support, and compliance in the region. The agreement has been signed but the incorporation of the JV is pending. RMT will hold a 75% stake in the JV while SESCO will hold the remaining 25%. The JV will be incorporated at Dammam or another location within the KSA and will operate as a subsidiary of RMT. Total proposed investment by both parties will be in the range of ~USD 38–40mn, comprising mix of equity and debt, but the capital structure is yet to be decided for the JV. The JV will primarily focus on manufacturing stainless steel cold-finished specialized tubes with an initial capacity of 1,500 tonne.

JV to strengthen RMT’s presence in the Middle East: The JV company will be established with the primary objective of delivering critical tubing solutions to customers in the KSA, the Gulf Cooperation Council (GCC) countries, and, where opportunities arise in the international markets. Additionally, it aims to support local manufacturing of seamless products that are currently being imported by consumers in KSA and the GCC. With this JV, RMT would gain brand visibility and deliver superior servicing capabilities to local and regional clients. SESCO's local knowledge, infrastructure access, and regulatory support under the Tamimi Group would ease JV setup and operations. The Tamimi Group began as a major parts supplier to oil giant Saudi Aramco and currently is a large conglomerate of companies in the KSA with a presence in catering, oilfield services & supplies, road construction, transportation and trucking, power generation, and water filtration.

Investment is likely to yield ROCE of 20%: Once the JV completely ramps up, we expect it to generate an asset turnover of 1.0x, earn an EBITDA margin of 25% and generate ROCE of 20%. JV has the potential to add INR 452mn to PAT based on the assumption of D:E ratio of 1:1 for JV, which is equivalent to 5% of our estimated FY27 PAT for RMT of INR 9.4bn.

Reiterate Buy with a TP of INR 3,361: We believe the JV is a step in the right direction for diversifying revenue mix to partly insulate companies from the domestic capex cycle and increasing long-term growth. We view the JV as a positive step toward diversifying the company's revenue mix, which will offset the cyclicality impact of domestic capex cycles. This strategic move is expected to contribute to the company's long-term growth prospects; hence, we retain our positive stance. We reiterate Buy on RMT with a TP of INR 3,361 based on 25x March 2027E P/E. Demand slowdown from key end-user industries and lower ramp-up in utilization are key risks to our call.

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