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Ratnamani Metals – Stock For the Month of November 2017

 Date – 7 November 2017

Price – Rs. 890

Ratnamani Metals and Tubes Limited (“Ratnamani Metals” or the “Company“) manufactures stainless steel tubes and pipes for Indian and export markets (mainly Europe and North America, with exports contributing 20% of total sales volume). In India, the Company commands a 40% market share.

What I like most about the Company is that it operates with zero debt which is unique for the sector. For this reasons Ratnamani’s margins (despite falling EPS because of its expansion activities) look much healthier than the top players in the segment. Despite lower sales turnover, Ratnamani Metals reports a similar net profit number to the largest player in the idustry (i.e. APL Apollo)

NameMarket Cap.
(Rs. cr.)
Total RevenueNet Profit
APL Apollo4,416.164545.44145.89
Ratnamani Metal4,041.971,411.66144.30

The stock is being bought by more mutual funds over the last few quarters and is likely to get a consistent flow of SIP money.

Installed Capacity

Types(in MT)
 STAINLESS STEEL SEAMLESS TUBES AND PIPES8,000
 STAINLESS STEEL WELDED TUBES AND PIPES7,000
 LARGE DIAMETER ELECTRIC FUSION WELDED (EFW) STAINLESS STEEL PIPES3,000
Carbon Steel PIPES AND TUBES180,000

Including all the types of steel, the total installed capacity to be near to 2.0 lac tones. As per the plans of the company, a further addition 20,000 tonnes to the stainless steel capacity will help in boosting the revenues.

Key Highlights

  • As of date, the company has no short term and long term borrowings.
  • The company is the market leader with c.40% market share in the stainless steel tubes and pipes business.
  • US markets and Middle East are the major export markets for the company. Exports contribute c.20% of the total sales volume.
  • The management is also planning to expand capacity in project application LSAW pipe segment.
  • Incremental capacity of c.20,000 tones is being set up in the stainless steel seamless tube and pipe segment at a capex of Rs.400 crore. The new facility is also expected to manufacture large dia pipes whose current requirement is met through imports.
  • EBITDA margins in the stainless steel tube and pipe segment is c.25% while that in the carbon steel pipe segment is c.12%

Financial analysis as per peers:

NameLast PriceMarket Cap.SalesNet ProfitTotal AssetsNet Profit Margins Promoter Stake (%)P/E
 (Rs. cr.)Turnover
Ratnamani Metal868.04,055.991,411.66144.31,186.9410.2%60.1230.03
APL Apollo1679.43,961.702,879.3839.32745.551.4%37.4774.69
Jindal Saw109.73,507.705,695.72307.79,316.805.4%53.5911.61
Welspun Corp127.23,372.354,345.79174.593,195.724.0%45.9912.63
Mah Seamless395.32,648.161,428.23145.522,830.3310.2%59.8016.97
Surya Roshni292.71,282.943,145.4666.221,713.772.1%63.3219.87
  • Highest market cap amongst the peers and also posts the highest net profit margin in the segment. Operating margins are also expected to go up once the new facilities move on from the commencement stage to the production stage.
  • Promoters hold c.60.12% of the total shareholding, second best among the top 5 peers as per market cap.
  • P/E ratio very competitive as per the industry average of 22.02.
  • Dividend rate has been above c.200% for the last 4 financial years for the company.Book value per share of the company has been constantly rising since last 5 financial years depicting a sustainable growth for the shareholders.
  • Reported retained earnings of the company for the financial year ended 31 March 2017 has increased from Rs. 277 crores to Rs. 419 crores, a growth of c.51.2%. This shows that the company is planning for some major investment opportunities in the near future. This supports the strategy which can be reflected from the expansionary plans of the company which has been mentioned earlier. It seems that the company is planning to finance the new setup through in house available funds.

INVESTMENT CONCERN

Valuation metrics for the company has been on the declining side.

FY13FY14FY15FY16FY 17
P/E27.025.821.422.730.1
EV/EBITDA15.714.512.212.913.0
P/BV5.74.84.13.53.5
ROCE (%)27.926.728.823.517.8
RONW (%)21.018.619.015.612.1

Return on Net Worth has been constantly declining for the past 5 financial years. EV/EBITDA, P/BV and ROCE have shown downward trend as well. Primarily this is because of the Company expanding its capacity as also weak demand in the steel sector globally over the past 2-3 years.

Company’s total assets are less as compared to its top 5 peers.

bookvalue ratnamani

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.