Ratnamani Metals & Tubes Ltd. share price target

Quarterly Update Q1FY23

Initiating Coverage Report

We maintain BUY rating and raise TP to Rs2,520 (previously Rs2500). Increase in TP is due to roll forward to valuation on Dec'23 basis. We have reduced margin trajectory and SS pipe offtake for FY22/FY23E to account for adverse product mix. 3QFY22 performance was massive beat on revenues but margins remained subdued due to adverse product mix. We continue to remain positive on the company due to large bid book, foray into water segment and ramp up of the hot extrusion plant which should drive strong order bookings...

Valuation and rating: We value RMT at an average of 26x Sept'23 PE and 16x Sept'23 EV/EBITDA to arrive at TP of Rs2,500 (Rs2,550 previously) and maintain BUY rating. Decrease in TP is due to downward revision of FY22/FY23 estimates. We have lowered both SS pipe and CS pipe sales estimates for FY22/FY23E, assumed higher realisation in 2HFY22 and also accounted the capital expenditure for modification of SS pipe plant....

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 its balance-sheet...

Valuation and rating: We value RMT at an average of 26x Sept'23 PE and 16x Sept'23 EV/EBITDA to arrive at TP of Rs2,550 and maintain BUY rating. Increase in TP is due to shift in valuation on Sept'23 basis (Mar'23 previously). Despite a muted 1QFY22, we maintain our rating along with no change in FY22E/ FY23E estimates as we expect revenue and margins to improve in subsequent quarters due to higher realisations and improving order book. Key...

RMTL's order book has improved QoQ. RMTL's order book as on May 1, 2021 was at | 1498 crore (| 1359 crore as on January 1, 2021). Stainless steel (SS) order book was at | 330 crore (| 347 crore as on January 1, 2021) while carbon steel (CS) orders were at | 1168 crore (| 1012 crore as on January 1, 2021). In terms of domestic and exports mix, domestic orders were at | 1357 crore while export orders were at | 141 crore. Of the | 1357 crore domestic order book, | 251 crore is in the SS segment while balance | 1106 crore is in the CS segment. Of the | 141 crore export order book: | 79 crore is in the SS...

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...

We maintain Accumulate rating but raise TP to Rs1,830 due to increase in FY22/FY23 EPS, increase in valuation multiple and roll over of valuations to FY23 estimates. Higher multiple is attributed to continuous recovery in Carbon Steel (CS) pipe orders, clarity on revival of Stainless Steel (SS) pipe orders and new demand drivers for SS pipes as we believe RMT will be foremost beneficiary of any revival in spending from refineries. Pandemic related weakness in order booking led to ~55% YoY drop in CS pipe sales impacting revenues in...

Valuation and risks: We value RMT at an average of 20x Sept'22 PE and 12x Sept'22 EV/EBITDA (10% premium to its FY16-20 average 1-year forward multiple) to arrive at TP of Rs1,420. Despite lowering our FY21E and FY22E estimates to account for lower sales volumes, the cash accumulation (due to working capital release in 1HFY21) aids in maintaining our older target price. Key risks: Steel pipe demand slowdown due to the pandemic, delayed payments from EPC contractors...

Channel checks with Pipeline engineers from a leading oil & gas company regarding demand recovery. Industry-wise list of on-going expansion projects which will drive demand for SS and CS steel pipes....

Post decline in Q1FY21; order book to increase, going forward RMTL's order book as on August 1, 2020 was at | 860 crore (| 1380 crore as on June 1, 2020). Higher margin SS order book was at | 483 crore (| 660 crore as on June 1, 2020) with CS orders of | 377 crore (| 720 crore as on June 1, 2020). In terms of domestic and exports mix, domestic orders were at | 533 crore while export orders were at | 327 crore. Of the | 533 crore domestic order book, | 373 crore is in the SS segment while balance | 160 crore is in the CS segment. Of the | 327 crore export order book: | 110 crore...

Ratnamani Metals & Tubes Limited (RMTL) reported in-line revenue performance, while margins and net profit remained above our expectations. RMTL reported revenue decline of 12.1% y-o-y, in line with our modest estimates, owing to closure of plants during the last 10 days of March due to nationwide lockdown restrictions. Ease in input cost pressures along with revenue mix change led to 320 bps y-o-y improvement in gross margin to 33.3%. However, gross margin expansion was offset by 29.5% y-o-y and 31.2% y-o-y increase in employee expenses and other expenses, resulting...