Rama Steel's new plant in Andhra to be functional by H2 2018, total installed capacity to reach 340,000 MTPA in 2 yrs
The following article is an initiative of Share India Securities Limited and is intended to create awareness among the readers.
Incorporated in 1974, Rama Steel Tubes Ltd. (RST) transforms basic steel to tubes, galvanized products, structures etc. These are value added products for infrastructure projects and the new emerging sectors such as automobiles and oil pipelines. With experience of more than four decades in the steel component sector, RST has diversified business segments catering to domestic and export markets. It is a steel processor not a steel manufacturer.
RST has three manufacturing facilities; at Uttar Pradesh, Maharashtra and Andhra Pradesh. It has two units at Sahibabad (Uttar Pradesh) with capacities of 75,000 MTPA and 24,000 MTPA, one at Khopoli (Maharashtra) with current capacity of 72,000 MTPA. For the Khopoli plant, the company is planning to ramp-up capacity to 240,000 MTPA, taking its overall installed capacity to around 340,000 MTPA in next 2 years. Management is expecting the new plant in the South at Lepakshi (Andhra Pradesh) to be operational in H2FY18, with initial capacity of 36,000 tonnes. This would help the company further enhance volume growth in the growing high demand region of the country. This would boost the company’s top line as well as PAT. Also, it has funded the expansion through internal accruals and a preferential allotment. Minimum debt has been taken, thus ensuring a high RoCE.
It has operations in the United Kingdom, the UAE, Sri Lanka, Ethiopia, Kenya, Uganda, Ghana, Kuwait etc. By recognizing the contribution of the company to exports, the Government of India has cleared it as an “export house”.
With commencement of production of additional capacities (from two new plants) along with higher capacity utilisation rates, margin expansion is expected to continue. As the management focuses on the value added products like Pre Galvanised Tubes along with strategic plan of increasing the capacity, number of dealers’, distributors network will not only improve top line but will also aide improve over all margins of the Company .
Rama Steel Tubes has unveiled one of the lndia's largest solar energy projects of its kind in the ERW pipes segment at Khopoli plant. The Company has executed the entire project in less than 3months' time at a cost of INR 37.5mn. Working with Visa Power tech Pvt. Ltd, the sustainable energy developer, RST has mounted 24OO solar panels on the factory land at its Khopoli facility, Maharashtra – an area equivalent to 3.75 acres.
OUTLOOK & VALUATION
We believe sales volumes will grow following the additional capacity, and expect realizations to improve further as demand from the construction sector seems improving, though marginally, helped by the strengthening economy and a favourable raw material situation. We expect that the company’s additional capacity, its focus on tapping opportunities in the high demand market of Southern India would further enhance volumes.
At the CMP INR 133, the stock trades at a P/ E multiple of 17x/ 14x FY18E/ FY19E EPS. With its focus on expanding to cater to the high demand market, its operating efficiencies and value added products, we expect better results from the company in future. We recommend a BUY on the stock with our price target of INR 200 (21x FY19E EPS), a 50% upside.
Report prepared by
Share India Securities Limited
14, Dayanand Vihar, Near Kakardooma Metro Station, Delhi-110092
We, research team at Share India Securities Ltd. (SISL), authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. SISL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related tothe specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or SISL may have any financial interest in the subject company. Also Research Analyst or his relative or SISL or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or SISL or its associate does not have any material conflict of interest.
SISL is a SEBI Registered Research Analyst having registration no. INH100005011.
This report has been prepared by SISL and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments.
This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject SISL or its affiliates to any registration or licensing requirement within such jurisdiction.
If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of SISL.
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.
It should not be considered to be taken as an offer to sell or a solicitation to buy any security. SISL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments.
SISL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
SISL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.
SISL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.
SISL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelvemonths.
SISL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing orco-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business.
SISL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither SISL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. SISL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report.
SISL, SEBI Reg. No.:INB/F/E 231079832, INB/F/E 011079838, IN-DP-32-2015, AMFI Reg. No. ARN: 78041, SEBI Research Analyst Reg. No.: INH100005011, CIN - U67120UP1994PLC050209