Buy Ratnamani Metals and Tubes; target of Rs 2670: Sharekhan

Sharekhan's research report on Ratnamani Metals and Tubes

RMTL posted a phenomenal performance in Q4FY23 with best-ever consolidated revenues of Rs. 1,499 crore (up 54% y-o-y) and OPM of 20% (up 275 bps y-o-y), which significantly surpassed our estimates given strong order execution (volume growth of 57% y-o-y), better product mix and operational efficiencies. PAT of Rs. 193 crore (up 73% y-o-y) was 57% above our estimates. Order book declined by 21% q-o-q to Rs. 2,440 crore and is at Rs. 2600 crore currently. Management hinted at softness in orders from oil & gas space and line pipe segment while that from water segment to remain strong but has relatively lower margin. Standalone revenue guidance of Rs. 5,000 crore (implies 14% y-o-y growth with likely variance of +5%/-5%) with EBITDA margin of 16-18%. Ravi Technoforge (bearings business) expected to see a revenue ramp-up to Rs. 300 crore, 200 bps margin improvement in FY24 and Rs. 15-20 crore of annual debt repayment.

Outlook

RMTL stock price has run-up by 19% in CY23YTD and near-term stock price may remain rangebound until order book improves from current level. Having said that, we believe that RMTL’s dominant domestic position in steel tubes & pipes makes it well placed to capture medium to long-term growth opportunities from the oil & gas space. Hence, we maintain our Buy rating on RMTL with revised PT of Rs. 2,670. Stock trades at 31.1x/26.3x its FY24E/FY25E EPS.

For all recommendations report, click here