Centrum recommended hold rating on Ratnamani Metal & Tubes with a target price of Rs 940 in its research report dated August 09, 2018.
Centrum Research's research report on Ratnamani Metal & Tubes
We remain structurally positive on Ratnamani Metals & Tubes (RMTL) but retain our Hold rating with a revised TP of Rs940 (vs Rs970 earlier) on the back of limited upside potential with strong growth outlook fully factored in at current valuations. Q1 performance was on expected lines with strong EBITDA growth but margin remaining under check led by higher share of CS segment. We continue to believe in RMTL’s long-term growth story, with expected strong domestic capex over FY19-22E and completion of expansion in the high-margin SS business by Q4FY19E.
We continue to value RMTL on DCF and model the company’s earnings and cash flows to FY22E to factor in the contribution from the expansion in SS’ seamless business. We assume 8% linear growth from FY22-27E, terminal growth of 4% and WACC of 10.9% to arrive at a revised DCF-based revised fair value of Rs940. Maintain Hold. Key downside risks include higher steel prices leading to increased RM volatility and lower margins while upside risk is greater traction in SS segment.
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