Multi Baggers

Ratnamani Metals & Tubes

Ratnamani Metals, incorporated in 1985, is an India based pipe manufacturer with its manufacturing units located in Gujarat. It operates in the area of stainless steel and carbon steel pipe segments with its strength in project related customized pipes which have higher value addition and better margins as compared with standard pipes. Over the past five years company has grown at a CAGR of 41%. Demand from the Petrochemical, Oil & Gas and Power sectors contribute almost 70% to the sales of the company and therefore the performance of the company is closely linked with the capital expenditure plans of these
sectors.

Market leader in Stainless steel tubes:

Being present in this segment since 1985, Ratnamani has created strong brand equity in the market. In the niche applications of stainless steel pipes, company commands 40% share in the domestic market. Typically 10% of O&G refinery capex and 2-3% of power plant capex goes towards stainless steel pipes, so with huge power capacity additions planned in India in next five years, power will be a major driver for stainless steel pipe demand.

Strong demand for SAW pipes in domestic market:

Greater availability of gas from KG basin and cost advantage of gas compared with other fuel, will lead to higher demand of gas in the domestic market. Current pipeline infrastructure in the country is very poor with total pipeline length of just ~10,600 km, to service the increased demand of gas the sector is going to see investments worth ~Rs 50,000 crores in next five years. In this segment also, particularly in LSAW pipes, company is targeting more in-plant work, which have higher value addition and therefore better margins.

Strong cash flow from operations and dividend payment track record:

Ratnamani has strong track record of growth in operating cash flows and dividend payment. In FY09 despite the 22% dip in profits over FY08, company’s cash flow from operations jumped by 48% on account of substantial savings on working capital front.

Key Financials:                                     (Rs. Crore)

(Source: Company, KRC Research)

Valuations:

Ratnamani, on account of its value added work in stainless steel segment, has better margins than its other pipeline peers, but is currently trading at a discount to them. Valuations also appear cheap considering historical trading range of the company. At CMP of Rs 94, stock is trading at FY10E and FY11E P/E multiple of 5.9x and 5.1x, net of cash P/E multiple of 4.7x and 3.3x, and EV/EBITDA multiple of 3.7x and 2.8x respectively. We initiate our coverage on the company with a “BUY” recommendation on the stock with target price of Rs 148, valuing the company at FY11E P/E multiple of 8x.

Disclaimer:

This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, investors are advised to satisfy themselves before making any investments. Kisan Ratilal Choksey Shares & Sec Pvt Ltd., does not bear any responsibility for the authentication of the information contained in the reports and consequently, is not liable for any decisions taken based on the same. Further, KRC Research Reports only provide information updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of KRC Investment Advisory Services. As per SEBI requirements it is stated that, Kisan Ratilal Choksey Shares & Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation.